10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                  TO                 .

COMMISSION FILE NUMBER 0-27316

MOLECULAR DEVICES CORPORATION

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)	94-2914362 (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
1311 ORLEANS DRIVE SUNNYVALE, CALIFORNIA (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)	94089 (ZIP CODE)

(408) 747-1700

(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

TITLE OF EACH CLASS

COMMON STOCK, $.001 PAR VALUE

     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [  ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No [  ]

     The aggregate market value of the voting stock held by non-affiliates of the Registrant as of June 28, 2002, based upon the last sale price reported for such date on the Nasdaq National Market, was $151,440,762.

     The number of outstanding shares of the Registrant’s Common Stock as of March 21, 2003 was 15,363,394.

DOCUMENTS INCORPORATED BY REFERENCE

     Specified portions of the Proxy Statement for Registrant’s 2003 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K Report.

* Excludes approximately 6,782,034 shares of common stock held by directors, officers and holders of 5% or more of the Registrant’s outstanding Common Stock at June 28, 2002. Exclusion of shares held by any person should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the Registrant, or that such person is controlled by or under common control with the Registrant.

TABLE OF CONTENTS

PART 1
	ITEM 1. BUSINESS
		THE COMPANY
		INDUSTRY BACKGROUND
		THE MOLECULAR DEVICES SOLUTION
		OUR PRODUCTS
		DRUG DISCOVERY PRODUCTS
		LIFE SCIENCES RESEARCH PRODUCTS
		OTHER SOFTWARE AND CUSTOMER SERVICE
		RESEARCH AND DEVELOPMENT
		MARKETING AND CUSTOMERS
		MANUFACTURING
		PATENTS AND PROPRIETARY TECHNOLOGIES
		COMPETITION
		GOVERNMENT REGULATION
		EMPLOYEES
		BUSINESS RISKS
	ITEM 2. PROPERTIES
	ITEM 3. LEGAL PROCEEDINGS
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
	ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
	ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
	ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
	ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
	ITEM 11. EXECUTIVE COMPENSATION
	ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
	ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
	ITEM 14. CONTROLS AND PROCEDURES
PART IV
	ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
SIGNATURES
CERTIFICATION
EXHIBIT INDEX
EXHIBIT 10.25
EXHIBIT 10.38
EXHIBIT 10.39
EXHIBIT 10.40
EXHIBIT 10.41
EXHIBIT 10.42
EXHIBIT 21.1
EXHIBIT 23.1
EXHIBIT 99.1

TABLE OF CONTENTS

MOLECULAR DEVICES CORPORATION

PART I
Item 1.	Business	3
	The Company	3
	Industry Background	3
	The Molecular Devices Solution	4
	Our Products	5
	Drug Discovery Products	5
	Life Sciences Research Products	7
	Other Software and Customer Service	9
	Research and Development	9
	Marketing and Customers	9
	Manufacturing	9
	Patents and Proprietary Technologies	10
	Competition	10
	Government Regulations	10
	Employees	10
	Business Risks	10
Item 2.	Properties	19
Item 3.	Legal Proceedings	19
Item 4.	Submission of Matters to a Vote of Security Holders	19
PART II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters	20
Item 6.	Selected Consolidated Financial Data	21
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	27
Item 8.	Financial Statements and Supplementary Data	27
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	27
PART III
Item 10.	Directors and Executive Officers of the Registrant	28
Item 11.	Executive Compensation	28
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	28
Item 13.	Certain Relationships and Related Transactions	28
Item 14.	Controls and Procedures	28
PART IV
Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	29
SIGNATURES		32
CERTIFICATIONS		33

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PART 1

ITEM 1. BUSINESS

THE COMPANY

     Except for the historical information contained herein, the following discussion contains “forward-looking” statements. For this purpose, any statements that are not statements of historical fact may be deemed to be forward-looking statements. Words such as “believes,” “anticipates,” “plans,” “predicts,” “expects,” “estimates,” “intends,” “will,” “continue,” “may,” “potential,” “should” and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause our results to differ materially from those indicated by these forward-looking statements, including, among others, those discussed in this section under “Business Risks” as well as under “Qualitative and Quantitative Disclosures about Market Risk” and the risks detailed from time to time in the Company’s SEC reports, including this Annual Report on Form 10-K for the year ended December 31, 2002.

     We are a leading supplier of high-performance bioanalytical measurement systems that accelerate and improve drug discovery and other life sciences research. Our systems and consumables enable pharmaceutical and biotechnology companies to leverage advances in genomics, proteomics and combinatorial chemistry by facilitating the high-throughput and cost-effective identification and evaluation of drug candidates. Our solutions are based on our advanced core technologies that integrate our expertise in engineering, molecular and cell biology and chemistry. We enable our customers to improve research productivity and effectiveness, which ultimately accelerates the complex process of discovering and developing new drugs.

     We were incorporated in California in 1983 and reincorporated in Delaware in 1995.

INDUSTRY BACKGROUND

     Life sciences research, particularly drug discovery, is currently undergoing a revolution as a result of two converging trends. Aided by the sequencing of the human genome, researchers have begun to identify a large number of previously unknown natural molecules that play a role in disease and thus are likely targets for new therapeutic products. Until recently, only a few hundred disease targets were available to drug discovery researchers. In 2000, researchers completed the sequencing of the human genome; the estimated 30,000 genes that were revealed suggest the existence of thousands of previously unknown drug targets. At the same time, advances in combinatorial chemistry have provided chemists with techniques that allow them to synthesize a greater number of and diversity of compounds than ever before. Pharmaceutical companies previously maintained “libraries” of hundreds of thousands of compounds to test against disease targets to determine their potential as drugs; now, drug researchers have access to millions of such compounds.

     The identification of disease targets and synthesis of chemical compounds are key first steps in the drug discovery process. Prior to entering clinical development, researchers undertake additional steps to determine which compounds are the most promising drug candidates. Among the most important downstream steps in the drug discovery process are assay development, drug candidate screening and lead optimization.

     Assay Development. Once a disease target has been identified, researchers must develop a test, or assay, to determine whether a particular compound has a desired effect on the target. Most assays involve creating a biochemical reaction that takes place in a microplate, which is a plate containing an array of small wells that are similar to miniature test tubes. The plate is inserted into a microplate reader, which measures the light absorbed or emitted by the sample in each well. Depending upon its underlying technology, the reader detects light in the form of absorption, fluorescence or luminescence. The type of assay developed depends upon the characteristics of the disease target and the type of information the researcher is seeking. Two major categories of assays are cell-based assays and biochemical assays. A cell-based assay measures how a target on or inside a living cell responds to a compound; in a biochemical assay, the target is isolated from the cell environment. Cell-based assays are often considered particularly valuable in predicting how well a compound is likely to function as a drug because they mimic the target’s natural function.

     Drug Candidate Screening. Once an assay has been developed, it is performed repeatedly to test the effects of a variety of compounds on the disease target, a process known as screening. Primary screening identifies “hits,” or compounds that exhibit significant activity against a target; secondary screening gathers more information on the hits to confirm and characterize their activity. Because drug companies now have a rapidly increasing number of compounds to test, they are interested in high-throughput screening, or HTS, to reduce the amount of time that is required for primary and secondary screening. Traditional bioanalytical instruments and methods were not designed for high-throughput screening, which has contributed to a bottleneck at this stage of the drug discovery process.

     Lead Optimization. Compounds that emerge from the secondary screening process, now called “leads,” are next subjected to successive rounds of additional testing and chemical manipulations to make them even more suitable as drug candidates. This process, known as lead optimization, involves a variety of tests, such as cell-based assays, that yield a higher level of biological information

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than screening assays. As drug companies generate increasing numbers of leads, bottlenecks have emerged in this stage, resulting in demand for more efficient lead optimization tools.

     After optimization, a lead compound must pass a lengthy and expensive set of pre-clinical and clinical trials before becoming a drug. Because of the substantial resources required to conduct such trials, the cost of failure is high; thus, companies are interested in tools which allow more accurate assessment of a compound’s probability of success as early as possible in the drug discovery process.

     To reduce the length and cost of the drug discovery process, researchers increasingly need tools that speed up the steps described above and increase the value of the information generated by them. Traditional bioanalytical instruments and methods do not adequately address these needs because of several limitations, including:

• Low sensitivity. One way to increase the speed of drug development is to conduct assays in high-density microplates, such that many samples can be analyzed in one equipment run. Microplates are now made in standard formats with either 96, 384 or 1,536 wells; the more wells there are, the smaller the sample volume in each well. Reading very small-volume samples requires a higher level of sensitivity than is available in most traditional detection equipment.

• Lack of automation. Throughput is often enhanced by incorporating automation into the drug discovery process. Some assays that provide high levels of information, such as live cell-based assays, require a particularly high degree of automation to run efficiently. For example, gaining certain kinetic data from a live cell assay, which is valuable in lead optimization, requires integrated liquid handling equipment so that compounds can be added to the cells and the detector can read the result of the assay almost instantaneously. Traditionally, many bioanalytical instruments have not been designed to integrate easily with automation equipment.

• Assay complexity. Many assays in use today are performed in a complex, multi-step process and are expensive, time-consuming and difficult to adapt to a high-throughput mode of operation. Thus, researchers are interested in assay formats that yield as much information as traditional assays but follow simplified protocols.

     The proliferation in disease targets and chemical compounds coupled with the limitations of traditional technologies have created bottlenecks at each of the downstream steps of the drug discovery process which our products are specifically designed to address.

THE MOLECULAR DEVICES SOLUTION

     We offer a full range of high-performance bioanalytical systems that address the sensitivity, automation and assay complexity challenges currently faced by researchers. We had revenues of $102.2 million in 2002, $92.2 million in 2001, and $96.0 million in 2000. Our major products possess levels of detection sensitivity that enable the analysis of high-density microplates, thereby increasing throughput. These products also include, or are easily integrated with, automation equipment to further enhance throughput and allow complex assays to be performed with high efficiency. Additionally, we develop novel assays that simplify the process of obtaining key information about the activity of drug candidates; in particular, we are an industry leader in providing technologies for performing information-rich live cell assays in high-throughput mode.

     We group our product offerings into two categories based on the markets that are primarily served by each. Our Drug Discovery products include four major families of products: our Fluorometric Imaging Plate Reader, or FLIPR®, system, our multimode Analyst system, our IonWorks™ automated electrophysiology system and our Discovery-1 cellular imaging system. In addition to high performance instrumentation, we offer reagent kits that enable researchers to perform popular assays with higher-throughput than can be achieved using conventional technologies. Our Drug Discovery product family also includes our Chemiluminescence Imaging Plate Reader, or CLIPR, system, which performs live cell analysis at an ultra high-throughput rate. Together, our Drug Discovery products provide a wide array of solutions for both biochemical and cell-based research in the high-throughput screening and lead optimization market segments.

     Our Life Sciences Research products include our Maxline™ family of microplate readers, our FlexStation system, our Skatron liquid handling systems, our Threshold® system and our MetaMorph™ line of cellular imaging software. Maxline microplate readers primarily address the assay development market and offer the assay development scientist nine differentiated instruments that include a wide range of innovative and flexible feature sets. We are widely perceived as a leader in microplate reader technology, and we believe that we have been the first to offer a number of innovative features into the premium end of the microplate reader market. FlexStation is a benchtop workstation that combines fluorescence detection with integrated fluidics, allowing researchers to perform the type of assays enabled by FLIPR in a lower-throughput, less expensive format. Skatron liquid handling systems facilitate assays by dispensing liquids into microplates and washing microplate wells, a key step in many of the most widely used laboratory tests. Our Threshold system is aimed at the biopharmaceutical manufacturing and quality control process, and we believe that the Threshold system is the only commercially available fully integrated system that rapidly and reproducibly detects potential contaminants with picogram level sensitivity. Finally, MetaMorph is a market-leading suite of software products that allows researchers to perform a wide range of sophisticated analyses on cellular images.

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OUR PRODUCTS

DRUG DISCOVERY PRODUCTS

     Our Drug Discovery systems, which represented 45% of our total revenues in 2002, 48% of our total revenues in 2001 and 51% of our total revenues in 2000, are used to perform both biochemical and cell-based assays and are primarily targeted toward high-throughput screening and lead optimization.

FLIPR System

     Our FLIPR system satisfies a key demand from pharmaceutical companies for live cell analysis at a high-throughput rate. Many therapeutic drugs are targeted to cell membrane receptors: special proteins that function as control switches for cell activity and are triggered by the specific binding of soluble natural substances to relay messages to the cell via “signal transduction” mechanisms. Therapeutic drugs which act on receptors either mimic or block the action of the natural receptor-specific substance. The therapeutic potential of such drugs is, therefore, most appropriately studied using live cell systems. These studies are inherently challenging, but a high value is placed upon them by the pharmaceutical industry and the research community.

     Our FLIPR was the first instrument to enable high-throughput screening of live cells with high information content on cellular activation. The primary applications for our FLIPR system are the measurement of intracellular calcium ion flux and membrane potential change, both of which provide critical information on the activation of cells by test compounds.

     In our FLIPR system, cells, along with appropriate fluorescent dyes, are maintained in microplates in a thermally-controlled compartment together with compound-addition plates. Fluorescence activity is evaluated before, during and after delivery of compounds to the wells to evaluate the effect of compounds on the cells. Laser light provides excitation illumination to the wells and fluorescence from the cells on the bottom of the wells is quantified with an electronic camera. During the reading cycle, a built-in pipettor transfers compound samples from the compound-addition plate to the cell plate and the reaction is continuously monitored by an ultrasensitive charge coupled device, a CCD camera, at intervals of less than one second. This strategy allows for real-time monitoring of cells before and after compound addition, thus allowing the measurement of rapid, non-linear response kinetics. Our FLIPR system’s limited depth-of-field fluorometry optical design is patented. We currently offer two primary products based on our FLIPR technology platform.

• FLIPR². This product is the second generation FLIPR product. It combines all of the benefits of the original FLIPR along with new automation capabilities and the ability to analyze samples in both 384 well and 96 well microplates. FLIPR² can screen as many as 50,000 samples daily, and offers optional integrated plate stacker and washer accessories which can dramatically reduce the need for human intervention during sample processing. In addition, the instrument also incorporates interfaces that enable it to integrate into automated screening lines.

• FLIPR³. The third generation FLIPR product, FLIPR³ is a more sensitive, higher-throughput version of FLIPR². It also incorporates a new detection mode, luminescence, expanding the menu of applications that can be performed on the FLIPR platform.

Analyst System

     Our Analyst family of products complements our other drug discovery offerings by providing industry-leading flexibility and throughput for a wide range of biochemical assays. Instruments in this family include the Analyst AD, Analyst HT and Analyst GT, each of which features several different readout modalities, allowing customers to choose the one that is optimal for their particular screen. One of these readout modalities, fluorescence polarization, has become popular in recent years because it enables assays to be performed with greatly simplified protocols. We were pioneers in developing the market for fluorescence polarization, and our proprietary High Efficiency Fluorescence Polarization (HEFP™) technology is incorporated into the Analyst platform. Our HEFP technology enables miniaturized biochemical assays to be performed in a single step, a significant advantage over traditional biochemical assays.

     Analyst provides several important customer benefits, including: increased throughput, improved analytical performance and flexibility (especially in higher density formats), lower reagent costs and compatibility with automation equipment. Analyst HT, launched in 1998, performs up to 70,000 screens per day. In 1999, we launched Analyst AD, which was designed specifically for assay development and is fully compatible with Analyst HT. ScreenStation, launched in 2001, integrates assay assembly and detection capabilities, allowing highly automated screening on the Analyst platform. In 2002, we introduced the next generation of the Analyst platform, Analyst GT, a highly sensitive instrument capable of screening over 400,000 wells per day.

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IonWorks HT

     In 2002, we launched IonWorks HT, a first-of-a-kind product for drug discovery. Like our FLIPR system, IonWorks HT addresses a key demand of pharmaceutical companies for live cell analysis with substantially improved throughput. For years researchers have sought more efficient ways to study ion channels, an important class of drug targets. Traditionally, the best information on ion channel activity has been obtained through patch clamping, a time-consuming, low-throughput method that is best performed by highly skilled scientists. The few higher-throughput alternatives that are available use indirect methods to assay ion channels, an approach that yields less useful data than patch clamping. IonWorks HT is an automated system that obtains the same high-quality information from cells as conventional patch clamping, but at a much faster rate and requiring far less operator skill. While traditional patch clamping may allow researchers to test only 5-15 compounds per day, IonWorks HT operates at speeds of up to 3,000 data points per day. The system consists of an instrument and a proprietary consumable, the PatchPlate.

Discovery-1

     Discovery-1, our first generation high-throughput, high-resolution imaging instrument, was developed by our Universal Imaging Corporation (“UIC”) subsidiary. The system comprises instrumentation and a specialized version of our MetaMorph software, which together enable the automated imaging and analysis of individual cells in microwell plates. As cell-based assays become more important and attention shifts from genomics to the study of the activity of proteins within cells, high-throughput visualization of cellular events is increasingly in demand by drug discovery customers. Researchers generally use microscopes to view such intracellular events, using software such as MetaMorph to capture and analyze the images they obtain. However, in a drug screening environment, higher-throughput is required than can be achieved through traditional microscope studies. Discovery-1 automates the process of acquiring detailed images of individual cells and allows researchers to do so in the automation-friendly format of a microwell plate. The MetaMorph software that is included in the Dicovery-1 system provides efficient and flexible analysis of the complex images captured by the instrument.

CLIPR System

     Our Chemiluminescence Imaging Plate Reader, or CLIPR, system was introduced in 1999. It satisfies a key demand from pharmaceutical companies for live cell analysis at an ultra high-throughput rate using luminescence technology. This allows customers to perform popular assays, such as those involving reporter genes, at rates of up to 200,000 wells per day. CLIPR’s applications also include non-cell-based assays such as SPA, which is among the most frequently-performed tests in the drug discovery market. These applications complement those of our other Drug Discovery systems, offering solutions for a wide range of biochemical and cell-based assays.

Drug Discovery Reagents

     We are expanding our reagent business by focusing on the internal development of proprietary reagent kits optimized for our Drug Discovery instruments. We have historically developed and produced reagent kits for our Threshold systems, and in 1999 we began to sell consumables for our installed base of Drug Discovery instruments with the introduction of kits for performing important assays on FLIPR, CLIPR and Analyst. Our reagent business is supported by a reagent development and marketing team, in-house organic chemistry labs and significant reagent production capacity. Our current Drug Discovery reagent offerings include the following four product families:

• FLIPR Assay Kits. This product family includes the FLIPR Calcium Flux Kit, the FLIPR Calcium Plus Kit and the FLIPR Membrane Potential Kit, products that have revolutionized the way FLIPR assays are performed. The unique feature of these kits is that they enable researchers to eliminate a step in the assay protocol, thereby saving up to 15 minutes of processing time for each 384 well plate. These kits can significantly increase throughput, reduce costs and increase screening efficiency. The FLIPR Calcium Flux Kit addresses the most popular assay performed on the FLIPR system, a test for detecting the activation of GPCRs, a major category of drug targets. The FLIPR Calcium Plus Kit extends the applicability of this assay by allowing researchers to test problematic but important targets such as chemokines and small peptides. In addition, this kit offers a significant improvement in data quality compared to traditional methods. The FLIPR Membrane Potential Assay Kit allows researchers to measure changes in the electrical potential of live cell membranes, a key indicator of ion channel activity.

• IMAP Assay Kits. A proprietary bead-based platform, IMAP allows researchers to determine the activity of kinases, phosphatases and phosphodiesterases in a simple, non-radioactive format. We introduced the first two kits based on this technology in 2001; in 2002, we introduced an additional 16 kits. In addition to the kits, the IMAP platform is also available to customers through our technology access program, which allows researchers to apply this extremely flexible technology to a wide variety of protein kinase targets.

• HEFP™ Assay Kits. This family of kits is optimized for use on the Analyst platform and includes the STX-1 Assay kit for measuring the activity of serine/threonine kinases, the TKXtra Assay Kit for detecting additional kinases, and the cAMP Assay Kit for measuring an important indicator of cellular signaling.

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• CatchPoint™ Assay Kits. These kits use a more sensitive and simpler format than traditional methods and are designed for use on both our Gemini instruments and our Analyst platform. This product line includes assay kits for cAMP, cGMP and tyrosine kinase.

LIFE SCIENCES RESEARCH PRODUCTS

     Our Life Sciences Research products, which represented 55% of total revenues in 2002, 52% of total revenues in 2001 and 49% of total revenues in 2000, encompass our Maxline, FlexStation, Skatron, Threshold and MetaMorph product lines. The Maxline and FlexStation family of products consists primarily of advanced microplate readers. Microplate readers have become one of the most fundamental tools used in life sciences research by addressing the increasing need for the acquisition and processing of large quantities of biochemical and biological data. Microplate readers provide scientists the benefit of high-throughput analysis in a standardized, multi-sample format. Because of the productivity gains using a multi-sample format, microplates have largely replaced test tubes and cuvettes for many life sciences applications.

     A microplate is a disposable plastic vessel that is used with a microplate reader to measure light. The basic principles of microplate readers are that light from an appropriate source is directed to a wavelength selection device, such as a monochromator, and its intensity is measured before and after passing through each of the sample wells of a microplate. Application of a mathematical formula to the light intensity measurements of each microplate well provides a measure of the sample present in the well. The measurement, known as optical density, relative fluorescence, or luminescence, is proportional to the concentration of the substance that is being measured. Historically, the standard microplate was comprised of 96 individual wells. As cost and throughput have become increasingly important, however, the industry has begun to move to higher density plates including 384 wells and 1536 wells. We believe that this trend towards miniaturization will continue to be a significant factor affecting the microplate reader market in the future.

Maxline Detection Systems

     Our Maxline strategy has been to continue to introduce new products that include first-of-a-kind features, as well as to offer varying feature sets and price points to address different market segments. We have historically focused on the premium end of the microplate reader market through offering products with advanced capabilities. Some of the first-of-a-kind features that we have pioneered include the first reader and software capable of kinetic analysis, the first monochromator-based reader that enabled continuous wavelength selection and the first reader capable of performance comparable to a spectrophotometer. In each case, we believe that the innovation helped expand the utility of microplate readers and, more broadly, the available market for microplate readers. Our Maxline family currently includes the following primary products:

• Emax. This product is aimed at the market for traditional microplate readers that do not require kinetic capability. We introduced it to provide a reader for customers in academia and other customers with restricted capital budgets.

• Vmax. This was the first microplate reader to offer kinetic read capability and is designed to address the needs of biochemists.

• VERSAmax. The VERSAmax is our low cost variable wavelength offering that provides kinetic capability and temperature control.

• SPECTRAmax 340PC³⁸⁴. This product is a visible range microplate spectrophotometer, offering tunability and the additional capability of our patented PathCheck Sensor technology, which corrects common variability problems across wells of microplates.

• SPECTRAmax 190. The predecessor to this product was the world’s first microplate reader that incorporated a monochromator for continuous wavelength selection. Wavelength selection provides for enhanced convenience and flexibility in assay design. In addition, the SPECTRAmax 190 also includes our patented PathCheck Sensor technology.

• SPECTRAmax PLUS³⁸⁴. The SPECTRAmax PLUS³⁸⁴ combines the high-throughput of a microplate reader with the performance of a cuvette-based spectrophotometer as a result of our patented PathCheck Sensor technology. It is capable of reading wavelengths as short as 190 nanometers and as long as 1,000 nanometers, the equivalent range to a spectrophotometer, and is compatible with both 96-well and 384-well microplates.

• SPECTRAmax GEMINI XS. SPECTRAmax GEMINI was the world’s first dual-scanning microplate spectrofluorometer. By incorporating two scanning monochromators, the GEMINI allows the user to automatically optimize the instrument setting for the particular assay characteristics as well as for every fluorophore that is in use today. GEMINI also was our first microplate reader capable of multi-mode operation, in that the product is capable of fluorescence, luminescence and time-resolved fluorescence measurements. The GEMINI XS (Extra Sensitive), introduced in 2000, extends the GEMINI franchise by significantly improving sensitivity and adding well scanning capability which allows researchers to perform more complex cell based assays.

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• SPECTRAmax GEMINI EM. The GEMINI EM expands the capabilities of the GEMINI XS through several new features, including the ability to read microplates from either the top or the bottom. These features expand the menu of applications that can be performed on the GEMINI platform to include cell-based assays.

• SPECTRAmax LMax. SPECTRAmax LMax is our first reader to offer customers sensitive luminescence detection in a bench-top instrument.

FlexStation

     Our FlexStation system is a benchtop workstation that integrates liquid handling and detection and has applications in drug discovery as well as life sciences research. This product offers flexibility to address a wide range of research applications by combining both multi-channel, plate-to-plate fluid transfer and fluorescence measurement in one system. For drug discovery applications, FlexStation can play a key role in reducing assay development bottlenecks by providing a convenient means of developing assays for later transfer to higher-throughput screening. For basic and applied research in life sciences, the flexibility of this system enables scientists to develop, optimize, and run their assays on one system with the same small footprint as a standard benchtop microplate reader.

     We offer three proprietary reagent kits that are based on our successful FLIPR assay technology and are optimized to perform on the FlexStation system. These products are our FlexStation Calcium Flux Assay Kit, FlexStation Calcium Plus Assay Kit and FlexStation Membrane Potential Assay Kit.

Skatron

     We acquired a line of liquid handling systems, primarily washers, through our acquisition of Skatron Instruments AS in 1999. Washers are used to dispense and remove fluid from microwell plates and are used as an integral step during the course of many assays. The Skatron products bring a complete line of state-of-the-art microwell plate washers and other related tools, including cell harvesters, to the Life Sciences Research product family. These products include a variety of cell and plate washers that offer 96, 384 and 1536 well dispensing and washing capabilities.

Threshold System

     Our Threshold system is comprised of a detection instrument and proprietary reagents. Our Threshold system incorporates our LAPS technology to quantitate a variety of biomolecules such as DNA, proteins and mRNA rapidly and accurately. The demand for systems which can quantitate contaminants in the manufacturing and quality control of bioengineered products is a result of the growing number of biopharmaceutical therapeutics both entering clinical trials and receiving regulatory approval for commercial sale. The Threshold system emerged from a need by biopharmaceutical companies for more sensitive and reproducible methods to detect contaminants in biopharmaceuticals during the manufacturing and quality control process. Traditional detection methods, such as DNA hybridization, can be slow, difficult to use in a manner that provides reproducible and transferable results, and often require the use of radioactive materials for detection. We believe that the Threshold system is the only commercially available, fully-integrated system capable of rapidly and accurately quantitating DNA with picogram level sensitivity. The Threshold family of products includes a workstation, software and consumable reagent kits.

MetaMorph Software

     MetaMorph is a suite of software products for the acquisition and analysis of detailed cellular images. The software works in tandem with microscope and camera systems to acquire images of cells; once acquired, the images can be quantified and analyzed in a variety of ways. The product family, developed by our UIC subsidiary, consists of the following software packages:

•     MetaMorph. The latest version of UIC’s flagship product is a state-of-the-art software package for capturing and analyzing cellular images. MetaMorph’s functions include control of a wide variety of imaging devices as well as a large menu of tools for image processing and analysis.

•     MetaFluor. MetaFluor software allows researchers to image and analyze ratiometric indicators of intracellular events.

•     MetaVue. A lower-cost version of MetaMorph, MetaVue is an entry-level product tailored to common imaging applications.

     We sell MetaMorph software either as a stand-alone product or as part of an integrated system including a camera, software and peripherals. We are an authorized reseller of cameras and peripheral equipment for several major manufacturers including Nikon and Roper. Additionally, we have authorized several value-added resellers, who integrate multiple components to create complete imaging systems, to distribute MetaMorph.

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OTHER SOFTWARE AND CUSTOMER SERVICE

     All of our instrument products incorporate internally designed and developed software which are sold as an integral part of the instrument system. We believe that our software is an important differentiator for our instrument products relative to the competition based on its ease-of-use and advanced data analysis capabilities.

     Our service and support offerings include field service, customer support, applications assistance and training through an organization of factory-trained and educated service and application support personnel around the world. We offer services to our installed base of customers on both a contract and time and materials basis and we offer a variety of post-warranty contract options for all our instrument offerings that customers may purchase. Our installed base provides us with stable, recurring after-market service and support revenue, as well as product upgrade and replacement opportunities.

RESEARCH AND DEVELOPMENT

     Our research and development team included 117 full time employees as of December 31, 2002. We have typically invested 16% to 21% of our revenues in research and development, which has resulted in a strong track record of technological innovation. 72% of our revenues in 2002 were derived from products that we introduced in the last three years. Our research and development expenditures were approximately $18.0 million in 2002, $15.1 million in 2001 and $16.8 million in 2000.

     Our research and development activities are focused on:

• broadening our technology solution, including development of new proprietary reagent kits and additional solutions for automated cell electrophysiology measurements;

• providing more sensitive quantitative evaluation of biological events;

• providing greater throughput capability, especially with smaller sample volumes; and

• developing increasingly sophisticated data management and analysis capability.

MARKETING AND CUSTOMERS

     Our sales and marketing organization included 158 full time employees in North America, Europe and Japan as of December 31, 2002. We distribute our products primarily through direct sales representatives in North America. We have subsidiaries in the United Kingdom, Germany and Japan responsible for selling and servicing our products. Our direct sales effort is supported by a team of service, technical and applications specialists employed by us. We also sell our products through international distributors, most of which enter into distribution agreements with us that provide for exclusive distribution arrangements and minimum purchase targets. Such agreements also generally prohibit the distributors from designing, manufacturing, promoting or selling any products that are competitive with our products.

     Our customers include leading pharmaceutical and biotechnology companies as well as medical centers, universities, government research laboratories and other institutions throughout the world. No single customer accounted for more than 5% of our total 2002 revenues.

     Sales to customers outside the United States accounted for 39%, 36% and 37% of total revenues and total sales denominated in foreign currencies accounted for 31%, 31% and 20% of total revenues in 2002, 2001 and 2000, respectively. We anticipate that international sales will account for an increasing percentage of revenues in the future. We expect to continue expanding our international operations in order to take advantage of increasing international market opportunities resulting from worldwide growth in the life sciences industry.

MANUFACTURING

     We manufacture our products at our facilities in Sunnyvale, California and Norway. Both of these facilities are ISO 9001 certified. We assemble the Discovery-1 system at our facility in Downingtown, Pennsylvania. We manufacture our own components where we believe it adds significant value, but we rely on suppliers for the manufacture of selected components and subassemblies, which are manufactured to our specifications. We conduct all final testing and inspection of our products. We have established a quality control program, including a set of standard manufacturing and documentation procedures intended to ensure that, where required, our instruments are manufactured in accordance with Good Manufacturing Practices.

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PATENTS AND PROPRIETARY TECHNOLOGIES

     We protect our proprietary rights from unauthorized use by third parties to the extent that our proprietary rights are covered by valid and enforceable patents or are effectively maintained as trade secrets. Patents and other proprietary rights are an essential element of our business. Our policy is to file patent applications and to protect technology, inventions and improvements to inventions that are commercially important to the development of our business. As of December 31, 2002, we were maintaining 57 U.S. patents and other corresponding foreign patents based on our discoveries that have been issued or allowed. These patents expire at various dates between 2003 and 2018. In addition, as of that date, we had 38 patent applications pending in the United States and had filed several corresponding foreign patent applications.

     We are a party to various license agreements that give us rights to use certain technologies. We pay royalties to the parties from which we licensed or acquired the core technologies.

     We also rely on trade secret, employee and third-party nondisclosure agreements and other protective measures to protect our intellectual property rights pertaining to our products and technology.

COMPETITION

     The market for life sciences instrumentation is highly competitive, and we expect competition to increase. We compete for the allocation of customer capital funds with many other companies marketing capital equipment, including those not directly competitive with any of our products. Some of our products also compete directly with similar products from other companies.

     The life sciences research market is characterized by intense competition among a number of companies, including Bio-Tek Instruments, PerkinElmer, Tecan and Thermo Electron, that offer, or may in the future offer, products with performance capabilities generally similar to those offered by our products. We expect that competition is likely to increase in the future, as several current and potential competitors have the technological and financial ability to enter the microplate reader market. Our Maxline products are generally priced at a premium to other microplate readers. We compete in the microplate reader market primarily on the basis of performance and productivity. Many companies, research institutions and government organizations that might otherwise be customers for our products employ methods for bioanalytical analysis that are internally developed.

     The drug discovery market is also characterized by intense competition among a number of companies, including Amersham Biosciences, Applied Biosystems, PerkinElmer and Tecan, that offer, or may in the future offer, products with performance capabilities generally similar to those offered by our products. We believe that the primary competitive factors in the market for our products are throughput, quantitative accuracy, breadth of applications, ease-of-use, productivity enhancement, quality, support and price/performance. We believe that we compete favorably with respect to these factors.

     Many of our competitors have significantly greater financial, technical, marketing, sales and other resources than we do. In addition to competing with us with respect to product sales, these companies and institutions compete with us in recruiting and retaining highly qualified scientific and management personnel.

GOVERNMENT REGULATION

     In the United States, the development, manufacturing, distribution, labeling and advertising of products intended for use in the diagnosis of disease or other conditions is extensively regulated by the U.S. Food and Drug Administration, known as the FDA. These products generally require FDA clearance before they may be marketed, and also are subject to postmarket manufacturing, reporting and labeling requirements. With the exception of certain of our Maxline microplate readers, none of our products is intended for use in the diagnosis of disease or other conditions, and, therefore, they are not currently subject to FDA regulation. The Maxline readers intended for diagnostic uses are the subject of an FDA marketing clearance. If we were to offer any of our other products for diagnostic uses, those products would become subject to FDA regulation.

EMPLOYEES

     As of December 31, 2002, we employed 433 persons full time, including 117 in research and development, 119 in manufacturing, 158 in marketing and sales and 39 in general administration and finance. Of these employees, 85 hold Ph.D. or other advanced degrees. None of our employees is covered by collective bargaining agreements, and we consider relations with our employees to be good.

BUSINESS RISKS

     Our business faces significant risks and the risks described below may not be the only risks we face. Additional risks that we do not know of or that we currently think are immaterial may also impair our business operations. If any of the events or circumstances described in the following risks actually occurs, our business, financial condition or results of operations could be harmed and the trading price of our common stock could decline.

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VARIATIONS IN THE AMOUNT OF TIME IT TAKES FOR US TO SELL OUR PRODUCTS AND COLLECT ACCOUNTS RECEIVABLE AND THE TIMING OF CUSTOMER ORDERS MAY CAUSE FLUCTUATIONS IN OUR OPERATING RESULTS, WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE.

     The timing of capital equipment purchases by customers has been and is expected to continue to be uneven and difficult to predict. Our products represent major capital purchases for our customers. The list prices for our instruments range from $5,000 to $494,500. Accordingly, our customers generally take a relatively long time to evaluate our products, and a significant portion of our revenues is typically derived from sales of a small number of relatively high-priced products. Purchases are generally made by purchase orders and not long-term contracts. Delays in receipt of anticipated orders for our relatively high priced products could lead to substantial variability from quarter to quarter. Furthermore, we have historically received purchase orders and made a significant portion of each quarter’s product shipments near the end of the quarter. If that pattern continues, even short delays in the receipt of orders or shipment of products at the end of a quarter could have a materially adverse affect on results of operations for that quarter.

     We expend significant resources educating and providing information to our prospective customers regarding the uses and benefits of our products. Because of the number of factors influencing the sales process, the period between our initial contact with a customer and the time when we recognize revenues from that customer, if ever, varies widely. Our sales cycles typically range from three to six months, but can be much longer. During these cycles, we commit substantial resources to our sales efforts in advance of receiving any revenues, and we may never receive any revenues from a customer despite our sales efforts.

     The relatively high purchase price for a customer order contributes to collection delays that result in working capital volatility. While the terms of our sales orders generally require payment within 30 days of product shipment and do not provide return rights, in the past we have experienced significant collection delays. We cannot predict whether we will continue to experience similar or more severe delays.

     The capital spending policies of our customers have a significant effect on the demand for our products. Those policies are based on a wide variety of factors, including resources available to make purchases, spending priorities, and policies regarding capital expenditures during industry downturns or recessionary periods. Any decrease in capital spending by our customers resulting from any of these factors could harm our business.

WE DEPEND ON ORDERS THAT ARE RECEIVED AND SHIPPED IN THE SAME QUARTER AND THEREFORE HAVE LIMITED VISIBILITY OF FUTURE PRODUCT SHIPMENTS.

     Our net sales in any given quarter depend upon a combination of orders received in that quarter for shipment in that quarter and shipments from backlog. Our products are typically shipped within 30 to 90 days of purchase order receipt. As a result, we do not believe that the amount of backlog at any particular date is indicative of our future level of sales. Our backlog at the beginning of each quarter does not include all product sales needed to achieve expected revenues for that quarter. Consequently, we are dependent on obtaining orders for products to be shipped in the same quarter that the order is received. Moreover, customers may reschedule shipments, and production difficulties could delay shipments. Accordingly, we have limited visibility of future product shipments, and our results of operations are subject to significant variability from quarter to quarter.

MANY OF OUR CURRENT AND POTENTIAL COMPETITORS HAVE SIGNIFICANTLY GREATER RESOURCES THAN WE DO, AND INCREASED COMPETITION COULD IMPAIR SALES OF OUR PRODUCTS.

     We operate in a highly competitive industry and face competition from companies that design, manufacture and market instruments for use in the life sciences research industry, from genomic, pharmaceutical, biotechnology and diagnostic companies and from academic and research institutions and government or other publicly-funded agencies, both in the United States and abroad. We may not be able to compete effectively with all of these competitors. Many of these companies and institutions have greater financial, engineering, manufacturing, marketing and customer support resources than we do. As a result, our competitors may be able to respond more quickly to new or emerging technologies or market developments by devoting greater resources to the development, promotion and sale of products, which could impair sales of our products. Moreover, there has been significant merger and acquisition activity among our competitors and potential competitors. These transactions by our competitors and potential competitors may provide them with a competitive advantage over us by enabling them to rapidly expand their product offerings and service capabilities to meet a broader range of customer needs. Many of our customers and potential customers are large companies that require global support and service, which may be easier for our larger competitors to provide.

     We believe that competition within the markets we serve is primarily driven by the need for innovative products that address the needs of customers. We attempt to counter competition by seeking to develop new products and provide quality products and services that meet customers’ needs. We cannot assure you, however, that we will be able to successfully develop new products or that our existing or new products and services will adequately meet our customers’ needs.

     Rapidly changing technology, evolving industry standards, changes in customer needs, emerging competition and frequent new product and service introductions characterize the markets for our products. To remain competitive, we will be required to develop

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new products and periodically enhance our existing products in a timely manner. We are facing increased competition as new companies entering the market with new technologies compete, or will compete, with our products and future products. We cannot assure you that one or more of our competitors will not succeed in developing or marketing technologies or products that are more effective or commercially attractive than our products or future products, or that would render our technologies and products obsolete or uneconomical. Our future success will depend in large part on our ability to maintain a competitive position with respect to our current and future technologies, which we may not be able to do. In addition, delays in the launch of our new products may result in loss of market share due to our customers’ purchases of competitors’ products during any delay.

IF WE ARE NOT SUCCESSFUL IN DEVELOPING NEW AND ENHANCED PRODUCTS, WE MAY LOSE MARKET SHARE TO OUR COMPETITORS.

     The life sciences instrumentation market is characterized by rapid technological change and frequent new product introductions. 72% of our revenues in 2002 were derived from the sale of products that were introduced in the last three years, and our future success will depend on our ability to enhance our current products and to develop and introduce, on a timely basis, new products that address the evolving needs of our customers. We may experience difficulties or delays in our development efforts with respect to new products, and we may not ultimately be successful in developing or commercializing them, which would harm our business. Any significant delay in releasing new systems could cause our revenues to suffer, adversely affect our reputation, give a competitor a first-to-market advantage or cause a competitor to achieve greater market share. In addition, our future success depends on our continued ability to develop new applications for our existing products. If we are not able to complete the development of these applications, or if we experience difficulties or delays, we may lose our current customers and may not be able to attract new customers, which could seriously harm our business and our future growth prospects.

WE MUST EXPEND A SIGNIFICANT AMOUNT OF TIME AND RESOURCES TO DEVELOP NEW PRODUCTS, AND IF THESE PRODUCTS DO NOT ACHIEVE COMMERCIAL ACCEPTANCE, OUR OPERATING RESULTS MAY SUFFER.

     We expect to spend a significant amount of time and resources to develop new products and refine existing products. In light of the long product development cycles inherent in our industry, these expenditures will be made well in advance of the prospect of deriving revenues from the sale of new products. Our ability to commercially introduce and successfully market new products is subject to a wide variety of challenges during this development cycle that could delay introduction of these products. In addition, since our customers are not obligated by long-term contracts to purchase our products, our anticipated product orders may not materialize, or orders that do materialize may be canceled. As a result, if we do not achieve market acceptance of new products, our operating results will suffer. Our products are also generally priced higher than competitive products, which may impair commercial acceptance. We cannot predict whether new products that we expect to introduce will achieve commercial acceptance.

     We currently anticipate that our IonWorks product family will include in the near term our recently launched IonWorks HT system and an additional IonWorks system based on technology acquired through the acquisition of Cytion S.A. Our IonWorks product family may not achieve significant commercial acceptance or generate significant revenues within the time frame that we have anticipated, or at all. Any such failure would adversely affect our financial performance. In particular, we recently launched our IonWorks HT system. This system has not achieved, and may not achieve or maintain, significant commercial acceptance. The system could fail to obtain significant commercial acceptance due to general economic conditions, competitive conditions, customer concerns related to the price or performance of the IonWorks HT system or other factors. In addition, we recently commenced the process of transferring the production of PatchPlates, a component of our IonWorks HT system, from the current manufacturer to in-house manufacturing. Any problems or delays in this transfer could adversely affect the ability of the IonWorks HT system to achieve or maintain significant commercial acceptance. It is likely that any failure of the IonWorks HT system to achieve commercial acceptance within the time frame that we have anticipated would cause us to fail to meet our previously stated 2003 revenue expectations, which would likely cause our stock price to decline.

     The successful commercialization of our IonWorks product family, as well as the achievement of the benefits of our 2001 acquisition of Cytion, will depend in part on our ability to develop new products that include technology acquired through the acquisition of Cytion, or enhancements thereto, in a timely and efficient manner. Failure to develop new products in a timely and efficient manner, or at all, may prevent us from offering first-to-market products in segments of the electrophysiology market. As a result, we may lose customers, and our business and results of operations may be harmed. In January 2003, we initiated activities associated with the closure of the Cytion facility in Switzerland and the integration of Cytion’s technology and operations into operations located at our other facilities. In addition to the costs and potential delays associated with this facility closure, the closure may adversely impact our ability to successfully develop products that include technology acquired through the acquisition of Cytion, or enhancements thereto. Further, while we believe that the technology acquired through the acquisition of Cytion complements our IonWorks HT system, we may not be able to develop and commercialize any new products that include technology acquired through the acquisition of Cytion and are complementary to the IonWorks HT system. Any failure to develop new products that include technology acquired through the acquisition of Cytion, or enhancements thereto, in a timely and efficient manner, or at all, or any failure of such products to achieve commercial acceptance within the time frame that we have anticipated would adversely affect our business and financial performance.

WE OBTAIN SOME OF THE COMPONENTS AND SUBASSEMBLIES INCLUDED IN OUR SYSTEMS FROM A SINGLE SOURCE OR A LIMITED GROUP OF SUPPLIERS, AND THE PARTIAL OR COMPLETE LOSS OF ONE OF THESE SUPPLIERS COULD CAUSE PRODUCTION DELAYS AND A SUBSTANTIAL LOSS OF REVENUES.

     We rely on outside vendors to manufacture many components and subassemblies. Certain components, subassemblies and services necessary for the manufacture of our systems are obtained from a sole supplier or limited group of suppliers, some of which are our competitors. Additional components, such as optical, electronic and pneumatic devices, are currently purchased in configurations specific to our requirements and, together with certain other components, such as computers, are integrated into our products. We maintain only a limited number of long-term supply agreements with our suppliers.

     Our reliance on a sole or a limited group of suppliers involves several risks, including the following:

• we may be unable to obtain an adequate supply of required components;

• we have reduced control over pricing and the timely delivery of components and subassemblies; and

• our suppliers may be unable to develop technologically advanced products to support our growth and development of new systems.

     Because the manufacturing of certain of these components and subassemblies involves extremely complex processes and requires long lead times, we may experience delays or shortages caused by suppliers. We believe that alternative sources could be obtained and qualified, if necessary, for most sole and limited source parts. However, if we were forced to seek alternative sources of supply or to manufacture such components or subassemblies internally, we may be forced to redesign our systems, which could prevent us from shipping our systems to customers on a timely basis. Some of our suppliers have relatively limited financial and other resources. Any inability to obtain adequate deliveries, or any other circumstance that would restrict our ability to ship our products, could damage relationships with current and prospective customers and could harm our business.

     For example, we rely on a single supplier, Essen Instruments, for the PatchPlate consumable that is part of the IonWorks HT. We decided in 2002 to bring the production of PatchPlates in-house, and Essen is assisting us in transferring their PatchPlate manufacturing technology to us. We have purchased from Essen the inventory we believe is sufficient to meet our needs for PatchPlates until we commence production on our own. However, we may not have sufficient inventory and until we have successfully completed the transfer of the technology and commenced in-house manufacturing on a commercial scale, we will continue to rely on Essen as our sole supplier of PatchPlates. Any failures by Essen to meet our requirements for PatchPlates could harm our business.

WE MAY ENCOUNTER MANUFACTURING AND ASSEMBLY PROBLEMS OR DELAYS, WHICH COULD RESULT IN LOST REVENUES.

     We assemble our systems in our manufacturing facilities located in Sunnyvale, California, Downington, Pennsylvania, and Norway. Our manufacturing and assembly processes are highly complex and require sophisticated, costly equipment and specially designed facilities. As a result, any prolonged disruption in the operations of our manufacturing facilities could seriously harm our ability to satisfy our customer order deadlines. If we cannot deliver our systems in a timely manner, our revenues will likely suffer.

     Our product sales depend in part upon manufacturing yields. We currently have limited manufacturing capacity and experience variability in manufacturing yields. We are currently manufacturing high-throughput instruments in-house, in limited volumes and with largely manual assembly. If demand for our high-throughput instruments increases, we will either need to expand our in-house manufacturing capabilities or outsource to other manufacturers. If we fail to deliver our products in a timely manner, our relationships with our customers could be seriously harmed, and revenues would decline.

     As we develop new products, we must transition the manufacture of a new product from the development stage to commercial manufacturing. We cannot predict whether we will be able to complete these transitions on a timely basis and with commercially reasonable costs. We cannot assure you that manufacturing or quality control problems will not arise as we attempt to scale-up our production for any future new products or that we can scale-up manufacturing and quality control in a timely manner or at commercially reasonable costs. If we are unable to consistently manufacture our products on a timely basis because of these or other factors, our product sales will decline.

     For example we are in the process of transferring the production of PatchPlates, a component of our IonWorks HT system, from the current manufacturer to in-house manufacturing. Since the production of PatchPlates is a complex process, it may take longer than we anticipate to reach full production capacity using our own manufacturing. Any problems or delays in this transfer could harm our business.

IF WE DELIVER PRODUCTS WITH DEFECTS, OUR CREDIBILITY WILL BE HARMED AND THE SALES AND MARKET ACCEPTANCE OF OUR PRODUCTS WILL DECREASE.

     Our products are complex and sometimes have contained errors, defects and bugs when introduced. If we deliver products with errors, defects or bugs, our credibility and the market acceptance and sales of our products would be harmed. Further, if our products contain errors, defects or bugs, we may be required to expend significant capital and resources to alleviate such problems. Defects could also lead to product liability as a result of product liability lawsuits against us or against our customers. We have agreed to indemnify our customers in some circumstances against liability arising from defects in our products. In the event of a successful product liability claim, we could be obligated to pay damages significantly in excess of our product liability insurance limits.

MOST OF OUR CURRENT AND POTENTIAL CUSTOMERS ARE FROM THE PHARMACEUTICAL AND BIOTECHNOLOGY INDUSTRIES AND ARE SUBJECT TO RISKS FACED BY THOSE INDUSTRIES.

     We derive a significant portion of our revenues from sales to pharmaceutical and biotechnology companies. We expect that sales to pharmaceutical and biotechnology companies will continue to be a primary source of revenues for the foreseeable future. As a result, we are subject to risks and uncertainties that affect the pharmaceutical and biotechnology industries, such as availability of capital and reduction and delays in research and development expenditures by companies in these industries, pricing pressures as third-party payors continue challenging the pricing of medical products and services, government regulation, and uncertainty of technological change.

     In addition, our future revenues may be adversely affected by the ongoing consolidation in the pharmaceutical and biotechnology industries, which would reduce the number of our potential customers. Furthermore, we cannot assure you that the pharmaceutical and biotechnology companies that are our customers will not develop their own competing products or in-house capabilities.

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OUR PRODUCTS COULD INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WHICH MAY CAUSE US TO ENGAGE IN COSTLY LITIGATION AND, IF WE ARE NOT SUCCESSFUL, COULD ALSO CAUSE US TO PAY SUBSTANTIAL DAMAGES AND PROHIBIT US FROM SELLING OUR PRODUCTS.

     Third parties may assert infringement or other intellectual property claims against us. We may have to pay substantial damages for infringement if it is ultimately determined that our products infringe a third party’s proprietary rights. Further, any legal action against us could, in addition to subjecting us to potential liability for damages, prohibit us from selling our products before we obtain a license to do so from the party owning the intellectual property, which, if available at all, may require us to pay substantial royalties. Even if these claims are without merit, defending a lawsuit takes significant time, may be expensive and may divert management attention from other business concerns. There may be third-party patents that may relate to our technology or potential products. Any public announcements related to litigation or interference proceedings initiated or threatened against us could cause our stock price to decline. We believe that there may be significant litigation in the industry regarding patent and other intellectual property rights. If we become involved in litigation, it could consume a substantial portion of our managerial and financial resources.

     On April 16, 2002, Caliper Technologies Corp. filed a patent infringement lawsuit against us alleging that our IMAP assay kits infringe U.S. patents held by Caliper. We believe that none of our products infringe any claim of the Caliper patents. On May 8, 2002, we filed an answer and counter-claim to Caliper’s lawsuit denying all allegations of infringement, setting forth certain affirmative defenses and making a counter-claim for declaratory relief that, among other things, we are not infringing and have not infringed any valid and enforceable claim of the Caliper patent and that the Caliper patent is invalid. Caliper has also made a motion for preliminary injunction, expected to be decided in the second or third quarter of calendar 2003. We intend to oppose vigorously this motion. If Caliper were to prevail in this motion, we may be prohibited from selling IMAP assay kits until completion of the litigation, which may take several additional months. If we do not prevail in litigation, we may be prohibited permanently from selling IMAP assay kits. Our inability to sell IMAP assay kits could have an adverse impact on our overall customer relations. The IMAP product line represented approximately 1% of our revenues in 2002. We can not assure you that we will prevail in the Caliper lawsuit or that, even if we prevail, attention to the lawsuit will not consume substantial financial and management resources.

WE MAY NEED TO INITIATE LAWSUITS TO PROTECT OR ENFORCE OUR PATENTS, WHICH WOULD BE EXPENSIVE AND, IF WE LOSE, MAY CAUSE US TO LOSE SOME OF OUR INTELLECTUAL PROPERTY RIGHTS, WHICH WOULD REDUCE OUR ABILITY TO COMPETE IN THE MARKET.

     We rely on patents to protect a large part of our intellectual property and our competitive position. In order to protect or enforce our patent rights, we may initiate patent litigation against third parties, such as infringement suits or interference proceedings. Litigation may be necessary to:

• assert claims of infringement;

• enforce our patents;

• protect our trade secrets or know-how; or

• determine the enforceability, scope and validity of the proprietary rights of others.

     Lawsuits could be expensive, take significant time and divert management’s attention from other business concerns. They would put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing. We may also provoke third parties to assert claims against us. Patent law relating to the scope of claims in the technology fields in which we operate is still evolving and, consequently, patent positions in our industry are generally uncertain. We cannot assure you that we will prevail in any of these suits or that the damages or other remedies awarded, if any, will be commercially valuable. During the course of these suits, there may be public announcements of the results of hearings, motions and other interim proceedings or developments in the litigation. If securities analysts or investors perceive any of these results to be negative, our stock price could decline.

THE RIGHTS WE RELY UPON TO PROTECT OUR INTELLECTUAL PROPERTY UNDERLYING OUR PRODUCTS MAY NOT BE ADEQUATE, WHICH COULD ENABLE THIRD PARTIES TO USE OUR TECHNOLOGY AND WOULD REDUCE OUR ABILITY TO COMPETE IN THE MARKET.

     Our success will depend in part on our ability to obtain commercially valuable patent claims and to protect our intellectual property. Our patent position is generally uncertain and involves complex legal and factual questions. Legal standards relating to the validity and scope of claims in our technology field are still evolving. Therefore, the degree of future protection for our proprietary rights is uncertain.

     The risks and uncertainties that we face with respect to our patents and other proprietary rights include the following:

• the pending patent applications we have filed or to which we have exclusive rights may not result in issued patents or may take longer than we expect to result in issued patents;

• the claims of any patents which are issued may not provide meaningful protection;

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• we may not be able to develop additional proprietary technologies that are patentable;

• the patents licensed or issued to us or our customers may not provide a competitive advantage;

• other companies may challenge patents licensed or issued to us or our customers;

• patents issued to other companies may harm our ability to do business;

• other companies may independently develop similar or alternative technologies or duplicate our technologies; and

• other companies may design around technologies we have licensed or developed.

     In addition to patents, we rely on a combination of trade secrets, nondisclosure agreements and other contractual provisions and technical measures to protect our intellectual property rights. Nevertheless, these measures may not be adequate to safeguard the technology underlying our products. If they do not protect our rights, third parties could use our technology, and our ability to compete in the market would be reduced. In addition, employees, consultants and others who participate in the development of our products may breach their agreements with us regarding our intellectual property, and we may not have adequate remedies for the breach. We also may not be able to effectively protect our intellectual property rights in some foreign countries. For a variety of reasons, we may decide not to file for patent, copyright or trademark protection or prosecute potential infringements of our patents. We also realize that our trade secrets may become known through other means not currently foreseen by us. Notwithstanding our efforts to protect our intellectual property, our competitors may independently develop similar or alternative technologies or products that are equal or superior to our technology and products without infringing on any of our intellectual property rights or design around our proprietary technologies.

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WE MAY HAVE DIFFICULTY MANAGING OUR GROWTH.

     We expect to experience significant growth in the number of our employees and customers and the scope of our operations, including as a result of potential acquisitions. This growth may continue to place a significant strain on our management and operations. Our ability to manage this growth will depend upon our ability to broaden our management team and our ability to attract, hire and retain skilled employees. Our success will also depend on the ability of our officers and key employees to continue to implement and improve our operational and other systems, to manage multiple, concurrent customer relationships and to hire, train and manage our employees. Our future success is heavily dependent upon growth and acceptance of new products. If we cannot scale our business appropriately or otherwise adapt to anticipated growth and new product introductions, a key part of our strategy may not be successful.

WE RELY UPON DISTRIBUTORS FOR PRODUCT SALES AND SUPPORT OUTSIDE NORTH AMERICA.

     In 2002, approximately 9% of our sales were made through distributors. We often rely upon distributors to provide customer support to the ultimate end users of our products. As a result, our success depends on the continued sales and customer support efforts of our network of distributors. The use of distributors involves certain risks, including risks that distributors will not effectively sell or support our products, that they will be unable to satisfy financial obligations to us and that they will cease operations. Any reduction, delay or loss of orders from our significant distributors could harm our revenues. We also do not currently have distributors in a number of significant international markets that we have targeted and will need to establish additional international distribution relationships. There can be no assurance that we will engage qualified distributors in a timely manner, and the failure to do so could have a materially adverse affect on our business, financial condition and results of operations.

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IF WE CHOOSE TO ACQUIRE NEW AND COMPLEMENTARY BUSINESSES, PRODUCTS OR TECHNOLOGIES INSTEAD OF DEVELOPING THEM OURSELVES, WE MAY BE UNABLE TO COMPLETE THESE ACQUISITIONS OR MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE AN ACQUIRED BUSINESS OR TECHNOLOGY IN A COST-EFFECTIVE AND NON-DISRUPTIVE MANNER.

     Our success depends on our ability to continually enhance and broaden our product offerings in response to changing technologies, customer demands and competitive pressures. To this end, from time to time we have acquired complementary businesses, products or technologies instead of developing them ourselves, and we may choose to do so in the future. For example, in June 2002 we acquired Universal Imaging Corporation, or UIC. We do not know if we will be able to complete any additional acquisitions, or whether we will be able to successfully integrate any acquired business, operate it profitably or retain its key employees. Integrating any business, product or technology we acquire could be expensive and time consuming, disrupt our ongoing business and distract our management. In addition, in order to finance any acquisitions, we might need to raise additional funds through public or private equity or debt financings. In that event, we could be forced to obtain financing on terms that are not favorable to us and, in the case of equity financing, that may result in dilution to our stockholders. If we are unable to integrate any acquired entities, products or technologies effectively, our business will suffer. In addition, any impairment of goodwill and amortization of other intangible assets or charges resulting from the costs of acquisitions could harm our business and operating results.

     We acquired Cytion S.A. in 2001. In January 2003, we initiated activities associated with the closure of the Cytion facility in Switzerland. We may continue to incur costs from integrating Cytion’s technology and operations into operations located at our other facilities, which may be expensive and time consuming and may adversely impact our ability to successfully develop products. Such costs may include costs for reorganization, closure of the facility, satisfaction of contractual obligations, employee redeployment or severance, conversion of information systems or other costs arising from the coordination of our development teams. Successful product development may place a significant burden on our existing management and our internal resources, which could have a materially adverse effect on our business, financial condition and operating results. Finally, the market price of our common stock could decline if we do not achieve the perceived benefits of the acquisition as rapidly or to the extent anticipated by financial analysts or investors.

WE DEPEND ON OUR KEY PERSONNEL, THE LOSS OF WHOM WOULD IMPAIR OUR ABILITY TO COMPETE.

     We are highly dependent on the principal members of our management, engineering and scientific staff. The loss of the service of any of these persons could seriously harm our product development and commercialization efforts. In addition, research, product development and commercialization will require additional skilled personnel in areas such as chemistry and biology, software engineering and electronic engineering. Our corporate headquarters is located in Sunnyvale, California, where demand for personnel with these skills is extremely high and is likely to remain high. As a result, competition for and retention of personnel, particularly for employees with technical expertise, is intense and the turnover rate for qualified personnel is high. If we are unable to hire, train and retain a sufficient number of qualified employees, our ability to conduct and expand our business could be seriously reduced. The inability to retain and hire qualified personnel could also hinder the planned expansion of our business.

WE ARE DEPENDENT ON INTERNATIONAL SALES AND OPERATIONS, WHICH EXPOSES US TO FOREIGN CURRENCY EXCHANGE RATE, POLITICAL AND ECONOMIC RISKS.

     We maintain facilities in Norway, the United Kingdom, Germany and Japan, and sales to customers outside the United States accounted for approximately 39% our revenues in 2002. We anticipate that international sales will continue to account for a significant portion of our revenues.

     All of our sales to international distributors are denominated in U.S. dollars. Most of our direct sales in the United Kingdom, Germany, France, Canada and Japan are denominated in local currencies and totaled $32.2 million (32% of total revenues) in 2002. To the extent that our sales and operating expenses are denominated in foreign currencies, our operating results may be adversely affected by changes in exchange rates. Historically, foreign exchange gains and losses have been immaterial to our results of operations. However, we cannot predict whether these gains and losses will continue to be immaterial, particularly as we increase our direct sales outside North America. For example, we cannot predict whether other foreign exchange gains or losses in the future would have a material effect on our income. Owing to the number of currencies involved, the substantial volatility of currency exchange rates, and our constantly changing currency exposures, we cannot predict the effect of exchange rate fluctuations on our future operating results. We do not currently engage in foreign currency hedging transactions, but may do so in the future.

     Our reliance on international sales and operations exposes us to foreign political and economic risks, including:

• political, social and economic instability;

• trade restrictions and changes in tariffs;

• import and export license requirements and restrictions;

• difficulties in staffing and managing international operations;

• disruptions in international transport or delivery;

• difficulties in collecting receivables; and

16

• potentially adverse tax consequences.

     If any of these risks materialize, our international sales could decrease and our foreign operations could suffer.

OUR OPERATING RESULTS FLUCTUATE AND ANY FAILURE TO MEET FINANCIAL EXPECTATIONS MAY DISAPPOINT SECURITIES ANALYSTS OR INVESTORS AND RESULT IN A DECLINE IN OUR STOCK PRICE.

     We have experienced and in the future may experience a shortfall in revenue or earnings or otherwise fail to meet public market expectations, which could materially and adversely affect our business and the market price of our common stock. Our total revenues and operating results may fluctuate significantly because of a number of factors, many of which are outside of our control. These factors include:

• customer confidence in the economy, evidenced, in part, by stock market levels;

• changes in the domestic and international economic, business and political conditions;

• economic conditions within the pharmaceutical and biotechnology industries;

• level of product and price competition;

• length of our sales cycle and customer buying patterns;

• size and timing of individual transactions;

• timing of new product introductions and product enhancements;

• mix of products sold;

• levels of international transactions;

• activities of and acquisitions by competitors;

• timing of new hires and the allocation of our resources;

• changes in foreign currency exchange rates; and

• our ability to develop and market new products and control costs.

     One or more of the foregoing factors may cause our operating expenses to be disproportionately high during any given period or may cause our revenues and operating results to fluctuate significantly. In particular, we typically experience a decrease in the level of sales in the first calendar quarter as compared to the fourth quarter of the preceding year because of budgetary and capital equipment purchasing patterns in the life sciences industry. Our quarterly operating results have fluctuated in the past, and we expect they will fluctuate in the future as a result of many factors, some of which are outside of our control.

     In addition, if sales levels in a particular quarter do not meet expectations, we may not be able to adjust operating expenses sufficiently quickly to compensate for the shortfall, and our results of operations for that quarter may be seriously harmed. We manufacture our products based on forecasted orders rather than to outstanding orders. Our manufacturing procedures may in certain instances create a risk of excess or inadequate inventory levels if orders do not match forecasts. In addition, our expense levels are based, in part, on expected future sales, and we generally cannot quickly adjust operating expenses. For example, research and development and general and administrative expenses are not affected directly by variations in revenues.

     Based upon the preceding factors, we may experience a shortfall in revenue or earnings or otherwise fail to meet public market expectations, which could materially and adversely affect our business, financial condition, results of operations and the market price of our common stock. Because our revenues and operating results are difficult to predict, we believe that period-to-period comparisons of our results of operations are not a good indication of our future performance.

OUR STOCK PRICE IS VOLATILE, WHICH COULD CAUSE STOCKHOLDERS TO LOSE A SUBSTANTIAL PART OF THEIR INVESTMENT IN OUR STOCK.

     The stock market in general, and the stock prices of technology companies in particular, have recently experienced volatility which has often been unrelated to the operating performance of any particular company or companies. During 2002, the closing sales price of our common stock ranged from $10.22 to $21.47. Our stock price could decline regardless of our actual operating performance, and

17

stockholders could lose a substantial part of their investment as a result of industry or market-based fluctuations. In the past, our stock has traded relatively thinly. If a more active public market for our stock is not sustained, it may be difficult for stockholders to resell shares of our common stock. Because we do not anticipate paying cash dividends on our common stock for the foreseeable future, stockholders will not be able to receive a return on their shares unless they sell them.

     The market price of our common stock will likely fluctuate in response to a number of factors, including the following:

• domestic and international economic, business and political conditions;

• economic conditions within the pharmaceutical and biotechnology industries;

• our failure to meet our performance estimates or the performance estimates of securities analysts;

• changes in financial estimates of our revenues and operating results or buy/sell recommendations by us or securities analysts; and

• the timing of announcements by us or our competitors of significant products, contracts or acquisitions or publicity regarding actual or potential results or performance thereof.

PROVISIONS OF OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT A TAKEOVER, WHICH COULD LIMIT THE PRICE INVESTORS MIGHT BE WILLING TO PAY IN THE FUTURE FOR OUR COMMON STOCK.

     Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing an acquisition, merger in which we are not the surviving company or changes in our management. For example, our certificate of incorporation gives our board of directors the authority to issue shares of preferred stock and to determine the price, rights, preferences and privileges and restrictions, including voting rights, of those shares without any further vote or action by our stockholders. The rights of the holders of common stock will be subject to, and may harmed by, the rights of the holders of any shares of preferred stock that may be issued in the future. The issuance of preferred stock may delay, defer or prevent a change in control, as the terms of the preferred stock that might be issued could potentially prohibit our consummation of any merger, reorganization, sale of substantially all of our assets, liquidation or other extraordinary corporate transaction without the approval of the holders of the outstanding shares of preferred stock. The issuance of preferred stock could also have a dilutive effect on our stockholders. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law. These provisions may prohibit large stockholders, in particular those owning 15% or more of the outstanding voting stock, from consummating a merger or combination involving us. Further, in October 2001, our Board of Directors adopted a stockholder rights plan, commonly known as a “poison pill.” These provisions described above and our poison pill could limit the price that investors might be willing to pay in the future for our common stock.

OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN OUR FORWARD-LOOKING STATEMENTS.

     This report contains forward-looking statements within the meaning of the federal securities laws that relate to future events or our future financial performance. When used in this report, you can identify forward-looking statements by terminology such as “anticipates,” “plans,” “predicts,” “expects,” “estimates,” “intends,” “will,” “continue,” “may,” “potential,” “should” and the negative of these terms or other comparable terminology. These statements are only predictions. Our actual results could differ materially from those anticipated in our forward-looking statements as a result of many factors, including those set forth here under “Business Risks” and elsewhere in this report.

     Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Neither we nor any other person assumes responsibility for the accuracy and completeness of these statements. We assume no duty to update any of the forward-looking statements after the date of this report or to conform these statements to actual results.

AVAILABLE INFORMATION

     We maintain a site on the world wide web at www.moleculardevices.com, however, information found on our web site is not incorporated by reference into this report. We make available free of charge on or through our website our annual report of Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

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ITEM 2. PROPERTIES

     We lease two facilities in Sunnyvale, California and one facility in Downington, Pennsylvania which include laboratory, manufacturing and administrative space. We also lease sales and service offices in the United Kingdom, Germany and Japan, a manufacturing facility in Norway, and a research and development facility in Switzerland. We believe that our current facilities will be sufficient for our operations through at least 2003. These properties are described below:

LOCATION	OWNERSHIP	FACILITIES	LEASE EXPIRATION
1311 Orleans Drive Sunnyvale, CA 94089	Leased	Approximately 60,000 square feet of office, laboratory and manufacturing space		October 31, 2007
1312 Crossman Avenue Sunnyvale, CA 94089	Leased	Approximately 54,400 square feet of office, laboratory and manufacturing space		October 31, 2007
402 Boot Road Downington, PA 19335	Leased	Approximately 27,900 square feet of office, laboratory and manufacturing space		August 25, 2010
Oslo, Norway	Leased	Approximately 17,500 square feet of office and manufacturing space		January 1, 2007
Wokingham, England	Leased	Approximately 4,200 square feet of office space		August 20, 2009
Munich, Germany	Leased	Approximately 3,500 square feet of office space		October 31, 2006
Osaka, Japan	Leased	Approximately 3,700 square feet of office space		March 31, 2005
Tokyo, Japan	Leased	Approximately 1,100 square feet of office space		June 30, 2003
Lausanne, Switzerland	Leased	Approximately 2,200 square feet of office and laboratory space		April 1, 2004

ITEM 3. LEGAL PROCEEDINGS

     On April 16, 2002, Caliper Technologies Corp. filed a patent infringement lawsuit against us alleging that our IMAP assay kits infringe U.S. patents held by Caliper. We believe that none of our products infringe any claim of the Caliper patents. On May 8, 2002, we filed an answer and counter-claim to Caliper’s lawsuit denying all allegations of infringement, setting forth certain affirmative defenses and making a counter-claim for declaratory relief that, among other things, we are not infringing and have not infringed any valid and enforceable claim of the Caliper patent and that the Caliper patent is invalid. Caliper has also made a motion for preliminary injunction which is expected to be decided in the second or third quarter of calendar 2003. We intend to oppose vigorously this motion. If Caliper were to prevail in this motion, we may be prohibited from selling IMAP assay kits until completion of the litigation, which may take several additional months. If we do not prevail in litigation, we may be prohibited permanently from selling IMAP assay kits. Our inability to sell IMAP assay kits could have an adverse impact on our overall customer relations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Our common stock is traded on the Nasdaq National Market under the symbol “MDCC.”

     The prices per share reflected on the table below represent the range of high and low closing sales prices of the common stock on the Nasdaq National Market, for the period indicated.

	2002				2001
	HIGH		LOW		HIGH		LOW
First Quarter	$	21.47	$	17.83	$	77.38	$	38.88
Second Quarter		19.64		14.40		49.99		17.00
Third Quarter		16.15		10.22		24.58		17.51
Fourth Quarter		19.32		10.87		22.46		15.50

     Historically, we have not paid cash dividends on our common stock and do not intend to pay any cash dividends in the foreseeable future. The Board of Directors will determine any future cash dividends. As of March 21, 2003, we had approximately 158 stockholders of record. On March 21, 2003, the last sale price reported on the Nasdaq National Market for our common stock was $11.00 per share.

     We entered into an employment arrangement with Patricia Sharp, Vice President of Human Resources, pursuant to which we were obligated to issue to her shares of our common stock in exchange for services rendered. As a result of this arrangement, we issued shares of our common stock to Ms. Sharp in 2001 and 2002 on the dates and amounts indicated below in reliance on the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended.

Number of
Shares	Date of Issue
312	03/05/2001
312	06/05/2001
313	09/05/2001
312	12/05/2001
313	03/05/2002
312	06/05/2002
313	09/05/2002

     Certain information required to be disclosed by Item 201(d) of Regulation S-K is incorporated herein by reference.

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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

     The following table sets forth selected historical financial information for Molecular Devices, certain portions of which are based on, and should be read in conjunction with, our audited consolidated financial statements that are being filed as a part of this report.

			Years Ended December 31,
			2002		2001			2000			1999		1998
			(in thousands, except per share data)
Consolidated Statements of Operations Data:
	Revenues		$	102,157	$	92,231		$	96,035		$	71,902	$	52,234
	Cost of revenues			40,561		35,538			35,583			26,299		20,203
	Gross profit			61,596		56,693			60,452			45,603		32,031
	Operating expenses:
		Research and development		18,002		15,105			16,796			14,150		11,158
		Acquired in-process research and development (1)		—		12,625			—			2,037		876
		Merger expenses (1)		—		—			15,181			—		—
		Selling, general and administrative		35,435		33,381			31,906			25,630		19,386
	Total operating expenses			53,437		61,111			63,883			41,817		31,420
	Income (loss) from operations (1)			8,159		(4,418	)		(3,431	)		3,786		611
	Other income, net			1,562		3,806			4,912			1,921		2,178
	Income (loss) before income taxes			9,721		(612	)		1,481			5,707		2,789
	Income tax provision			2,916		4,625			6,415			2,056		956
	Net income (loss)		$	6,805	$	(5,237	)	$	(4,934	)	$	3,651	$	1,833
	Basic net income (loss) per share		$	0.44	$	(0.32	)	$	(0.32	)	$	0.27	$	0.15
	Diluted net income (loss) per share		$	0.44	$	(0.32	)	$	(0.32	)	$	0.26	$	0.14
	Shares used in computing basic net income (loss) per share			15,348		16,192			15,246			13,347		12,407
	Shares used in computing diluted net income (loss) per share			15,457		16,192			15,246			14,149		12,965
Pro Forma Consolidated Statements of Operations Data (2):
		Pro forma operating income	$	8,159	$	8,207		$	11,750		$	5,823	$	1,487
		Pro forma net income	$	6,805	$	7,388		$	10,247		$	4,954	$	2,409
		Pro forma diluted net income per share	$	0.44	$	0.45		$	0.62		$	0.35	$	0.19

	As of December 31,
	2002			2001			2000			1999		1998
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments	$	53,783		$	67,257		$	97,091		$	36,650	$	40,030
Working capital		84,851			99,422			138,184			65,748		55,014
Total assets		162,901			152,361			180,033			86,849		72,319
Retained earnings (accumulated deficit)		(33,848	)		(40,653	)		(4,833	)		101		(3,550	)
Total stockholders’ equity		142,804			137,485			163,633			74,304		60,700

(1)

Our 2001 income from operations included a $12.6 million write-off for the acquisition of in-process research and development costs relating to our acquisition of Cytion S.A.. Our 2000 income from operations included a $15.2 million charge related to direct costs incurred due to the merger with LJL BioSystems, which was accounted for as a pooling of interests. Our 1999 income from operations included a $2.0 million write-off for the acquisition of in-process research and development costs relating to our acquisition of Skatron Instruments AS. Our 1998 income from operations included an $876,000 write-off for the acquisition of in-process research and development relating to our acquisition of certain technology rights from Affymax Research Institute, a subsidiary of GlaxoSmithKline.

(2)

We have excluded the impact of the write-offs of acquired in-process research and development and merger expenses in 2001, 2000, 1999, and 1998 described in footnote (1) above, net of tax.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

     Except for the historical information contained herein, the following discussion contains “forward-looking” statements. For this purpose, any statements that are not statements of historical fact may be deemed to be forward-looking statements. Words such as “believes”, “anticipates”, “plans”, “predicts”, “expects”, “estimates”, “intends”, “will”, “continue”, “may”, “potential”, “should” and similar expressions are intended to identify forward-looking statements. There area number of important factors that could cause our results to differ materially from those indicated by these forward-looking statements, including, among others, those discussed in this section as well as under “Item I. Business—Business Risks” and “Qualitative and Quantitative Disclosures about Market Risk” and the risks detailed from time to time in the Company’s SEC reports, including this Annual Report on Form 10-K for the year ended December 31, 2002.

     We are a leading supplier of high-performance bioanalytical measurement systems which accelerate and improve drug discovery and other life sciences research. Our systems and consumables enable pharmaceutical and biotechnology companies to leverage advances in genomics, proteomics and combinatorial chemistry by facilitating the high-throughput and cost-effective identification and evaluation of drug candidates. Our solutions are based on its advanced core technologies that integrate our expertise in engineering, molecular and cell biology, and chemistry. We enable our customers to improve research productivity and effectiveness, which ultimately accelerates the complex process of discovering and developing new drugs.

     Our customers include small and large pharmaceutical, biotechnology and industrial companies as well as medical centers, universities, government research laboratories and other institutions throughout the world. No single customer accounted for more than 5% of our consolidated revenues in 2002, 2001 or 2000. We recognize revenue on the sale of our products, when collectibility is reasonably assured, at the time of shipment and transfer of title to customers and distributors. There are no significant customer acceptance requirements or post shipment obligations on our part. Service contract revenue is deferred at the time of sale and recognized ratably over the period of performance. Total service revenue was 8%, 6% and 4% of total revenues in 2002, 2001 and 2000, respectively. In 2002, sales to customers outside the United States accounted for 39% of total revenues and total sales denominated in foreign currencies accounted for 31% of total revenues. We currently do not hedge our exposure to movements in foreign currency exchange rates, however we may do so in the future. We typically experience a decrease in the level of sales in the first calendar quarter as compared to the fourth quarter of the preceding year because of budgetary and capital equipment purchasing patterns in the life sciences industry. We expect this trend to continue in future years.

     In June 2002, we acquired Universal Imaging Corporation, a developer and distributor of cellular imaging software and drug discovery tools. In 2001, we acquired Nihon Molecular Devices, a sales and service operation in Japan, as well as Cytion S.A., a research and development company in Switzerland.

     We acquired all of the outstanding stock of LJL BioSystems in a tax-free, stock-for-stock transaction in August 2000, as a result of which LJL BioSystems became a wholly owned subsidiary. The transaction was accounted for under the pooling-of-interests method of accounting and, accordingly, all financial information includes the operations of LJL BioSystems for all periods presented.

     All of the acquired companies were integrated into our existing business and accordingly no new operating segments were created.

CRITICAL ACCOUNTING POLICIES

     Management’s discussion and analysis of Molecular Devices’ financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, bad debts, inventories, intangible assets, equity investments, income taxes and warranty obligations. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

     We believe the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements:

Revenue Recognition and Warranty

     We recognize product revenue at the time of shipment and transfer of title when collectibility is reasonably assured. Software revenue is recognized at the time of sale and in accordance with AICPA Statement of Position No. 97-2, “Software Revenue Recognition” (“SOP 97-2”). There are no significant customer acceptance requirements or post-shipment obligations on the part of Molecular Devices for product or software sales.

     Future warranty costs are estimated based on historical experience and provided for at the time of sale. Freight costs for revenue-generating shipments are charged to costs of goods sold. Amounts received prior to completion of the earnings process are recorded as customer deposits or deferred revenue, as appropriate. Service contract revenue is deferred at the time of sale and recognized ratably over the period of performance.

Accounts Receivable

     We sell our products primarily to corporations, academic institutions, government entities and distributors within the drug discovery and life sciences research markets. We perform ongoing credit evaluations of our customers and generally do not require collateral. We maintain reserves for potential credit losses, which are based on a number of factors including, but not limited to, the current financial condition of specific customers, payment trends and the overall economic environment. Such losses have been historically within management’s expectations.

Inventories

     Inventories are stated on a first-in, first-out basis at the lower of cost or market. We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those we project, additional inventory write downs may be required.

Equity Investments

     We invest in equity instruments of privately held companies for business and strategic purposes. These investments are included in other long-term assets and are accounted for under the cost method when ownership is less than 20 percent of voting securities and we do not have the ability to exercise significant influence over operations. When our ownership exceeds 20 percent of voting securities but is less than 50 percent, or we have the ability to exercise significant influence, the investment is accounted for under the equity method. Under the equity method, the investee’s proportionate share of net income or loss and amortization of the investee’s net excess investment over its equity in net assets is included in net income or loss. As of December 31, 2002, we did not hold any investments accounted for under the equity method. We regularly review the assumptions underlying the operating performance and cash flow forecasts in assessing the fair values. We monitor the preceding factors to identify events or circumstances which would cause us to test for other than temporary impairment and revise our assumptions for the estimated recovery of equity investments.

Income Taxes

     Income taxes are accounted for under the liability method whereby deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized in the future.

     At December 31, 2002, we had net deferred tax assets of $8.5 million. Realization of these assets is dependent on our ability to generate significant future taxable income. We believe that sufficient income will be earned in the future to realize these assets. We will evaluate the realizability of the deferred tax assets and assess the need for valuation allowances periodically.

     Various factors may have favorable or unfavorable effects upon our effective tax rate in 2003 and subsequent years. These factors include, but are not limited to, interpretations of existing tax laws, changes in tax laws and rates, future levels of R&D spending, future levels of capital expenditures, and our success in R&D and commercializing products.

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RESULTS OF OPERATIONS

     The following table summarizes our consolidated statement of income as a percentage of revenues:

	YEARS ENDED DECEMBER 31,
	2002			2001			2000
Revenues		100.0	%		100.0	%		100.0	%
Cost of revenues		39.7			38.5			37.1
Gross profit		60.3			61.5			62.9
Research and development		17.6			16.4			17.5
Write-off of acquired in-process research and development		—			13.7			—
Merger expenses		—			—			15.8
Selling, general and administrative		34.7			36.2			33.2
Income (loss) from operations		8.0			(4.8	)		(3.6	)
Other income, net		1.5			4.1			5.2
Income (loss) before income taxes		9.5			(0.7	)		1.6
Income tax provision		2.8			5.0			6.7
Net income (loss)		6.7	%		(5.7	)%		(5.1	)%
Pro forma operating income(1)		8.0	%		8.9	%		12.2	%
Pro forma net income(1)		6.7	%		8.0	%		10.7	%

(1) Excludes the impact of the write-off of acquired in-process research and development in 2001 and merger expenses recorded in 2000, net of tax.

YEARS ENDED DECEMBER 31, 2002 AND 2001

     Revenues for 2002 increased by 11% to $102.2 million from $92.2 million in 2001. This increase was due to the launch of the IonWorks HT, along with the inclusion of seven months of revenue from Universal Imaging Corporation (“UIC”), acquired on June 1, 2002. Our revenues are broken into two product families. The Drug Discovery product family, which includes cell analysis and HTS systems, consists of IonWorks HT, FLIPR, CLIPR, Analyst, Discovery-1 and Cytosensor systems. The Life Sciences Research product family, which includes bench top detection and liquid handling products, consists of Maxline, Skatron, MetaMorph and Threshold products. Drug Discovery product family revenues increased 4% in 2002 due to launch of IonWorks HT in the third quarter, increased sales of FLIPR products and the addition of the Discovery-1 product line from UIC. Revenues in the Life Sciences Research product family increased 16% in 2002 largely due to the addition of the MetaMorph product line from UIC and growth in sales of the Threshold and Skatron product lines.

     Gross margin decreased to 60.3% in 2002, from 61.5% in 2001. This decrease was primarily due to overall product sales that were more heavily weighted in lower margin products.

     Research and development expenses increased by 19% to $18.0 million (18% of revenues) in 2002 from $15.1 million (16% of revenues) in 2001. This increase was primarily driven by inclusion of a full year’s research and development expenses at Cytion S.A. (“Cytion”), which we acquired in July 2001, and the research and development expenses incurred at UIC.

     Selling, general and administrative expenses increased by 6% to $35.4 million (35% of revenues) in 2002 from $33.4 million (36% of revenues) in 2001. This increase resulted from the inclusion of the selling, general and administrative expenses of UIC.

     Other income, net, consisting primarily of interest income, decreased by 59% to $1.6 million in 2002 from $3.8 million in 2001. This was due to lower average cash and short-term investment balances (due to the share repurchase plan executed in the first quarter and the UIC acquisition in the second quarter) and decreased interest rates in 2002.

     We recorded tax provisions of $2.9 million (an effective tax rate of 30%) and $4.6 million (an effective tax rate of 38.5%) for 2002 and 2001, respectively. The decrease in our effective tax rate resulted from tax benefits recognized in 2002 associated with our international operations. The effective tax rates for 2002 and 2001 are calculated on profit before tax excluding the write-off of acquired in-process research and development expenses in 2001, which is not deductible for income tax purposes.

24

YEARS ENDED DECEMBER 31, 2001 AND 2000

     Revenues for 2001 decreased by 4% to $92.3 million from $96.0 million in 2000. The soft economic environment in 2001 affecting purchasing decisions on our higher priced instrument systems resulted in this top-line decline. Drug Discovery product family revenues were down 10.8% from 2000, due in large part to significant declines in the LJL product line. This decline was offset by a 3.2% increase in revenues from our Life Sciences Research product family, led by the FlexStation, which was introduced in the first quarter of 2001.

     Gross margin decreased to 61.5% in 2001, from 62.9% in 2000. The decrease related in part from decreased list prices for our LJL product line, as well as increased discounting on other high-cost instruments in an attempt to offset the impact of the soft economic environment.

     Research and development expenses for 2001 decreased to $15.1 million from $16.8 million in 2000, or a decrease of 10%. Research and development expenses as a percentage of revenues were 16% in 2001 and 18% in 2000. The decrease was the result of a reduction in spending in response to our revised economic outlook, as well as synergies created by our merger with LJL BioSystems, offset by increased spending related to our acquisition of Cytion. We do not believe the decreased spending has materially impacted any development projects.

     In July 2001, we acquired Cytion and accounted for the acquisition under the purchase method of accounting. We allocated a portion of the purchase price to purchased in-process technologies for $12.6 million. We wrote this off entirely in the third quarter of 2001. The write-off of purchased in-process technologies represented the fair value at the acquisition date, calculated utilizing the income approach, of the portion of certain in-process research and development projects that were not reliant upon core technology. The acquired in-process research and development had no alternative future use at the date of acquisition.

     Selling, general and administrative expenses for 2001 increased to $33.4 million from $31.9 million in 2000, or an increase of 5%. The increased spending for the period is primarily the result of additional spending on marketing, sales and service related activities as we continued our efforts to expand worldwide market coverage and introduce new products. In 2001, we purchased our Japanese distributor, Nihon Molecular Devices. Selling, general and administrative expenses as a percentage of revenues were 36.2% in 2001 and 33.2% in 2000. The increase from 2000 to 2001 was a result of the costs at our Japanese subsidiary, as well as the decline in overall revenues.

     Other income (net), consisting primarily of interest income, decreased by 23% in 2001 to $3.8 million from $4.9 million in 2000 due to lower average cash and investment balances and the significant decline in interest rates in 2001. Lower average cash balances result principally from a share repurchase plan under which we repurchased more than 1.5 million shares of our common stock and our acquisition of Cytion.

     We recorded income tax provisions of $4.6 million in 2001 and $6.4 million in 2000. These provisions reflected a 38.5% effective tax rate. The effective tax rates for 2001 and 2000 are calculated on profit before tax excluding the write-off of acquired in-process research and development expenses in 2001 and merger expenses related to the LJL BioSystems merger in 2000, which are not deductible for income tax purposes.

LIQUIDITY AND CAPITAL RESOURCES

     We had cash, cash equivalents and short-term investments of $53.8 million at December 31, 2002 compared to $67.3 million at December 31, 2001. In 2002, operating activities provided $15.3 million in cash.

     Net cash used by investing activities was $24.8 million in 2002, which included $22.9 million spent on the acquisition (net of cash acquired) of UIC and $2.3 million of capital expenditures, partially offset by the proceeds from the net maturities of $835,000 of short-term investments.

     Net cash used in financing activities was $3.7 million in 2002, due to $4.5 million spent to repurchase 220,000 shares of our common stock, offset by $798,000 of proceeds from the issuance of common stock for options exercised and employee stock purchases. The share repurchases all occurred in the first quarter of 2002, and accounted for approximately 1.4% of the shares outstanding as of December 31, 2002 and 2001. Additionally, approximately 1.3 million shares remain available for repurchase under the stock repurchase program approved by our Board of Directors in October 2001.

25

     Our cash and investments policy emphasizes liquidity and preservation of principal over other portfolio considerations. We select investments that maximize interest income to the extent possible given these two constraints. We satisfy liquidity requirements by investing excess cash in securities with different maturities to match projected cash needs and limit concentration of credit risk by diversifying our investments among a variety of high credit-quality issuers. We believe that our existing cash and investment securities and anticipated cash flow from our operations will be sufficient to support our current operating plan for the foreseeable future.

     Our facilities are leased under noncancelable operating leases. In addition, we have a contractual commitment for the purchase of certain resale products and manufacturing components with certain vendors ending in 2003. As of December 31, 2002, the following is a summary of our contractual obligations (in millions):

	Payments Due by Period
					2004 to		2006 to		2008 and
	Total		2003		2005		2007		thereafter
Operating leases	$	26.9	$	5.2	$	10.5	$	9.8	$	1.4
Unconditional purchase obligations		1.4		1.4		—		—		—
Total contractual cash obligations	$	28.3	$	6.6	$	10.5	$	9.8	$	1.4

RECENT ACCOUNTING PRONOUNCEMENTS

     In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (FAS 144), which supersedes both Statement of Financial Accounting Standards No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” (FAS 121) and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” (Opinion 30), for the disposal of a segment of a business (as previously defined in that Opinion). FAS 144 retains the fundamental provisions in FAS 121 for recognizing and measuring impairment losses on long-lived assets held for use and long-lived assets to be disposed of by sale, while also resolving significant implementation issues associated with FAS 121. For example, FAS 144 provides guidance on how a long-lived asset that is used as part of a group should be evaluated for impairment, establishes criteria for when a long-lived asset is held for sale, and prescribes the accounting for a long-lived asset that will be disposed of other than by sale. FAS 144 retains the basic provisions of Opinion 30 on how to present discontinued operations in the income statement but broadens that presentation to include a component of an entity (rather than a segment of a business). Unlike FAS 121, an impairment assessment under FAS 144 will never result in a write-down of goodwill. Rather, goodwill is evaluated for impairment under FAS No. 142, “Goodwill and Other Intangible Assets.” The Company adopted FAS 144 in 2002. The adoption of SFAS 144 did not have a material impact on financial position or results of operations.

     In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 provides guidance related to accounting for costs associated with disposal activities covered by SFAS No. 144 or with exit or restructuring activities previously covered by EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS No. 146 supercedes EITF Issue No. 94-3 in its entirety. SFAS No. 146 requires that costs related to exiting an activity or to a restructuring not be recognized until the liability is incurred. The statement further establishes fair value as the objective for initial measurement of the liability and that employee benefit arrangements requiring future service beyond a “minimum retention period” be recognized over the future service period. SFAS No. 146 will be applied prospectively to exit or disposal activities that are initiated after December 31, 2002.

     In November 2002, the FASB released FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others: an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34.” FIN 45 establishes new disclosure and liability-recognition requirements for direct and indirect debt guarantees with specified characteristics. The initial measurement and recognition requirements of FIN 45 are effective prospectively for guarantees issued or modified after December 31, 2002. However, the disclosure requirements are effective for interim and annual financial-statement periods ending after December 15, 2002. We have adopted the disclosure provisions and do not expect the full adoption of FIN 45 to have a material impact on our financial position or results of operations.

     In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of SFAS No. 123” (“SFAS 148”). This statement amends SFAS 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition and annual disclosure requirements of SFAS 148 are effective for the Company’s fiscal year 2002. The interim disclosure requirements are effective for the first quarter of fiscal year 2003. We continue to account for stock-based compensation using APB 25 and have not adopted the recognition provisions of SFAS 123, as amended by SFAS 148. We do not expect the adoption of SFAS 148 to have material impact on our financial position or results of operations. See note 8 of the Notes to Consolidated Financial Statements included in this report for disclosures required by SFAS 148.

26

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We are exposed to market risk, including changes in interest rates and foreign currency exchange rates. The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our investments without significantly increasing risk. A discussion of our accounting policies for financial instruments and further disclosures relating to financial investments is included in the Summary of Significant Accounting Policies note in the Notes to Consolidated Financial Statements included in this report.

     Our interest income is sensitive to changes in the general level of interest rates, primarily U.S. interest rates. In this regard, changes in U.S. interest rates affect the interest earned on our cash equivalents and short-term investments. We invest our excess cash primarily in demand deposits with United States banks and money market accounts and short-term securities. These securities, consisting of $3.4 million of commercial paper and $6.7 million of U.S. government agency securities, are carried at market value, which approximate cost, typically mature or are redeemable within 90 to 360 days, and bear minimal risk. We have not experienced any significant losses on the investments.

     We are exposed to changes in foreign currency exchange rates primarily in the United Kingdom, France, Japan, Germany and Canada, where we sell direct in local currencies. All other foreign sales are denominated in U.S. dollars and bear no exchange rate risk. However, a strengthening of the U.S. dollar could make our products less competitive in overseas markets. Gains and losses resulting from foreign currency transactions have historically been immaterial. Translation gains and losses related to our foreign subsidiaries in the United Kingdom, Japan, Germany, Switzerland and Norway are accumulated as a separate component of stockholders’ equity. We do not currently engage in foreign currency hedging transactions, but may do so in the future.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The following consolidated financial statements of Molecular Devices and financial statement schedules are attached to this report as pages 35 through 56.

     Financial Statements:

	•	Report of Ernst & Young LLP, Independent Auditors
	•	Consolidated Balance Sheets at December 31, 2002 and 2001
	•	Consolidated Statements of Operations for each of the three years in the period ended December 31, 2002
	•	Consolidated Statements of Stockholders’ Equity for the three years in the period ended December 31, 2002
	•	Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2002
	•	Notes to Consolidated Financial Statements
Financial Statement Schedules:
Schedule II — Valuation and Qualifying Accounts

     All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

     Not applicable.

27

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information with respect to Directors and Executive Officers may be found in the sections entitled “Proposal 1 — Election of Directors,” and “Executive Officers of the Company,” respectively, appearing in the definitive Proxy Statement to be delivered to stockholders in connection with the solicitation of proxies for our Annual Meeting of Stockholders to be held on May 29, 2003 (the “Proxy Statement”). Such information is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

     The information required by this item is set forth in the Proxy Statement under the heading “Executive Compensation,” which information is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this item is set forth in the Proxy Statement under the heading “Security Ownership of Certain Beneficial Owners and Management,” which information is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this item is set forth in the Proxy Statement under the heading “Certain Transactions,” which information is incorporated herein by reference.

ITEM 14. CONTROLS AND PROCEDURES

     (a)  Evaluation of disclosure controls and procedures: The Company’s principal executive and financial officers reviewed and evaluated the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-14) as of a date within 90 days before the filing date of this Form 10-K. Based on that evaluation, the Company’s principal executive and financial officers concluded that the Company’s disclosure controls and procedures are effective in timely providing them with material information relating to the Company, as required to be disclosed in the reports the Company files under the Exchange Act.

     (b)  Changes in internal controls: There were no significant changes in the Company’s internal controls or other factors that could significantly affect those controls subsequent to the date of the Company’s evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

28

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  The following documents are filed as a part of this report:

     1.     Financial Statements — See Index to Consolidated Financial Statements as Item 8 on page 27 of this report.

     2.     Financial Statement Schedule — See Index to Consolidated Financial Statements as Item 8 on page 27 of this report.

     3.     Exhibits

EXHIBIT
NUMBER	DESCRIPTION OF DOCUMENT
2.1(1)	Form of Agreement and Plan of Merger between the Registrant and Molecular Devices Corporation, a California Corporation
2.2(2)	Stock and Asset Purchase Agreement, dated as of May 17, 1999, among Molecular Devices Corporation, a Delaware corporation, Helge Skare, Wiel Skare, Steinar Faanes and Sten Skare, each an individual resident in Norway, Skatron Instruments AS, a Norwegian company, and Skatron Instruments, Inc., a Virginia corporation
2.4(5)	Agreement and Plan of Merger and Reorganization dated as of June 7, 2000 by and among Molecular Devices Corporation, Mercury Acquisition Sub, Inc. and LJL BioSystems, Inc.
2.5(11)	Stock Purchase Agreement dated as of November 14, 2000 by and among JCR Pharmaceuticals, K.K. and Molecular Devices Corporation
2.6(12)	Stock Purchase Agreement dated as of July 6, 2001 by and among Molecular Devices, Cytion S.A., Jean-Pierre Rosat (as agent for the stockholders of Cytion) and each of the stockholders of Cytion.
2.7(13)	Stock Purchase Agreement dated as of June 1, 2002 by and among Molecular Devices, Universal Imaging Corporation, Theodore Inoue (as agent for the stockholders of Universal Imaging Corporation) and each of the stockholders of Universal Imaging Corporation.
3.1(1)	Amended and Restated Certificate of Incorporation of Registrant
3.2(1)	Bylaws of the Registrant
3.3(8)	Certificate of Amendment to Certificate of Incorporation
4.1(1)	Specimen Certificate of Common Stock of Registrant
10.1(1)*	1988 Stock Option Plan
10.2(1)*	Form of Incentive Stock Option under the 1988 Stock Option Plan
10.3(1)*	Form of Supplemental Stock Option under the 1988 Stock Option Plan
10.4(8)*	1995 Employee Stock Purchase Plan
10.6(1)*	Form of Nonstatutory Stock Option under the 1995 Non-Employee Directors’ Stock Option Plan
10.8(1)*	Form of Incentive Stock Option under the 1995 Stock Option Plan
10.9(1)*	Form of Nonstatutory Stock Option under the 1995 Stock Option Plan
10.10(1)*	Form of Early Exercise Stock Purchase Agreement under the 1995 Stock Option Plan
10.11(1)*	Form of Indemnity Agreement between the Registrant and its Directors and Executive Officers
10.19(2)*	Key Employee Agreement for Joseph D. Keegan, Ph.D., dated March 11, 1998, as amended
10.20(3)	Exclusive License and Technical Support Agreement dated August 28, 1998 by and between the Registrant and Affymax
10.21(3)*	Employee Offer Letter for Tim Harkness
10.23(3)*	Employee Offer Letter for John Senaldi
10.24(4)*	1995 Non-Employee Director’s Stock Option Plan, as amended
10.25*	1995 Stock Option Plan, as amended
10.26(6)*	Employee Offer Letter for Patricia Sharp
10.27(7)*	LJL BioSystems 1994 Equity Incentive Plan and Forms of Agreements
10.28(7)*	LJL BioSystems 1997 Stock Plan and Forms of Agreements
10.29(7)*	LJL BioSystems 1998 Directors’ Stock Option Plan and Forms of Agreements
10.33(9)	Lease Agreement dated May 26, 2000 by and between Aetna Life Insurance Company and the Registrant

29

EXHIBIT
NUMBER	DESCRIPTION OF DOCUMENT
10.34(10)*	Change in Control Severance Benefit Plan
10.35(12)	Rights Agreement, dated October 25, 2001, among the Registrant and EquiServe Trust Company, N.A.
10.36(8)*	Key Employee Agreement for Stephen Oldfield
10.37(8)*	Key Employee Agreement for Tom O’Lenic
10.38*	2001 Stock Option Plan
10.39	Lease dated May 28, 2002 by and between The Irvine Company and the Registrant
10.40*	Letter Agreement dated April 11, 2002 by and between the Registrant and Joseph D. Keegan, Ph.D.
10.41*	Letter Agreement dated April 11, 2002 by and between the Registrant and Timothy A. Harkness
10.42*	Letter Agreement dated April 11, 2002 by and between the Registrant and John S. Senaldi
21.1	Subsidiaries of the Registrant
23.1	Consent of Ernst & Young LLP, Independent Auditors
99.1**	Certification by the Chief Executive Officer and the Chief Financial Officer of Molecular Devices as required by Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. Section 1350, as adopted) (the Sarbanes-Oxley Act of 2002), dated March 27, 2003.

(1)	Incorporated by reference to the similarly described exhibit in our Registration Statement on Form S-1 (File No. 33-98926), as amended.
(2)	Incorporated by reference to the similarly described exhibit in our Form 10-Q Quarterly Report dated June 30, 1998, and filed August 13, 1998.
(3)	Incorporated by reference to the similarly described exhibit in our Form 10-Q Quarterly Report dated September 30, 1998, and filed November 13, 1998.
(4)	Incorporated by reference to the similarly described exhibit in our Registration Statement on Form S-8 (File No. 333-86159), as amended.
(5)	Incorporated by reference to the similarly described exhibit in our Current Report on Form 8-K filed June 12, 2000.
(6)	Incorporated by reference to the similarly described exhibit in our Form 10-Q Quarterly Report dated September 30, 2000 and filed on November 13, 2000.
(7)	Incorporated by reference to the similarly described exhibit filed with LJL BioSystems’ Registration Statement on Form S-1 (File No. 333-43529) declared effective on March 12, 1998.
(8)	Incorporated by reference to the similarly described exhibit in our Form 10-K Annual Report dated December 31, 2001 and filed on April 1, 2002.
(9)	Incorporated by reference to the similarly described exhibit in our Form 10-K Annual Report dated December 31, 2000 and filed on March 30, 2001.
(10)	Incorporated by reference to the similarly described exhibit in our Form 10-Q Quarterly Report dated March 31, 2001 and filed on May 11, 2001.
(11)	Incorporated by reference to the similarly described exhibit in our Form 10-Q Quarterly Report dated June 30, 2001 and filed on August 14, 2001.
(12)	Incorporated by reference to the similarly described exhibit in our Current Report on Form 8-K filed October 30, 2001.
(13)	Incorporated by reference to the similarly described exhibit in our Current Report on Form 8-K filed on June 12, 2002.
*	Management contract or compensatory plan or arrangement.
**	This certification “accompanies” the Form 10-K to which it relates, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.
(b)	Reports on Form 8-K
	None
(c)	Exhibits
	See Item 15(a) above.

30

(d)        Financial Statement Schedule

            See Item 15(a) above.

31

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on March 27, 2003.

MOLECULAR DEVICES CORPORATION
By:	/s/ Joseph D. Keegan
	Joseph D. Keegan, Ph.D. President and Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

SIGNATURE	TITLE	DATE
/s/ Joseph D. Keegan
Joseph D. Keegan, Ph.D.	President, Chief Executive Officer and Director (Principal Executive Officer)	March 27, 2003
/s/ Timothy A. Harkness
Timothy A. Harkness	Vice President, Finance and Chief Financial and Officer (Principal Financial and Accounting Officer)	March 27, 2003
/s/ Moshe H. Alafi
Moshe H. Alafi	Director	March 27, 2003
/s/ David L. Anderson
David L. Anderson	Director	March 27, 2003
/s/ A. Blaine Bowman
A. Blaine Bowman	Director	March 27, 2003
/s/ Paul Goddard
Paul Goddard, Ph.D.	Director	March 27, 2003
/s/ Andre F. Marion
Andre F. Marion	Director	March 27, 2003
/s/ Harden M. McConnell
Harden M. McConnell, Ph.D.	Director	March 27, 2003
/s/ J. Allan Waitz
J. Allan Waitz, Ph.D.	Director	March 27, 2003

32

CERTIFICATION

I, Joseph D. Keegan, Ph.D., certify that:

1.     I have reviewed this annual report on Form 10-K of Molecular Devices Corporation;

2.     Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.     Based on my knowledge, the consolidated financial statements, and other financial information included in this annual report, fairly present in all material respects the consolidated financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.     The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.     The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.     The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:	March 27, 2003
/s/ Joseph D. Keegan
Joseph D. Keegan, Ph.D. President, Chief Executive Officer

33

CERTIFICATION

I, Timothy A. Harkness, certify that:

1.     I have reviewed this annual report on Form 10-K of Molecular Devices Corporation;

2.     Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.     Based on my knowledge, the consolidated financial statements, and other financial information included in this annual report, fairly present in all material respects the consolidated financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.     The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.     The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.     The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:	March 27, 2003
/s/ Timothy A. Harkness
Timothy A. Harkness Vice President, Finance, Chief Financial Officer

34

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Molecular Devices Corporation and Subsidiaries

     We have audited the accompanying consolidated balance sheets of Molecular Devices Corporation and its subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2002. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedules are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.

     We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Molecular Devices Corporation and its subsidiaries as of December 31, 2002 and 2001, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, in 2002 the Company changed its method of accounting for goodwill and other intangible assets.

	/s/ Ernst & Young LLP
Palo Alto, California January 27, 2003

35

MOLECULAR DEVICES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

			December 31,
			2002			2001
ASSETS
Current assets:
	Cash and cash equivalents		$	43,733		$	56,372
	Short-term investments			10,050			10,885
	Accounts receivable net of allowance for doubtful accounts of $434 and $1,148 at December 31, 2002 and 2001, respectively			26,443			23,612
	Inventories			17,722			17,181
	Deferred tax assets			5,230			4,015
	Other current assets			1,770			2,233
		Total current assets		104,948			114,298
Equipment and leasehold improvements, net				10,943			10,323
Goodwill				26,017			7,171
Other assets				20,993			20,569
			$	162,901		$	152,361
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	2,863		$	2,470
	Accrued compensation			4,610			3,264
	Other accrued liabilities			8,361			5,571
	Deferred revenue			4,263			3,571
		Total current liabilities		20,097			14,876
Commitments
Stockholders’ equity:
	Preferred stock, $.001 par value; 3,000,000 shares authorized and outstanding			—			—
	Common stock, $.001 par value; 60,000,000 shares authorized; 15,555,190 and 15,491,844 shares issued and 15,312,892 and 15,481,844 outstanding at December 31, 2002 and 2001, respectively			15			15
	Additional paid-in capital			181,773			181,233
	Accumulated deficit			(33,848	)		(40,653	)
	Treasury stock, at cost; 242,298 and 10,000 shares at December 31, 2002 and 2001, respectively			(4,632	)		(160	)
	Deferred compensation			—			(332	)
	Accumulated other comprehensive loss			(504	)		(2,618	)
		Total stockholders’ equity		142,804			137,485
			$	162,901		$	152,361

See accompanying notes.

36

MOLECULAR DEVICES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

			Years ended December 31,
			2002		2001			2000
Revenues			$	102,157	$	92,231		$	96,035
Cost of revenues				40,561		35,538			35,583
Gross profit				61,596		56,693			60,452
Operating expenses:
	Research and development			18,002		15,105			16,796
	Acquired in-process research and development			—		12,625			—
	Merger expenses			—		—			15,181
	Selling, general and administrative			35,435		33,381			31,906
		Total operating expenses		53,437		61,111			63,883
Income (loss) from operations				8,159		(4,418	)		(3,431	)
Other income, net				1,562		3,806			4,912
Income (loss) before income taxes				9,721		(612	)		1,481
Income tax provision				2,916		4,625			6,415
Net income (loss)			$	6,805	$	(5,237	)	$	(4,934	)
Basic net income (loss) per share			$	0.44	$	(0.32	)	$	(0.32	)
Diluted net income (loss) per share			$	0.44	$	(0.32	)	$	(0.32	)

See accompanying notes.

37

MOLECULAR DEVICES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

	Common Stock						Additional Paid-			Retained Earnings									Accumulated Other
							In			(Accumulated			Treasury Stock			Deferred			Comprehensive			Total Stockholders’
	Shares			Amount			Capital			Deficit)			(at cost)			Compensation			Income (Loss)			Equity
Balance at December 31, 1999		13,488,821		$	14		$	75,271		$	101		$	—		$	(589	)	$	(493	)	$	74,304
Comprehensive income
Net loss					—			—			(4,934	)		—			—			—			(4,934	)
Currency translation					—			—			—			—			—			(435	)		(435	)
Total comprehensive loss																							(5,369	)
Issuance of shares of common stock in public offering, net		2,234,000			2			79,341															79,343
Issuance of shares of common stock for options exercised		567,162			1			7,074			—			—			—			—			7,075
Issuance of shares of common stock under Employee Stock Purchase Plan		32,748			—			847			—			—			—			—			847
Stock compensation expense								798															798
Tax benefits from employee stock transactions					—			6,266			—			—			—			—			6,266
Deferred stock compensation								223									(223	)					—
Amortization of deferred stock compensation		8,436			—			—			—			—			369			—			369
Balance at December 31, 2000		16,331,167			17			169,820			(4,833	)		—			(443	)		(928	)		163,633
Comprehensive income
Net loss					—			—			(5,237	)		—			—			—			(5,237	)
Currency translation					—			—			—			—			—			(1,690	)		(1,690	)
Total comprehensive loss																							(6,927	)
Issuance of shares of common stock to acquire Cytion S.A.		400,000			—			7,376															7,376
Issuance of shares of common stock for options exercised and restricted stock granted		210,204			—			3,384			—			—			111			—			3,495
Issuance of shares of common stock under Employee Stock Purchase Plan		37,714			—			653			—			—			—			—			653
Issuance of shares of common stock for cashless warrant exercise		12,759			—			—			—			—			—			—			—
Repurchase of shares of common stock		(1,510,000	)		—									(30,745	)								(30,745	)
Retirement of common stock in treasury		—			(2	)					(30,583	)		30,585									—
Balance at December 31, 2001		15,481,844			15			181,233			(40,653	)		(160	)		(332	)		(2,618	)		137,485
Comprehensive income
Net income					—			—			6,805			—			—			—			6,805
Currency translation					—			—			—			—			—			2,114			2,114
Total comprehensive income																							8,919
Issuance of shares of common stock for options exercised and restricted stock granted		25,107			—			371			—			—			74			—			445
Issuance of shares of common stock under Employee Stock Purchase Plan		28,194			—			427			—			—			—			—			427
Repurchase of shares of common stock		(222,253	)		—			—			—			(4,472	)		—			—			(4,472	)
Reversal of deferred compensation for terminated employees		—			—			(258	)		—			—			258			—			—
Balance at December 31, 2002		15,312,892		$	15		$	181,773		$	(33,848	)	$	(4,632	)	$	—		$	(504	)	$	142,804

See accompanying notes.

38

MOLECULAR DEVICES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

		Years Ended December 31,
		2002			2001			2000
Cash flows from operating activities:
Net income (loss)		$	6,805		$	(5,237	)	$	(4,934	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
	Depreciation and amortization		3,847			3,710			2,077
	Charge for acquired in-process research and development		—			12,625			—
	Amortization of deferred compensation		74			111			369
	Stock compensation expense		—			—			798
	Amortization of goodwill (in 2001 and 2000) and other intangible assets		280			624			314
	Income tax benefit realized as a result of employee exercises of stock options		—			—			6,266
	(Increase) decrease in assets:
	Accounts receivable		(345	)		3,949			(8,098	)
	Inventories		10			(5,069	)		(2,547	)
	Deferred tax assets		827			942			(611	)
	Other current assets		594			3,639			(4,911	)
	Increase (decrease) in liabilities:
	Accounts payable		(145	)		(3,015	)		1,033
	Accrued compensation		1,030			(875	)		924
	Other accrued liabilities		1,690			1,286			1,224
	Deferred revenue		595			1,083			956
Net cash provided by (used in) operating activities			15,262			13,773			(7,140	)
Cash flows from investing activities:
Purchases of investments			(17,680	)		(14,818	)		(113,113	)
Proceeds from sales and maturities of investments			18,515			59,192			62,421
Capital expenditures			(2,295	)		(3,784	)		(7,436	)
Acquisitions, net of cash on hand			(22,927	)		(10,367	)		—
Other assets			(372	)		(472	)		(11,531	)
Net cash provided by (used in) investing activities			(24,759	)		29,751			(69,659	)
Cash flows from financing activities:
Repayment of borrowings			—			(586	)		(282	)
Issuance of common stock			798			4,037			87,265
Purchase of treasury stock			(4,472	)		(30,745	)		—
Net cash provided by (used in) financing activities			(3,674	)		(27,294	)		86,983
Effect of exchange rate changes on cash			532			(1,690	)		(435	)
Net (decrease) increase in cash and cash equivalents			(12,639	)		14,540			9,749
Cash and cash equivalents at beginning of year			56,372			41,832			32,083
Cash and cash equivalents at end of year		$	43,733		$	56,372		$	41,832
Supplemental cash flow information:
Cash paid during the year for:
	Interest	$	—		$	44		$	88
	Income taxes	$	496		$	802		$	4,300
Supplemental schedule of noncash investing and financing activities:
Disposals of fully depreciated equipment and leasehold improvements		$	333		$	10		$	538
Issuance of 400,000 shares of common stock in conjunction with the acquisition of Cytion S.A. in July 2001		$	—		$	7,376		$	—

See accompanying notes.

39

MOLECULAR DEVICES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

     Molecular Devices Corporation (“Molecular Devices”), a Delaware corporation, is principally involved in the design, development, manufacture, sale and service of bioanalytical measurement systems for life sciences and drug discovery applications. The principal customers for Molecular Devices’ products include leading pharmaceutical and biotechnology companies as well as medical centers, universities, government research laboratories and other institutions throughout the world.

     The consolidated financial statements include the accounts of Molecular Devices and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

     Molecular Devices acquired all of the outstanding stock of LJL BioSystems, Inc. (“LJL BioSystems”) in a tax-free, stock-for-stock transaction on August 30, 2000. LJL BioSystems was also engaged in the design, development, manufacture, sale and service of bioanalytical measurement systems for life sciences and drug discovery applications. Molecular Devices has accounted for the transaction as a pooling of interests, and accordingly, the consolidated financial statements and all financial information have been restated to reflect the combined operations, financial position and cash flows of both companies for periods prior to the acquisition. (See Note 5)

Use of Estimates

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Cash Equivalents

     Cash equivalents consist of highly liquid investments, principally money market accounts and marketable debt securities, with maturities of three months or less at the time of purchase.

Investments

     Molecular Devices’ short-term investments consist of marketable securities classified as “available-for-sale,” with maturities of one year or less at the time of purchase. Available-for-sale securities are carried at fair market value, with unrealized gains and losses, net of tax, included in accumulated other comprehensive income (loss) in stockholders’ equity. Gains and losses on securities sold are based on the specific identification method and are included in the results of operations. Realized gains and losses have been historically immaterial and combined with interest income in the “other income, net” line of the consolidated statement of operations.

     Fair values of marketable securities are based on quoted market values at December 31, 2002 and 2001. At December 31, 2002, the difference between the fair value and amortized cost of marketable securities was not significant. Short-term investments consisted of $6.7 million and $4.0 million in federal government securities and $3.4 million and $6.9 million of corporate securities maturing within twelve months or less as of December 31, 2002 and 2001, respectively.

Concentration of Credit Risk

     Financial instruments, which potentially subject Molecular Devices to concentrations of credit risk, are primarily cash, cash equivalents, short-term investments and accounts receivable. Molecular Devices deposits cash with high credit quality financial institutions. Molecular Devices’ cash equivalents and marketable securities are primarily invested in federal government agency obligations and corporate securities that have various maturities during 2003.

     Molecular Devices sells its products primarily to corporations, academic institutions, government entities and distributors within the drug discovery and life sciences research markets. Molecular Devices performs ongoing credit evaluations of its customers and generally does not require collateral. Molecular Devices maintains reserves for potential credit losses and such losses have been historically within management’s expectations.

40

Inventories

     Inventories are stated on a first-in, first-out basis at the lower of cost or market. We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write downs may be required.

Capitalized Software Costs

     Software development costs incurred subsequent to the establishment of technological feasibility are capitalized in accordance with SFAS No. 86; “Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed.” No amounts have been capitalized to date as costs incurred after the establishment of technological feasibility have not been material.

Equipment and Leasehold Improvements

     Equipment is recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets (ranging from three to five years). Leasehold improvements are amortized over the remaining term of the lease, or the life of the asset, whichever is shorter. Maintenance and repairs are expensed as incurred. Depreciation expense for 2002, 2001 and 2000 was $3.2 million, $2.6 million, and $2.1 million, respectively.

Goodwill

     Goodwill represents the difference between the purchase price and the fair value of net assets when accounted for by the purchase method of accounting. Prior to 2002, goodwill was amortized using the straight-line method over 10 to 15 years. In January 2002, we adopted FAS 142 and, accordingly, ceased amortizing goodwill. In conjunction with the adoption of FAS 142, we performed an initial impairment test of goodwill and found no impairment. The gross amount of goodwill was $27.0 million and $8.2 million at December 31, 2002 and 2001, respectively.

     The following table presents the impact of adopting of FAS 142 had the standard been in effect for the years ended December 31, 2001 and 2000 (in thousands, except per share data):

		Years Ended December 31,
		2002		2001			2000
	Reported net income (loss)	$	6,805	$	(5,237	)	$	(4,934	)
	Add back: Goodwill amortization		—		338			204
	Adjusted net income (loss)	$	6,805	$	(4,899	)	$	(4,730	)
Basic earnings per share:
	Reported net income (loss)	$	0.44	$	(0.32	)	$	(0.32	)
	Add back: Goodwill amortization		—		0.02			0.01
	Adjusted net income (loss)	$	0.44	$	(0.30	)	$	(0.31	)
Diluted earnings per share:
	Reported net income (loss)	$	0.44	$	(0.32	)	$	(0.32	)
	Add back: Goodwill amortization		—		0.02			0.01
	Adjusted net income (loss)	$	0.44	$	(0.30	)	$	(0.31	)

Other Assets

     Other assets include patents, developed technology, license fees, tradename and strategic investments in privately held companies that have been accounted for under the cost method. Patents, developed technology and license fees are amortized over their expected useful life of ten years. Tradename is assessed to have an indefinite life and therefore is not subject to amortization.

Impairment of Long-Lived Assets

     Molecular Devices evaluates long-lived assets, including goodwill and investments accounted for under the cost method, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based on expected undiscounted cash flows attributable to that asset. The amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. For long-lived assets, fair value would be measured based on discounted expected cash flows. There were no long-lived assets that were considered to be impaired during any period presented.

41

Equity Investments

     We invest in equity instruments of privately held companies for business and strategic purposes. These investments are included in other long-term assets and are accounted for under the cost method when ownership is less than 20 percent of voting securities and we do not have the ability to exercise significant influence over operations. When our ownership exceeds 20 percent of voting securities but is less than 50 percent, or we have the ability to exercise significant influence, the investment is accounted for under the equity method. Under the equity method, the investee’s proportionate share of net income or loss and amortization of the investee’s net excess investment over its equity in net assets is included in our net income or loss. As of December 31, 2002, we did not hold any investments accounted for under the equity method. We regularly review the assumptions underlying the operating performance and cash flow forecasts in assessing the fair values. We monitor the preceding factors to identify events or circumstances which would cause us to test for other than temporary impairment and revise our assumptions for the estimated recovery of equity investments. There were no investments considered impaired during any of the periods presented.

Income Taxes

     Income taxes are accounted for under the liability method whereby deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized in the future.

Foreign Currency Translation

     Molecular Devices translates the assets and liabilities of its foreign subsidiaries into dollars at the rates of exchange in effect at the end of the period and translates revenues and expenses using rates in effect during the period. Gains and losses from these translations are accumulated as a separate component of stockholders’ equity. Gains and losses resulting from foreign currency transactions are immaterial and are included in the statements of operations.

Revenue Recognition and Warranty

     We recognize product revenue at the time of shipment and transfer of title when collectibility is reasonably assured. Software revenue is recognized at the time of sale and in accordance with AICPA Statement of Position No. 97-2, “Software Revenue Recognition” (“SOP 97-2”). There are no significant customer acceptance requirements or post-shipment obligations on the part of Molecular Devices for product or software sales.

     Future warranty costs are estimated and provided for at the time of sale. Freight costs for revenue-generating shipments are charged to costs of goods sold. Amounts received prior to completion of the earnings process are recorded as customer deposits or deferred revenue, as appropriate. Service contract revenue is deferred at the time of sale and recognized ratably over the period of performance.

Advertising Costs

     Molecular Devices expenses the cost of advertising as incurred. Such costs approximated $1.1 million, $1.2 million and $1.4 million for 2002, 2001 and 2000, respectively.

Recent Accounting Pronouncements

     In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (FAS 144), which supersedes both Statement of Financial Accounting Standards No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” (FAS 121) and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” (Opinion 30), for the disposal of a segment of a business (as previously defined in that Opinion). FAS 144 retains the fundamental provisions in FAS 121 for recognizing and measuring impairment losses on long-lived assets held for use and long-lived assets to be disposed of by sale, while also resolving significant implementation issues associated with FAS 121. For example, FAS 144 provides guidance on how a long-lived asset that is used as part of a group should be evaluated for impairment, establishes criteria for when a long-lived asset is held for sale, and prescribes the accounting for a long-lived asset that will be disposed of other than by sale. FAS 144 retains the basic provisions of Opinion 30 on how to present discontinued operations in the income statement but broadens that presentation to include a component of an entity (rather than a segment of a business). Unlike FAS 121, an impairment assessment under FAS 144 will never result in a write-down of goodwill. Rather, goodwill is evaluated for impairment under FAS No. 142, “Goodwill and Other Intangible Assets.” The Company adopted FAS 144 in 2002. The adoption of SFAS 144 did not have a material impact on financial position or results of operations.

42

     In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 provides guidance related to accounting for costs associated with disposal activities covered by SFAS No. 144 or with exit or restructuring activities previously covered by EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS No. 146 supercedes EITF Issue No. 94-3 in its entirety. SFAS No. 146 requires that costs related to exiting an activity or to a restructuring not be recognized until the liability is incurred. The statement further establishes fair value as the objective for initial measurement of the liability and that employee benefit arrangements requiring future service beyond a “minimum retention period” be recognized over the future service period. SFAS No. 146 will be applied prospectively to exit or disposal activities that are initiated after December 31, 2002.

     In November 2002, the FASB released FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 establishes new disclosure and liability-recognition requirements for direct and indirect debt guarantees with specified characteristics. The initial measurement and recognition requirements of FIN 45 are effective prospectively for guarantees issued or modified after December 31, 2002. However, the disclosure requirements are effective for interim and annual financial-statement periods ending after December 15, 2002. We have adopted the disclosure provisions and do not expect the full adoption of FIN 45 to have a material impact on our financial position or results of operations.

     In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of SFAS No. 123” (“SFAS 148”). This statement amends SFAS 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition and annual disclosure requirements of SFAS 148 are effective for the Company’s fiscal year 2002. The interim disclosure requirements are effective for the first quarter of fiscal year 2003. We continue to account for stock-based compensation using APB 25 and have not adopted the recognition provisions of SFAS 123, as amended by SFAS 148. We do not expect the adoption of SFAS 148 to have material impact on our financial position or results of operations. (See Note 8)

Per Share Data

     Basic net income per share is computed based on the weighted average number of shares of Molecular Devices’ common stock outstanding. Dilutive net income per share is computed based on the weighted average number of shares of Molecular Devices’ common stock and other dilutive securities. Dilutive securities consist of the incremental common shares issuable upon the exercise of stock options and warrants (using the treasury stock method).

     Computation of diluted earnings (loss) per share is as follows (in thousands, except per share amounts):

	Years Ended December 31,
	2002		2001			2000
Weighted average common shares outstanding for The period		15,348		16,192			15,246
Common equivalent shares assuming exercise of stock options under the treasury stock method		109		—			—
Shares used in diluted per share calculation		15,457		16,192			15,246
Net income (loss)	$	6,805	$	(5,237	)	$	(4,934	)
Basic net income (loss) per share	$	0.44	$	(0.32	)	$	(0.32	)
Diluted net income (loss) per share	$	0.44	$	(0.32	)	$	(0.32	)

     Options to purchase 2,115,476 shares of common stock at a weighted average per share exercise price of $30.84 were outstanding during 2002, but were not included in the computation of diluted earnings per share for that years as the options’ weighted-average exercise price was greater than the average market price of the common shares and, therefore, the effect would have been anti-dilutive. In 2001 and 2000, the total number of shares excluded from the calculations of diluted net loss per share was 307,000 and 1,163,000, respectively. Such securities, had they been dilutive, would have been included in the computations of diluted net loss per share using the treasury stock method.

43

Stock Based Compensation

     As permitted by Statement of Financial Accounting Standards No. 123 (SFAS 123), “Accounting for Stock-Based Compensation,” Molecular Devices applies the intrinsic value method of accounting as described in APB Opinion 25 and related interpretations in accounting for its stock option plans and, accordingly, recognizes no compensation expense for stock option grants with an exercise price equal to the fair market value of the shares at the date of grant. If Molecular Devices and LJL BioSystems had elected to recognize compensation cost based on the fair value of the options granted at grant date and shares issued under stock purchase plans as prescribed by SFAS 123, net income (loss) and earnings (loss) per share would have been reduced to the pro forma amounts indicated in the table below (in thousands, except per share amounts):

		Years ended December 31,
		2002			2001			2000
Net income (loss) - as reported		$	6,805		$	(5,237	)	$	(4,934	)
Stock based compensation expense determined using the fair value method, net of tax			7,886			6,552			4,431
Net loss - pro forma		$	(1,081	)	$	(11,789	)	$	(9,365	)
Net income (loss) per share:
	Basic - as reported	$	0.44		$	(0.32	)	$	(0.32	)
	Basic - pro forma		(0.07	)		(0.73	)		(0.61	)
	Diluted - as reported		0.44			(0.32	)		(0.32	)
	Diluted - pro forma		(0.07	)		(0.73	)		(0.61	)

     The pro forma net income and net income per share disclosed above is not likely to be representative of the effects on net income and net income per share on a pro forma basis in future years, as subsequent years may include additional grants and years of vesting.

     The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

	2002			2001			2000
Expected dividend yield		0	%		0	%		0	%
Expected stock price volatility		85	%		94	%		84-100	%
Risk-free interest rate		4.35	%		4.6	%		5.48-5.85	%
Expected life of options	5.6 years			3.5 years			3-5 years

     The weighted average fair value of options granted during the year ended December 31, 2002, 2001 and 2000 was $14.06, $18.05, and $38.37, respectively.

Comprehensive Income (Loss)

     Comprehensive income (loss) is comprised of net income (loss) and other items of comprehensive income (loss). Other comprehensive income (loss) includes cumulative translation adjustments from the translation of foreign subsidiaries’ financial statements, and unrealized gains and losses on available-for-sale securities, if material.

Change in Presentation

     Certain prior year amounts have been reclassified to conform to the current year presentation.

44

NOTE 2. BALANCE SHEET AMOUNTS

		December 31,
		2002			2001
		(In thousands)
Inventories:
	Raw materials	$	6,462		$	6,999
	Work-in-process		1,840			1,347
	Finished goods and demonstration equipment		9,420			8,835
		$	17,722		$	17,181
Equipment and leasehold improvements:
	Machinery and equipment	$	14,683		$	12,718
	Software		2,817			1,577
	Furniture and fixtures		2,716			1,981
	Leasehold improvements		5,887			5,694
			26,103			21,970
Less accumulated depreciation and amortization			(15,160	)		(11,647	)
Net equipment and leasehold improvements		$	10,943		$	10,323
Other assets:
	Equity investments	$	12,353		$	12,353
	Long–term deferred tax asset		3,278			5,310
	Patents		2,569			1,311
	Other		2,793			1,595
		$	20,993		$	20,569
Other accrued liabilities:
	Accrued income tax	$	3,060		$	1,793
	Warranty accrual		1,295			1,183
	Other		4,006			2,595
		$	8,361		$	5,571

NOTE 3. LONG-TERM DEBT

     In February 1998, LJL BioSystems entered into an equipment financing agreement that provided a $1.3 million line of credit. The initial term of this agreement was through February 16, 1999. Amounts borrowed under this agreement incurred interest at 11.08% to 12.16%. The agreement was extended twice with the latest extension expiring on December 31, 1999. In March 2001, Molecular Devices paid $571,000 in principal and interest to terminate this agreement. As of December 31, 2002, Molecular Devices had no debt obligations.

NOTE 4. COMMITMENTS

     Molecular Devices’ facilities are leased under noncancelable operating leases. The leases generally require payment of taxes, insurance and maintenance costs on leased facilities. Minimum annual rental commitments under these noncancelable operating leases for the years ended 2003, 2004, 2005, 2006, 2007 and thereafter, are approximately $5.2 million, $5.3 million, $5.3 million, $5.4 million, and $5.8 million, respectively.

     Net rental expense under operating leases related to Molecular Devices’ facilities was approximately $5.0 million, $2.8 million, and $2.5 million, respectively, for each of the three years ended December 31, 2002, 2001 and 2000.

45

     Molecular Devices has a contractual commitment for the purchase of certain resale products and manufacturing components with vendors, ending in 2003. The minimum purchase commitment is based on a set percentage of our forecasted production, and for 2003, at current prices, is approximately $1.4 million. These purchase commitments are not expected to result in a loss.

     At the time of sale, the Company records an estimate for warranty costs that may be incurred under product warranties. Warranty expense and activity are estimated based on historical experience. The warranty accrual is evaluated periodically and adjusted for changes in experience. Changes in the Company’s warranty liability during 2002 were as follows (in thousands):

Balance December 31, 2001	$	1,183
New warranties issued during the period		1,323
Cost of warranties incurred during the period		(1,140	)
Changes in liabilities for pre-existing warranties		(71	)
Balance December 31, 2002	$	1,295

NOTE 5. ACQUISITIONS AND INVESTMENTS

Universal Imaging Corporation

     On June 1, 2002, Molecular Devices acquired Universal Imaging Corporation (“UIC”) pursuant to a Stock Purchase Agreement, in exchange for $22 million in cash. In addition, Molecular Devices incurred $1.2 million of acquisition costs. As a result of the acquisition, UIC became a wholly-owned subsidiary of Molecular Devices. The results of operations for UIC were included in Molecular Devices’ results of operations beginning June 1, 2002. The acquisition expands Molecular Devices’ portfolio of novel tools for cell analysis to include MetaMorph, cellular imaging software widely used in life sciences research, and the Discovery-1 screening system for drug discovery. The excess of the purchase price over the identified net assets of UIC has been allocated to goodwill, tradename and developed technology as follows (in thousands):

Acquired goodwill	$	18,846
Acquired developed technology (amortized over ten years)		1,468
Acquired tradename		707
Net book value of acquired assets and liabilities which approximate fair value		2,179
	$	23,200

     The condensed balance sheet of UIC as of May 31, 2002 was as follows (in thousands):

Cash and cash equivalents		$	274
Accounts receivable			1,351
Inventories			1,000
Other current assets			91
	Total current assets		2,716
Fixed assets			1,141
Total assets		$	3,857
Accounts payable and other current liabilities		$	895
Long–term liabilities			783
	Total liabilities		1,678
Stockholders’ equity			2,179
Total liabilities and stockholders’ equity		$	3,857

Cytion S.A.

     On July 19, 2001, Molecular Devices acquired all of the capital stock of Cytion S.A. (“Cytion”) in exchange for $7.5 million in cash and 400,000 shares of Molecular Devices’ common stock valued at $7.4 million, based on the five-day average closing stock price as of July 10, 2001 announcement date. In addition, Molecular Devices assumed $581,000 of liabilities and incurred $900,000 of acquisition costs both of which were offset by deferred taxes of $549,000 generated by the transaction. Cytion was a Swiss developer of automated patch clamping systems based in Switzerland. The excess of the purchase price over the identified net assets

46

of Cytion has been allocated to goodwill, acquired in-process research and development and patents. The following is the allocation of the purchase price (in thousands):

Acquired goodwill	$	1,355
Acquired in-process research and development		12,625
Deferred taxes		(549	)
Acquired patents		1,372
Fair value of acquired assets		973
Total purchase price	$	15,776

     The condensed balance sheet of Cytion as of July 19, 2001 was as follows (in thousands):

Cash and cash equivalents		$	1,183
Inventories			119
Other current assets			81
	Total current assets		1,383
Fixed assets			171
Total assets		$	1,554
Accounts payable and other accrued liabilities		$	581
Stockholders’ equity			973
Total liabilities and stockholders’ equity		$	1,554

     A one-time charge of $12.6 million for purchased in-process research and development expenses was recorded upon closing of the acquisition in the third quarter of 2001. The amounts allocated to in-process research and development were expensed upon acquisition because technological feasibility had not been established and no future alternative uses existed. The value of the projects was determined by estimating the costs to develop the in-process technology into commercially feasible products and estimating the present value of the net cash flows which management believed would result from the products.

     The results of operations for Cytion are included in Molecular Devices’ results of operations beginning July 20, 2001.

Nihon Molecular Devices

     On January 5, 2001, Molecular Devices acquired all of the capital stock of Nihon Molecular Devices (NMD), its Japanese distributor, in exchange for $3.2 million in cash. The acquisition was accounted for as a purchase. As a result, NMD became a wholly owned subsidiary of Molecular Devices. The results of operations for NMD are included in Molecular Devices’ results of operations beginning January 5, 2001. JCR Pharmaceuticals Co., Ltd. and Molecular Devices jointly established NMD in 1995 to import and sell Molecular Devices’ products in Japan. The excess of the purchase price over the identified net tangible assets of NMD ($2.1 million) has been allocated to goodwill.

LJL BioSystems

     On August 30, 2000, Molecular Devices acquired all of LJL BioSystems’ outstanding stock in a tax-free, stock-for-stock transaction. LJL BioSystems’ stockholders received 0.30 of a share of Molecular Devices’ common stock for each share of LJL BioSystems’ common stock. Molecular Devices issued approximately 4.5 million shares of common stock to acquire the outstanding LJL BioSystems shares on the closing date. In addition, Molecular Devices assumed outstanding options to acquire LJL BioSystems shares, which were converted into options to acquire approximately 557,000 shares of Molecular Devices’ common stock. Molecular Devices has accounted for the transaction as a pooling of interests, and, accordingly, the consolidated financial statements and all financial information have been restated to reflect the combined operations, financial position and cash flows of both companies. During the quarter ended September 30, 2000, Molecular Devices incurred approximately $15.2 million in merger related expenses, including transition costs, investment banking, legal and other advisory services, which were charged to operations as incurred.

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Pro Forma Results

The unaudited pro forma results of operations for the years ended December 31, 2002, 2001, and 2000 for Molecular Devices are set forth below. This presentation assumes that the UIC acquisition had been consummated January 1, 2001 and that the Cytion and NMD acquisitions had been consummated on January 1, 2000. In accordance with FAS 141 and SEC regulations, this presentation excludes the charges for acquired in-process research and development, and the merger expenses associated with the LJL BioSystems pooling (in thousands, except per share amounts):

	Years ended December 31,
	2002		2001		2000
Revenue	$	107,143	$	101,900	$	98,883
Net income	$	7,039	$	6,729	$	6,402
Diluted net income per share	$	0.46	$	0.41	$	0.42

The unaudited pro forma information does not purport to be indicative of the results that actually would have occurred had the UIC acquisition been consummated on January 1, 2001, and had the Cytion and NMD acquisitions occurred on January 1, 2000, or of results that may occur in the future.

Upstate Group, Inc.

     In December 2000, Molecular Devices acquired a minority equity interest in Upstate Group, Inc, (“Upstate”), a private company, for $10 million in cash. The companies also announced the launch of a ten-year strategic partnership to provide new consumable reagent kits to the high-throughput screening market. Under the partnership agreement, Molecular Devices is the exclusive distributor of all kits co-developed by Upstate and Molecular Devices, which will be optimized to perform on Molecular Devices’ drug discovery instrumentation platforms. Upstate is a leading supplier of reagents to the drug discovery and life sciences research markets, with particular strength in “cell-signaling” reagents such as kinases. Molecular Devices accounts for its investment in Upstate using the cost method because Molecular Devices does not have the ability to exercise significant influence over Upstate’s operating and financial policies.

NOTE 6. GOODWILL AND PURCHASED INTANGIBLE ASSETS

     In 2002, $18.8 million of goodwill was acquired, bringing the December 31, 2002 balance to $26.0 million.

     Purchased intangible assets not subject to amortization are comprised of tradename, valued at $707,000 and $0 at December 31, 2002 and 2001, respectively.

     Purchased intangible assets subject to amortization consisted of the following (in thousands):

		December 31, 2002						December 31, 2001
		Gross				Net		Gross				Net
		Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
		Value		Amortization		Value		Value		Amortization		Value
Patents		$	1,372	$	198	$	1,174	$	1,372	$	61	$	1,311
Developed technology			1,468		73		1,395		—		—		—
	Total	$	2,840	$	271	$	2,569	$	1,372	$	61	$	1,311

     The estimated future amortization expense of purchased intangible assets is as follows (in thousands):

	Amortization
For the years ending December 31,	Expense
2003	$	284
2004		284
2005		284
2006		284
2007		284
Thereafter		1,149
	$	2,569

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NOTE 7. STOCKHOLDERS’ EQUITY

Treasury Stock

     In the first quarter of 2002, Molecular Devices completed the repurchase of 220,000 shares of its common stock. In the third and fourth quarters of 2001, Molecular Devices completed the repurchase of 1,510,000 shares of its common stock. These repurchases occurred at various times throughout the periods subsequent to approval of two repurchase programs by the Molecular Devices Board of Directors in July 2001 and October 2001, each allowing for the repurchase of up to 1.5 million shares. In October 2001, 1,500,000 shares were retired. As of December 31, 2002, 242,298 shares remained on our balance sheet as treasury stock, at cost.

NOTE 8. EQUITY INCENTIVE PLANS

     Under Molecular Devices’ 1995 Stock Option Plan (“1995 Plan”), a total of 3,250,000 shares of Molecular Devices’ common stock have been reserved for issuance as either incentive or nonqualified stock options to officers, directors, employees and consultants of Molecular Devices. Option grants expire in ten years and generally become exercisable in increments over a period of four to five years from the date of grant. Options may be granted with different vesting terms from time to time.

     In September 1995, Molecular Devices established the 1995 Non-Employee Directors’ Stock Option Plan (the “Directors’ Plan”). Under the Directors’ Plan, Molecular Devices is authorized to grant nonqualified stock options to purchase up to 347,500 shares of common stock at the fair market value of the common shares at the date of grant. Options granted under the Directors’ Plan vest and become exercisable in three equal annual installments commencing one year from the date of the grant.

     In July 2001, Molecular Devices established the 2001 Stock Option Plan (the “2001 Plan”). Under the 2001 Plan, a total of 100,000 shares of Molecular Devices’ common stock have been reserved for issuance to employees of Molecular Devices or its affiliates who are working or residing outside of the United States and are not officers or directors of Molecular Devices. Option grants expire in twelve years and generally become exercisable in increments over a period of four to five years from the date of grant. Options may be granted with different vesting terms from time to time.

     LJL BioSystems’ stock plans included the 1994 Equity Incentive Plan (the “1994 Plan”), the 1997 Stock Plan (the “1997 Plan”), and the 1998 Directors’ Plan (the “Directors’ Plan”). Upon closing of the merger, Molecular Devices assumed all outstanding options under these plans, which were converted into options to purchase Molecular Devices common stock. Molecular Devices also assumed the shares available for grant under the 1994 and 1997 Plans to LJL BioSystems’ employees. Options granted under the 1994 Plan and 1997 Plan generally vest over a five-year period.

     In connection with an increase of 1,000,000 shares to the Molecular Devices 1995 Plan on May 24, 2001, an amendment to LJL BioSystems’ stock plans was approved to prohibit future grants under the plans and to decrease the aggregate number of shares authorized for issuance to the number of shares subject to outstanding options under the plans. In 2002 and 2001, the aggregate number of shares authorized under the LJL BioSystems’ plans was decreased by 634,521 and 610,391, respectively.

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     The following table summarizes the activity under all of the Molecular Devices’ plans and LJL BioSystems’ plans on a combined basis:

		Shares						Weighted
		Available for			Options			Average
		Future Grant			Outstanding			Exercise Price
Balance December 31, 1999			1,134,745			2,001,782		$	16.70
	Authorized		242,500			—			—
	Granted		(768,034	)		765,534			52.49
	Exercised		—			(577,254	)		13.74
	Cancelled		342,594			(342,594	)		31.19
Balance December 31, 2000			951,805			1,847,468			29.89
	Authorized		1,100,000			—			—
	Granted		(884,950	)		884,950			27.75
	Exercised		—			(208,954	)		15.43
	Cancelled		298,107			(298,107	)		30.48
	Plan Expired		(610,391	)		—			—
Balance December 31, 2001			854,571			2,225,357			30.32
	Authorized		500,000			—			—
	Granted		(591,813	)		591,813			19.41
	Exercised		—			(24,169	)		14.28
	Cancelled		227,669			(227,669	)		33.76
	Plan Expired		(24,130	)		—			—
Balance December 31, 2002			966,297			2,565,332		$	27.87

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     The following table is a summary of Molecular Devices’ outstanding and exercisable options at December 31, 2002:

Options outstanding							Options exercisable
Range of	Number		Weighted-average remaining		Weighted-average		Number		Weighted-average
exercise prices	outstanding		contractual life (Yr.)		exercise price		exercisable		exercise price
$0.33 to $3.33		16,739		3.8	$	3.01		16,739	$	3.01
$5.25 to $8.54		101,350		3.2		6.43		95,935		6.31
$10.22 to $14.50		217,008		6.3		13.72		165,671		14.23
$15.00 to $19.50		304,917		6.8		18.15		168,614		18.03
$20.20 to $23.54		1,088,140		8.5		21.75		289,060		22.72
$26.63 to $29.19		249,441		6.4		26.79		177,906		26.80
$35.25 to $39.69		119,675		7.3		38.63		65,425		38.34
$48.00 to $53.33		300,413		6.9		48.09		155,115		48.11
$74.94 to $78.75		167,649		7.6		76.74		81,045		76.79
		2,565,332			$	27.87		1,215,510	$	27.63

     There were 684,296, and 450,161 options exercisable under the various plans at December 31, 2001 and 2000, respectively.

Deferred Compensation

     Deferred compensation is recorded when the exercise price of an option is less than the deemed fair value of the underlying stock on the date of grant. For options granted in September 1995, Molecular Devices recognized $578,000 as deferred compensation. The deferred compensation expense was being amortized ratably over the vesting period of the options, generally 3 - 5 years. The amortization of this deferred compensation was completed during 2000.

     For options granted in 1997, LJL BioSystems recognized $772,000 as deferred compensation. On March 10, 1998, LJL BioSystems granted an option to an employee to purchase shares of common stock at a price 15% below fair market value at the date of the grant. Deferred compensation of $33,600 was recorded based on the estimated fair value of the options granted. The amortization of this deferred compensation was completed during 2000.

     During 1998, Molecular Devices granted 42,500 shares of restricted stock to certain employees. These restricted shares vested in quarterly increments from the date of grant over two years. Molecular Devices recognized $782,000 of deferred compensation for the total value of these shares on their respective dates of grant. The deferred compensation expense was recognized ratably over the two-year vesting period. The amortization of this deferred compensation was completed during 2000.

     During 2000, Molecular Devices granted 2,500 shares of restricted stock to an employee. These restricted shares vest in quarterly increments from the date of grant over two years. Molecular Devices recognized $223,000 of deferred compensation for the total value of these shares on the date of grant. The deferred compensation expense is being recognized ratably over the two-year vesting period.

Employee Stock Purchase Plans

     Under the Molecular Devices’ Employee Stock Purchase Plan (the “Molecular Devices Purchase Plan”), 400,000 shares of common stock have been authorized for issuance. Shares may be purchased under the Molecular Devices Purchase Plan at 85% of the lesser of the fair market value of the common stock on the grant or the purchase date. As of December 31, 2002, 216,097 shares remained available for purchase.

401(k) Plan

     Molecular Devices’ 401(k) Plan (“Plan”) covers substantially all of its U.S. based employees. Under the Plan, as amended in February 2001, eligible employees may contribute up to 25% of their eligible compensation, subject to certain Internal Revenue Service restrictions. Molecular Devices began matching a portion of employee contributions in 1997, up to a maximum of 3% or $2,500, whichever is less, of each employee’s eligible compensation. The match, which is subject to board approval based on a number of factors, is effective December 31 of each year and vests over a period of four years of service. For the years ended

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December 31, 2002, 2001 and 2000, Molecular Devices recognized as expense and provided approximately $388,000, $406,000 and $270,000, respectively, under the Plan.

     LJL BioSystems maintained the tax deferred LJL BioSystems, Inc. 401(k) Plan (“LJL Plan”), that covered all employees over twenty-one years of age whom became eligible to enroll the first day of the calendar month following their employment date. Employees were allowed to contribute up to 15% of their compensation to the 401(k) Plan on a pre-tax basis, subject to the maximum amount allowable under IRS regulations. Effective November 1, 2001, the LJL Plan was discontinued and employee account balances were merged into the Plan.

NOTE 9. INCOME TAXES

     The components of the provisions (benefits) for income taxes consist of the following (in thousands):

		Years ended December 31,
		2002			2001			2000
Current:
	Federal	$	760		$	2,042		$	5,498
	State		315			300			1,012
	Foreign		1,025			1,340			516
			2,100			3,682			7,026
Deferred:
	Federal		1,209			1,572			(488	)
	State		(393	)		(577	)		(123	)
	Foreign		—			(52	)		—
			816			943			(611	)
		$	2,916		$	4,625		$	6,415

     The provision (benefit) for income taxes differ from the amounts computed by applying the statutory federal income tax rate to income (loss) before income taxes. The source and tax effects of the differences are as follows:

	Years ended December 31,
	2002			2001			2000
Income (loss) before provisions for income taxes	$	9,721		$	(612	)	$	1,481
Income tax at statutory rate (35%)		3,402			(214	)		519
Non-deductible merger expenses		—			—			5,313
Non-deductible in-process research and development		—			4,417			—
State income tax, net of federal benefit		205			383			580
Foreign sales corporation benefit		(109	)		(251	)		(248	)
Research and development credits		(318	)		(381	)		—
Foreign losses currently benefited (not benefited)		(419	)		530			182
Other		155			141			69
	$	2,916		$	4,625		$	6,415

     Foreign pretax income was $3.9 million, $1.3 million, and $308,000 in 2002, 2001 and 2000, respectively.

     Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amount used for income tax purposes.

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			December 31,
			2002			2001
Deferred tax assets:
	Deferred revenue		$	1,184		$	1,250
	Non-deductible reserves			380			1,477
	Warranty and accrued expenses			2,510			1,448
	Net operating loss carryforwards			3,738			5,954
	Foreign loss carryforwards			709			1,307
	Tax credit carryforwards			2,827			1,277
	Other			802			1,224
	Valuation allowances			(3,642	)		(4,612	)
		Total deferred taxes	$	8,508		$	9,325

     The net valuation allowance decreased by $970,000 in 2002 and increased by $2.2 million in 2001. Approximately, $2.9 million of the valuation allowance relates to stock option deductions that will be credited to equity when realized.

     As of December 31, 2002, Molecular Devices had net operating loss carryforwards for federal income tax purposes of approximately $9.9 million, which expire in the years 2012 through 2019 and federal research and development tax credits of approximately $1.8 million, which expire in the years 2012 through 2022. Molecular Devices had net operating loss carryforwards for state income tax purposes of approximately $8.0 million which expire in the years 2004 through 2010 and research and development credits of approximately $700,000 for state income tax purposes which carryforward indefinitely. Utilization of the net operating loss carryforwards may be subject to substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration of the net operating loss carryforwards before utilization.

NOTE 10. INDUSTRY SEGMENT, GEOGRAPHIC AND CUSTOMER INFORMATION

     Molecular Devices operates in a single industry segment, and the chief operating decision maker views its operations as follows: the design, development, manufacture, sale and service of bioanalytical measurement systems for drug discovery and life sciences research applications.

     Foreign subsidiaries’ operations consist of research and development, sales, service, manufacturing and distribution. Summarized data for Molecular Devices’ domestic and international operations was as follows (in thousands):

								Adjustments and
		United States				International		eliminations			Total
Year-Ended December 31, 2002
	Revenues	$	92,058			$	30,278	$	(20,179	)	$	102,157
	Income (loss) from operations		8,438				261		(540	)		8,159
	Identifiable assets		162,698				22,114		(21,911	)		162,901
Year-Ended December 31, 2001
	Revenues		82,934				29,490		(20,193	)		92,231
	Income (loss) from operations		(6,350	)	(1)		1,925		7			(4,418	)
	Identifiable assets		151,848				19,601		(19,088	)		152,361
Year-Ended December 31, 2000
	Revenues		90,478				17,302		(11,745	)		96,035
	Income (loss) from operations		(3,657	)	(1)		732		(506	)		(3,431	)
	Identifiable assets		170,468				12,738		(3,173	)		180,033

(1) Includes the write-off of acquired in-process research and development and merger and acquisition related expenses

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     Molecular Devices products are broken into two product families. The Drug Discovery family includes the IonWorks HT, FLIPR, CLIPR, Cytosensor, Analyst, and Discovery-1 product lines, and related consumables. The Life Sciences Research family includes the Maxline, Threshold, MetaMorph and Skatron product lines. Consolidated revenue from Molecular Devices’ product families was as follows (in thousands):

		Years ended December 31,
		2002		2001		2000
Drug discovery		$	45,826	$	43,859	$	49,168
Life sciences research			56,331		48,372		46,867
	Total revenues	$	102,157	$	92,231	$	96,035

     Sources of consolidated revenue from significant geographic regions were as follows (in thousands):

		Years ended December 31,
		2002		2001		2000
North America		$	64,819	$	61,649	$	63,477
Europe			25,331		20,136		25,381
Rest of world			12,007		10,446		7,177
	Total revenues	$	102,157	$	92,231	$	96,035

NOTE 11. LEGAL PROCEEDING

     On April 16, 2002, Caliper Technologies Corporation (“Caliper”) filed a patent infringement lawsuit against Molecular Devices alleging that our IMAP assay kits infringe U.S. patents held by Caliper. We believe that none of our products infringe any claim of the Caliper patents. On May 8, 2002, we filed an answer and counter-claim to Caliper’s lawsuit denying all allegations of infringement, setting forth certain affirmative defenses and making a counter-claim for declaratory relief that, among other things, we are not infringing and have not infringed any valid and enforceable claim of the Caliper patent and that the Caliper patent is invalid. Caliper has also made a motion for preliminary injunction, expected to be decided in the second or third quarter of calendar 2003. We intend to oppose vigorously this motion. If Caliper were to prevail in this motion, we may be prohibited from selling IMAP assay kits until completion of the litigation, which may take several additional months. If we do not prevail in litigation, we may be prohibited permanently from selling IMAP assay kits.

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NOTE 12. COMPARATIVE QUARTERLY FINANCIAL DATA (UNAUDITED)

     Summarized quarterly financial data is as follows:

		First		Second		Third			Fourth
		(In thousands, except per share amounts)
Fiscal 2002
	Revenues	$	20,625	$	25,440	$	25,907		$	30,184
	Gross profit		12,575		14,985		15,534			18,502
	Net income		723		1,680		1,795			2,607
	Basic net income per share		0.05		0.11		0.12			0.17
	Diluted net income per share		0.05		0.11		0.12			0.17
Fiscal 2001
	Revenues	$	20,732	$	23,981	$	22,140		$	25,378
	Gross profit		12,756		14,648		13,487			15,802
	Net income (loss)		1,644		2,435		(11,212	)(1)		1,896
	Basic net income (loss) per share		0.10		0.15		(0.69	)		0.12
	Diluted net income (loss) per share		0.10		0.15		(0.69	)		0.12
Fiscal 2000
	Revenues	$	20,179	$	24,038	$	24,341		$	27,477
	Gross profit		12,818		15,053		15,274			17,307
	Net income (loss)		1,186		2,037		(12,395	)(2)		4,238
	Basic net income (loss) per share		0.09		0.14		(0.77	)		0.26
	Diluted net income (loss) per share		0.08		0.13		(0.77	)		0.25

(1)	Includes a charge of approximately $12.6 million for the write-off of acquired in-process research and development related to the acquisition of Cytion S.A.
(2)	Includes a charge of approximately $15.2 million of direct costs related to the LJL BioSystems merger.

NOTE 13. RELATED PARTY TRANSACTION

     Molecular Devices paid $700,000 to Essen Instruments (“Essen”), primarily for inventory, in 2002. There were no similar transactions in 2001 and 2000. Molecular Devices’ Chief Financial Officer is a member of the Board of Directors of Essen and Molecular Devices is also a minority investor in Essen.

55

MOLECULAR DEVICES CORPORATION AND SUBSIDIARIES

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

	BALANCE		CHARGED TO					BALANCE AT END OF
Description	AT BEGINNING OF YEAR		COSTS		DEDUCTIONS			YEAR
Allowance for doubtful accounts receivables for the year ended December 31, 2000	$	452	$	161	$	(52	)	$	561
Allowance for doubtful accounts receivables for the year ended December 31, 2001	$	561	$	597	$	(10	)	$	1,148
Allowance for doubtful accounts receivables for the year ended December 31, 2002	$	1,148	$	—	$	(714	)	$	434

56

EXHIBIT INDEX

EXHIBIT
NUMBER	DESCRIPTION OF DOCUMENT
2.1(1)	Form of Agreement and Plan of Merger between the Registrant and Molecular Devices Corporation, a California Corporation
2.2(2)	Stock and Asset Purchase Agreement, dated as of May 17, 1999, among Molecular Devices Corporation, a Delaware corporation, Helge Skare, Wiel Skare, Steinar Faanes and Sten Skare, each an individual resident in Norway, Skatron Instruments AS, a Norwegian company, and Skatron Instruments, Inc., a Virginia corporation
2.4(5)	Agreement and Plan of Merger and Reorganization dated as of June 7, 2000 by and among Molecular Devices Corporation, Mercury Acquisition Sub, Inc. and LJL BioSystems, Inc.
2.5(11)	Stock Purchase Agreement dated as of November 14, 2000 by and among JCR Pharmaceuticals, K.K. and Molecular Devices Corporation
2.6(12)	Stock Purchase Agreement dated as of July 6, 2001 by and among Molecular Devices, Cytion S.A., Jean-Pierre Rosat (as agent for the stockholders of Cytion) and each of the stockholders of Cytion.
2.7(13)	Stock Purchase Agreement dated as of June 1, 2002 by and among Molecular Devices, Universal Imaging Corporation, Theodore Inoue (as agent for the stockholders of Universal Imaging Corporation) and each of the stockholders of Universal Imaging Corporation.
3.1(1)	Amended and Restated Certificate of Incorporation of Registrant
3.2(1)	Bylaws of the Registrant
3.3(8)	Certificate of Amendment to Certificate of Incorporation
4.1(1)	Specimen Certificate of Common Stock of Registrant
10.1(1)*	1988 Stock Option Plan
10.2(1)*	Form of Incentive Stock Option under the 1988 Stock Option Plan
10.3(1)*	Form of Supplemental Stock Option under the 1988 Stock Option Plan
10.4(8)*	1995 Employee Stock Purchase Plan
10.6(1)*	Form of Nonstatutory Stock Option under the 1995 Non-Employee Directors’ Stock Option Plan
10.8(1)*	Form of Incentive Stock Option under the 1995 Stock Option Plan
10.9(1)*	Form of Nonstatutory Stock Option under the 1995 Stock Option Plan
10.10(1)*	Form of Early Exercise Stock Purchase Agreement under the 1995 Stock Option Plan
10.11(1)*	Form of Indemnity Agreement between the Registrant and its Directors and Executive Officers
10.19(2)*	Key Employee Agreement for Joseph D. Keegan, Ph.D., dated March 11, 1998, as amended
10.20(3)	Exclusive License and Technical Support Agreement dated August 28, 1998 by and between the Registrant and Affymax
10.21(3)*	Employee Offer Letter for Tim Harkness
10.23(3)*	Employee Offer Letter for John Senaldi
10.24(4)*	1995 Non-Employee Director’s Stock Option Plan, as amended
10.25*	1995 Stock Option Plan, as amended
10.26(6)*	Employee Offer Letter for Patricia Sharp
10.27(7)*	LJL BioSystems 1994 Equity Incentive Plan and Forms of Agreements
10.28(7)*	LJL BioSystems 1997 Stock Plan and Forms of Agreements
10.29(7)*	LJL BioSystems 1998 Directors’ Stock Option Plan and Forms of Agreements
10.33(9)	Lease Agreement dated May 26, 2000 by and between Aetna Life Insurance Company and the Registrant

57

EXHIBIT
NUMBER	DESCRIPTION OF DOCUMENT
10.34(10)*	Change in Control Severance Benefit Plan
10.35(12)	Rights Agreement, dated October 25, 2001, among the Registrant and EquiServe Trust Company, N.A.
10.36(8)*	Key Employee Agreement for Stephen Oldfield
10.37(8)*	Key Employee Agreement for Tom O’Lenic
10.38*	2001 Stock Option Plan
10.39	Lease dated May 28, 2002 by and between The Irvine Company and the Registrant
10.40*	Letter Agreement dated April 11, 2002 by and between the Registrant and Joseph D. Keegan, Ph.D.
10.41*	Letter Agreement dated April 11, 2002 by and between the Registrant and Timothy A. Harkness
10.42*	Letter Agreement dated April 11, 2002 by and between the Registrant and John S. Senaldi
21.1	Subsidiaries of the Registrant
23.1	Consent of Ernst & Young LLP, Independent Auditors
99.1**	Certification by the Chief Executive Officer and the Chief Financial Officer of Molecular Devices as required by Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. Section 1350, as adopted) (the Sarbanes-Oxley Act of 2002), dated March 27, 2003.

(1)	Incorporated by reference to the similarly described exhibit in our Registration Statement on Form S-1 (File No. 33-98926), as amended.
(2)	Incorporated by reference to the similarly described exhibit in our Form 10-Q Quarterly Report dated June 30, 1998, and filed August 13, 1998.
(3)	Incorporated by reference to the similarly described exhibit in our Form 10-Q Quarterly Report dated September 30, 1998, and filed November 13, 1998.
(4)	Incorporated by reference to the similarly described exhibit in our Registration Statement on Form S-8 (File No. 333-86159), as amended.
(5)	Incorporated by reference to the similarly described exhibit in our Current Report on Form 8-K filed June 12, 2000.
(6)	Incorporated by reference to the similarly described exhibit in our Form 10-Q Quarterly Report dated September 30, 2000 and filed on November 13, 2000.
(7)	Incorporated by reference to the similarly described exhibit filed with LJL BioSystems’ Registration Statement on Form S-1 (File No. 333-43529) declared effective on March 12, 1998.
(8)	Incorporated by reference to the similarly described exhibit in our Form 10-K Annual Report dated December 31, 2001 and filed on April 1, 2002.
(9)	Incorporated by reference to the similarly described exhibit in our Form 10-K Annual Report dated December 31, 2000 and filed on March 30, 2001.
(10)	Incorporated by reference to the similarly described exhibit in our Form 10-Q Quarterly Report dated March 31, 2001 and filed on May 11, 2001.
(11)	Incorporated by reference to the similarly described exhibit in our Form 10-Q Quarterly Report dated June 30, 2001 and filed on August 14, 2001.
(12)	Incorporated by reference to the similarly described exhibit in our Current Report on Form 8-K filed October 30, 2001.
(13)	Incorporated by reference to the similarly described exhibit in our Current Report on Form 8-K filed on June 12, 2002.
*	Management contract or compensatory plan or arrangement.
**	This certification “accompanies” the Form 10-K to which it relates, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.

58 EX-10.25 3 f88686exv10w25.txt EXHIBIT 10.25 EXHIBIT 10.25 MOLECULAR DEVICES CORPORATION 1995 STOCK OPTION PLAN ADOPTED BY THE BOARD OF DIRECTORS ON OCTOBER 30, 1995 APPROVED BY THE STOCKHOLDERS ON DECEMBER 12, 1995 AMENDED BY THE BOARD ON JANUARY 29, 1999 AS APPROVED BY THE STOCKHOLDERS ON MAY 20, 1999 AMENDED BY THE BOARD ON FEBRUARY 15, 2001 AND APRIL 17, 2001 AS APPROVED BY THE STOCKHOLDERS ON MAY 24, 2001 AMENDED BY THE BOARD ON JANUARY 31, 2002 AS APPROVED BY THE STOCKHOLDERS ON MAY 23, 2002 AMENDED BY THE BOARD ON FEBRUARY 6, 2003 1. PURPOSES. (a) The purpose of the Plan is to provide a means by which selected Employees and Directors of and Consultants to the Company, and its Affiliates, may be given an opportunity to purchase stock of the Company. (b) The Company, by means of the Plan, seeks to retain the services of persons who are now Employees or Directors of or Consultants to the Company or its Affiliates, to secure and retain the services of new Employees, Directors and Consultants, and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates. (c) The Company intends that the Options issued under the Plan shall, in the discretion of the Board or any Committee to which responsibility for administration of the Plan has been delegated pursuant to subsection 3(c), be either Incentive Stock Options or Nonstatutory Stock Options. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and in such form as issued pursuant to Section 6, and a separate certificate or certificates will be issued for shares purchased on exercise of each type of Option. 2. DEFINITIONS. (a) "Affiliate" means any parent corporation or subsidiary corporation, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f) respectively, of the Code. (b) "Board" means the Board of Directors of the Company. (c) "Code" means the Internal Revenue Code of 1986, as amended. (d) "Committee" means a Committee appointed by the Board in accordance with subsection 3(c) of the Plan. (e) "Company" means Molecular Devices Corporation. (f) "Consultant" means any person, including an advisor, engaged by the Company or an Affiliate to render consulting services and who is compensated for such services, provided that the term "Consultant" shall not include Directors who are paid only a director's fee by the Company or who are not compensated by the Company for their services as Directors. (g) "Continuous Status as an Employee, Director or Consultant" means the employment or relationship as a Director or Consultant is not interrupted or terminated. The Board, in its sole discretion, may determine whether Continuous Status as an Employee, Director or Consultant shall be considered interrupted in the case of: (i) any leave of absence approved by the Board, including sick leave, military leave, or any other personal leave; or (ii) transfers between locations of the Company or between the Company, Affiliates or their successors. (h) "Covered Employee" means the chief executive officer and the four (4) other highest compensated officers of the Company for whom total compensation is required to be reported to shareholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code. (i) "Director" means a member of the Board. (j) "Employee" means any person, including Officers and Directors, employed by the Company or any Affiliate of the Company. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (k) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (l) "Fair Market Value" means as of any date, the value of the Common Stock of the Company determined as follows: (1) If the common stock is listed on any established stock exchange or a national market system, including without limitation the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") System, the Fair Market Value of a share of common stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such system or exchange (or the exchange with the greatest volume of trading in common stock) on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Board deems reliable; (2) If the common stock is quoted on the NASDAQ System (but not on the National Market System thereof) or is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a share of common stock shall be the mean between the bid and asked prices for the common stock on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Board deems reliable; 2 (3) In the absence of an established market for the common stock, the Fair Market Value shall be determined in good faith by the Board. (m) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (n) "Non-Employee Director" means a Director of the Company who either (i) is not a current Employee or Officer of the Company or its parent or a subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or a subsidiary for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act ("Regulation S-K")), does not possess an interest in any other transaction as to which disclosure would be required under Item 404(a) of Regulation S-K and is not engaged in a business relationship as to which disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a "non-employee director" for purposes of Rule 16b-3. (o) "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock Option. (p) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (q) "Option" means a stock option granted pursuant to the Plan. (r) "Option Agreement" means a written agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan. (s) "Optionee" means an Employee, Director or Consultant who holds an outstanding Option. (t) "Outside Director" means a Director who either (i) is not a current employee of the Company or an "affiliated corporation" (within the meaning of the Treasury regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an "affiliated corporation" receiving compensation for prior services (other than benefits under a tax qualified pension plan), was not an officer of the Company or an "affiliated corporation" at any time, and is not currently receiving direct or indirect remuneration from the Company or an "affiliated corporation" for services in any capacity other than as a Director, or (ii) is otherwise considered an "outside director" for purposes of Section 162(m) of the Code. (u) "Plan" means this Molecular Devices 1995 Stock Option Plan. (v) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan. 3 3. ADMINISTRATION. (a) The Plan shall be administered by the Board unless and until the Board delegates administration to a Committee, as provided in subsection 3(c). (b) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (1) To determine from time to time which of the persons eligible under the Plan shall be granted Options; when and how each Option shall be granted; whether an Option will be an Incentive Stock Option or a Nonstatutory Stock Option; the provisions of each Option granted (which need not be identical), including the time or times such Option may be exercised in whole or in part; and the number of shares for which an Option shall be granted to each such person. (2) To construe and interpret the Plan and Options granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Option Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (3) To amend the Plan or an Option as provided in Section 11. (4) To effect, at any time and from time to time, with the consent of any adversely affected Optionee, (1) the cancellation of any outstanding Option under the Plan and the grant in substitution therefor, more than 6 months after the date of cancellation, of a new Option under the Plan covering the same or a different number of shares or (2) any other similar action that is not treated as a "repricing" under generally accepted accounting principles. (5) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company. (c) The Board may delegate administration of the Plan to a committee composed of not fewer than two (2) members (the "Committee"), all of the members of which Committee shall be Non-Employee Directors and may also be, in the discretion of the Board, Outside Directors. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board (and references in this Plan to the Board shall thereafter be to the Committee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. Notwithstanding anything in this Section 3 to the contrary, the Board or the Committee may delegate to a committee of one or more members of the Board the authority to grant Options to eligible persons who (1) are not then subject to Section 16 of the Exchange Act and/or (2) are either (i) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income 4 resulting from such Option, or (ii) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code. 4. SHARES SUBJECT TO THE PLAN. (a) Subject to the provisions of Section 10 relating to adjustments upon changes in stock, the stock that may be sold pursuant to Options shall not exceed in the aggregate three million two hundred fifty thousand (3,250,000) shares of Company common stock, plus up to one million (1,000,000) shares of Company Common Stock to the extent that such shares previously reserved under the Company's terminated 1988 Stock Option Plan (the "1988 Plan") (i) have not, as of the date of the adoption of this Plan, previously been issued pursuant to the exercise of options under the 1988 Plan, and (ii) are not, as of the date of adoption of this Plan, subject to options outstanding under the 1988 Plan. If any Option granted under the Plan or any stock option granted under the 1988 Plan shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the stock not acquired shall revert to and again become available for issuance under this Plan. (b) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 5. ELIGIBILITY. (a) Incentive Stock Options may be granted only to Employees. Nonstatutory Stock Options may be granted only to Employees, Directors or Consultants. (b) No person shall be eligible for the grant of an Option if, at the time of grant, such person owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of such stock at the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant. (c) Subject to the provisions of Section 10 relating to adjustments upon changes in stock, no person shall be eligible to be granted Options covering more than Five Hundred Thousand (500,000) shares of the Company's common stock in any calendar year. 6. OPTION PROVISIONS. Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions: (a) Term. No Option shall be exercisable after the expiration of ten (10) years from the date it was granted. 5 (b) Price. The exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. The exercise price of each Nonstatutory Stock Option shall be not less than eighty-five percent (85%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, an Option (whether and Incentive Stock Option or Nonstatutory Stock Option) may be granted with an option exercise price lower than that set forth above if such option is granted pursuant to an assumption or substitution for another option in a manner qualifying with the provisions of Section 424(a) of the Code. (c) Consideration. The purchase price of stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised, or (ii) at the discretion of the Board or the Committee, at the time of the grant of the Option, (A) by delivery to the Company of other common stock of the Company, (B) according to a deferred payment or other arrangement (which may include, without limiting the generality of the foregoing, the use of other common stock of the Company) with the person to whom the Option is granted or to whom the Option is transferred pursuant to subsection 6(d), or (C) in any other form of legal consideration that may be acceptable to the Board. In the case of any deferred payment arrangement, interest shall be payable at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement. (d) Transferability. An Option shall not be transferable except by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the person to whom the Option is granted only by such person. A Nonstatutory Stock Option shall not be transferable except by will or by the laws of descent and distribution or pursuant to a domestic relations order satisfying the requirements of Rule 16b-3 and the rules thereunder (a "DRO"), and shall be exercisable during the lifetime of the person to whom the Option is granted only by such person or any transferee pursuant to a DRO. The person to whom the Option is granted may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionee, shall thereafter be entitled to exercise the Option. (e) Vesting. The total number of shares of stock subject to an Option may, but need not, be allotted in periodic installments (which may, but need not, be equal). The Option Agreement may provide that from time to time during each of such installment periods, the Option may become exercisable ("vest") with respect to some or all of the shares allotted to that period, and may be exercised with respect to some or all of the shares allotted to such period and/or any prior period as to which the Option became vested but was not fully exercised. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The provisions of this subsection 6(e) are subject to any Option provisions governing the minimum number of shares as to which an Option may be exercised. 6 (f) Securities Law Compliance. The Company may require any Optionee, or any person to whom an Option is transferred under subsection 6(d), as a condition of exercising any such Option, (1) to give written assurances satisfactory to the Company as to the Optionee's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters, and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Option; and (2) to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the Option for such person's own account and not with any present intention of selling or otherwise distributing the stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares upon the exercise of the Option has been registered under a then currently effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"), or (ii) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the stock. (g) Termination of Employment or Relationship as a Director or Consultant. In the event an Optionee's Continuous Status as an Employee, Director or Consultant terminates (other than upon the Optionee's death or disability), the Optionee may exercise his or her Option (to the extent that the Optionee was entitled to exercise it at the date of termination) but only within such period of time ending on the earlier of (i) the date three (3) months after the termination of the Optionee's Continuous Status as an Employee, Director or Consultant, or such longer or shorter period specified in the Option Agreement, or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionee does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. (h) Disability of Optionee. In the event an Optionee's Continuous Status as an Employee, Director or Consultant terminates as a result of the Optionee's disability, the Optionee may exercise his or her Option (to the extent that the Optionee was entitled to exercise it at the date of termination), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, at the date of termination, the Optionee is not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. 7 (i) Death of Optionee. In the event of the death of an Optionee during, or within a period specified in the Option after the termination of, the Optionee's Continuous Status as an Employee, Director or Consultant, the Option may be exercised (to the extent the Optionee was entitled to exercise the Option at the date of death) by the Optionee's estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the option upon the Optionee's death pursuant to subsection 6(d), but only within the period ending on the earlier of (i) the date eighteen (18) months following the date of death (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of such Option as set forth in the Option Agreement. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under the Plan. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. (j) Early Exercise. The Option may, but need not, include a provision whereby the Optionee may elect at any time while an Employee, Director or Consultant to exercise the Option as to any part or all of the shares subject to the Option prior to the full vesting of the Option. Any unvested shares so purchased may be subject to a repurchase right in favor of the Company or to any other restriction the Board determines to be appropriate. (k) Withholding. To the extent provided by the terms of an Option Agreement, the Optionee may satisfy any federal, state or local tax withholding obligation relating to the exercise of such Option by any of the following means or by a combination of such means: (1) tendering a cash payment; (2) authorizing the Company to withhold shares from the shares of the common stock otherwise issuable to the Optionee as a result of the exercise of the Option; or (3) delivering to the Company owned and unencumbered shares of the common stock of the Company. 7. COVENANTS OF THE COMPANY. (a) During the terms of the Options, the Company shall keep available at all times the number of shares of stock required to satisfy such Options. (b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the Options; provided, however, that this undertaking shall not require the Company to register under the Securities Act either the Plan, any Option or any stock issued or issuable pursuant to any such Option. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such Options unless and until such authority is obtained. 8 8. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock pursuant to Options shall constitute general funds of the Company. 9. MISCELLANEOUS. (a) The Board shall have the power to accelerate the time at which an Option may first be exercised or the time during which an Option or any part thereof will vest pursuant to subsection 6(e), notwithstanding the provisions in the Option stating the time at which it may first be exercised or the time during which it will vest. (b) Neither an Optionee nor any person to whom an Option is transferred under subsection 6(d) shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such Option unless and until such person has satisfied all requirements for exercise of the Option pursuant to its terms. (c) Nothing in the Plan or any instrument executed or Option granted pursuant thereto shall confer upon any Employee, Director, Consultant or Optionee any right to continue in the employ of the Company or any Affiliate (or to continue acting as a Director or Consultant) or shall affect the right of the Company or any Affiliate to terminate the employment or relationship as a Director or Consultant of any Employee, Director, Consultant or Optionee with or without cause. (d) To the extent that the aggregate Fair Market Value (determined at the time of grant) of stock with respect to which Incentive Stock Options granted after 1986 are exercisable for the first time by any Optionee during any calendar year under all plans of the Company and its Affiliates exceeds one hundred thousand dollars ($100,000), the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options. 10. ADJUSTMENTS UPON CHANGES IN STOCK. (a) If any change is made in the stock subject to the Plan, or subject to any Option (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise), the Plan will be appropriately adjusted in the types of securities and maximum number of shares subject to the Plan pursuant to subsection 4(a) and the maximum number of shares subject to award to any person during any calendar year pursuant to subsection 5(c), and the outstanding Options will be appropriately adjusted in the types of securities and number of shares and price per share of stock subject to such outstanding Options. (b) In the event of: (1) a dissolution, liquidation or sale of substantially all of the assets of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; or (3) a reverse merger in which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether 9 in the form of securities, cash or otherwise, then to the extent permitted by applicable law: (i) any surviving corporation shall assume any Options outstanding under the Plan or shall substitute similar Options for those outstanding under the Plan, or (ii) such Options shall continue in full force and effect. In the event any surviving corporation refuses to assume or continue such Options, or to substitute similar options for those outstanding under the Plan, then, with respect to Options held by persons then performing services as Employees, Directors or Consultants, then such Options shall be terminated if not exercised prior to such event; provided, however, that the time during which such Options may be exercised may, at the discretion of the Board of Directors, be accelerated and the Options terminated if not exercised prior to such event. 11. AMENDMENT OF THE PLAN AND OPTIONS. (a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 10 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company within twelve (12) months before or after the adoption of the amendment, where the amendment will: (1) Increase the number of shares reserved for Options under the Plan; (2) Modify the requirements as to eligibility for participation in the Plan (to the extent such modification requires stockholder approval in order for the Plan to satisfy the requirements of Section 422 of the Code or any Nasdaq or securities exchange listing requirements); or (3) Modify the Plan in any other way if such modification requires stockholder approval in order for the Plan to satisfy the requirements of Section 422 of the Code or to comply with the requirements of Rule 16b-3, or any Nasdaq or securities exchange listing requirements. (b) The Board may in its sole discretion submit any other amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations promulgated thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers. (c) It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide Optionees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith. (d) Rights and obligations under any Option granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the person to whom the Option was granted and (ii) such person consents in writing. 10 (e) The Board at any time, and from time to time, may amend the terms of any one or more Options; provided, however, that the rights and obligations under any Option shall not be impaired by any such amendment unless (i) the Company requests the consent of the person to whom the Option was granted and (ii) such person consents in writing. 12. TERMINATION OR SUSPENSION OF THE PLAN. (a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on October 29, 2005, which shall be within ten (10) years from the date the Plan is adopted by the Board or approved by the stockholders of the Company, whichever is earlier. No Options may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any Option granted while the Plan is in effect shall not be impaired by suspension or termination of the Plan, except with the consent of the person to whom the Option was granted. 13. EFFECTIVE DATE OF PLAN. The Plan shall become effective as determined by the Board, but no Options granted under the Plan shall be exercised unless and until the Plan has been approved by the stockholders of the Company, which approval shall be within twelve (12) months before or after the date the Plan is adopted by the Board, and, if required, an appropriate permit has been issued by the Commissioner of Corporations of the State of California. 11 EX-10.38 4 f88686exv10w38.txt EXHIBIT 10.38 EXHIBIT 10.38 MOLECULAR DEVICES CORPORATION 2001 STOCK OPTION PLAN ADOPTED BY THE BOARD OF DIRECTORS ON JULY 26, 2001 AMENDED BY THE BOARD ON FEBRUARY 6, 2003 STOCKHOLDER APPROVAL NOT REQUIRED 1. PURPOSES. (a) The purpose of the Plan is to provide a means by which selected Employees of the Company or its Affiliates who are working or residing outside of the United States and are not Officers or Directors may be given an opportunity to purchase stock of the Company. (b) The Company, by means of the Plan, seeks to retain the services of persons who are eligible to receive Options, to secure and retain the services of new members of this group and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates. 2. DEFINITIONS. (a) "Affiliate" means any "parent" or "subsidiary", whether now or hereafter existing, as those terms are defined in Rule 405 promulgated under the Securities Act of 1933, as amended of the United States of America. (b) "Board" means the Board of Directors of the Company. (c) "Code" means the Internal Revenue Code of 1986, as amended. (d) "Committee" means a Committee appointed by the Board in accordance with subsection 3(c) of the Plan. (e) "Company" means Molecular Devices Corporation. (f) "Consultant" means any person, including an advisor, engaged by the Company or an Affiliate to render consulting services and who is compensated for such services, provided that the term "Consultant" shall not include Directors who are paid only a director's fee by the Company or who are not compensated by the Company for their services as Directors. (g) "Continuous Status as an Employee, Director or Consultant" means the employment or relationship as a Director or Consultant with the Company or an Affiliate of the Company is not interrupted or terminated. The Board, in its sole discretion, may determine whether Continuous Status as an Employee, Director or Consultant shall be considered interrupted in the case of any leave of absence approved by the Board, including sick leave, military leave, or any other personal leave. (i) "Director" means a member of the Board. (j) "Employee" means any person, including an Officer, classified for tax purposes as an "employee" by the Company or any Affiliate of the Company. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute status as an "employee." (k) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (l) "Fair Market Value" means as of any date, the value of the Common Stock of the Company determined as follows: (1) If the common stock is listed on any established stock exchange or a national market system, including without limitation the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") System, the Fair Market Value of a share of common stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such system or exchange (or the exchange with the greatest volume of trading in common stock) on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Board deems reliable; (2) If the common stock is quoted on the NASDAQ System (but not on the National Market System thereof) or is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a share of common stock shall be the mean between the bid and asked prices for the common stock on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Board deems reliable; (3) In the absence of an established market for the common stock, the Fair Market Value shall be determined in good faith by the Board. (n) "Non-Employee Director" means a Director of the Company who either (i) is not a current Employee or Officer of the Company or its parent or a subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or a subsidiary for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act ("Regulation S-K")), does not possess an interest in any other transaction as to which disclosure would be required under Item 404(a) of Regulation S-K and is not engaged in a business relationship as to which disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a "non-employee director" for purposes of Rule 16b-3. (o) "Nonstatutory Stock Option" means an Option not intended to qualify as an "incentive stock option" under Section 422 of the Code. (p) "Officer" means a person who is an officer of the Company within the meaning of that term in Rule 4350(i)(1)(A) of the Rules of the National Association of Securities Dealers, Inc. (or any successor to that rule). (q) "Option" means a Nonstatutory Stock Option granted pursuant to the Plan. (r) "Option Agreement" means a written agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan. (s) "Optionee" means an Employee, Director or Consultant who holds an outstanding Option. (u) "Plan" means this Molecular Devices Corporation 2001 Stock Option Plan. (v) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan. 3. ADMINISTRATION. (a) The Plan shall be administered by the Board unless and until the Board delegates administration to a Committee, as provided in subsection 3(c). (b) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (1) To determine from time to time which of the persons eligible under the Plan shall be granted Options; when and how each Option shall be granted; the provisions of each Option granted (which need not be identical), including the time or times such Option may be exercised in whole or in part; and the number of shares for which an Option shall be granted to each such person. (2) To construe and interpret the Plan and Options granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Option Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (3) To amend the Plan or an Option as provided in Section 11. (4) To effect, at any time and from time to time, with the consent of any adversely affected Optionee, (1) the cancellation of any outstanding Option under the Plan and the grant in substitution therefor, more than 6 months after the date of cancellation, of a new Option under the Plan covering the same or a different number of shares or (2) any other similar action that is not treated as a "repricing" under generally accepted accounting principles. (5) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company. (c) The Board may delegate administration of the Plan to a committee composed of not fewer than two (2) members (the "Committee"), all of the members of which Committee may be Non-Employee Directors if exemption of an Option or Options from the restrictions of Section 16(b) of the Exchange Act is deemed necessary or desirable. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board (and references in this Plan to the Board shall thereafter be to the Committee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. Notwithstanding anything in this Section 3 to the contrary, the Board or the Committee may delegate to a committee of one or more members of the Board the authority to grant Options to eligible persons who are not then subject to Section 16 of the Exchange Act. (d) All determinations, interpretations and constructions made by the Board in good faith shall not be subject to review by any person and shall be final, binding and conclusive on all persons. 4. SHARES SUBJECT TO THE PLAN. (a) Subject to the provisions of Section 10 relating to adjustments upon changes in stock, the stock that may be sold pursuant to Options shall not exceed in the aggregate one hundred thousand (100,000) shares of Company common stock. If any Option granted under the Plan shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the stock not acquired shall revert to and again become available for issuance under this Plan. (b) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 5. ELIGIBILITY. Options may be granted only to Employees who, at the time of grant, are working or residing outside of the United States and are not Officers or Directors. 6. OPTION PROVISIONS. Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions: (a) Term. No Option shall be exercisable after the expiration of twelve (12) years from the date it was granted. (b) Price. Unless otherwise provided expressly by the Board or Committee, the per share exercise price of each Option shall not be less than eighty-five percent (85%) of the Fair Market Value of a share of the Company's Common Stock on the date of grant. (c) Consideration. The purchase price of stock acquired pursuant to exercise of an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised, or (ii) at the discretion of the Board or the Committee, at the time of the grant of the Option, (A) by delivery to the Company of other common stock of the Company, (B) according to a deferred payment or other arrangement (which may include, without limiting the generality of the foregoing, the use of other common stock of the Company) with the person to whom the Option is granted or to whom the Option is transferred pursuant to subsection 6(d), or (C) in any other form of legal consideration that may be acceptable to the Board. In the case of any deferred payment arrangement, interest shall be compounded at least annually and shall be charged at the minimum rate of interest necessary to avoid (1) the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement and (2) the treatment of the Option as a variable award for financial accounting purposes. (d) Transferability. In the absence of a provision on transferability in an Option Agreement, a Nonstatutory Stock Option shall not be transferable except by will or by the laws of descent and distribution or pursuant to a domestic relations order satisfying the requirements of Rule 16b-3 and the rules thereunder (a "DRO"), and shall be exercisable during the lifetime of the person to whom the Option is granted only by such person or any transferee pursuant to a DRO. The person to whom a Nonstatutory Stock Option is granted may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionee, shall thereafter be entitled to exercise the Nonstatutory Stock Option. (e) Vesting. The total number of shares of stock subject to an Option may, but need not, be allotted in periodic installments (which may, but need not, be equal). The Option Agreement may provide that from time to time during each of such installment periods, the Option may become exercisable ("vest") with respect to some or all of the shares allotted to that period, and may be exercised with respect to some or all of the shares allotted to such period and/or any prior period as to which the Option became vested but was not fully exercised. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The provisions of this subsection 6(e) are subject to any Option provisions governing the minimum number of shares as to which an Option may be exercised. (f) Investment Assurances. The Company may require any Optionee, or any person to whom an Option is transferred under subsection 6(d), as a condition of exercising any such Option, (1) to give written assurances satisfactory to the Company as to the Optionee's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters, and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Option; and (2) to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the Option for such person's own account and not with any present intention of selling or otherwise distributing the stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares upon the exercise of the Option has been registered under a then currently effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"), or (ii) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the stock. (g) Termination of Employment or Relationship as a Director or Consultant. In the event an Optionee's Continuous Status as an Employee, Director or Consultant terminates (other than upon the Optionee's death or disability), the Optionee may exercise his or her Option (to the extent that the Optionee was entitled to exercise it at the date of termination) but only within such period of time ending on the earlier of (i) the date three (3) months after the termination of the Optionee's Continuous Status as an Employee, Director or Consultant, or such longer or shorter period specified in the Option Agreement, or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionee does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. (h) Disability of Optionee. In the event an Optionee's Continuous Status as an Employee, Director or Consultant terminates as a result of the Optionee's disability, the Optionee may exercise his or her Option (to the extent that the Optionee was entitled to exercise it at the date of termination), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, at the date of termination, the Optionee is not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. (i) Death of Optionee. In the event of the death of an Optionee during, or within a period specified in the Option after the termination of, the Optionee's Continuous Status as an Employee, Director or Consultant, the Option may be exercised (to the extent the Optionee was entitled to exercise the Option at the date of death) by the Optionee's estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the option upon the Optionee's death pursuant to subsection 6(d), but only within the period ending on the earlier of (i) the date eighteen (18) months following the date of death (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of such Option as set forth in the Option Agreement. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under the Plan. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. (j) Early Exercise. The Option may, but need not, include a provision whereby the Optionee may elect at any time while an Employee, Director or Consultant to exercise the Option as to any part or all of the shares subject to the Option prior to the full vesting of the Option. Any unvested shares so purchased may be subject to a repurchase right in favor of the Company or to any other restriction the Board determines to be appropriate. (k) Withholding. To the extent provided by the terms of an Option Agreement for an Option, the Participant may satisfy any federal, state, local, or other tax withholding obligation relating to the exercise of such Option by any of the following means (in addition to the Company's right to withhold from any compensation paid to the Optionee by the Company) or by a combination of such means: (i) tendering a cash payment; (ii) authorizing the Company to withhold shares of common stock from the shares of common stock otherwise issuable to the Optionee as a result of the exercise of the Option; provided, however, that no shares of common stock are withheld with a value exceeding the minimum amount of tax required to be withheld by law (or such lesser amount as may be necessary to avoid variable award accounting); or (iii) delivering to the Company owned and unencumbered shares of common stock. 7. COVENANTS OF THE COMPANY. (a) During the terms of the Options, the Company shall keep available at all times the number of shares of stock required to satisfy such Options. (b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the Options; provided, however, that this undertaking shall not require the Company to register under the Securities Act either the Plan, any Option or any stock issued or issuable pursuant to any such Option. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such Options unless and until such authority is obtained. 8. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock pursuant to Options shall constitute general funds of the Company. 9. MISCELLANEOUS. (a) The Board shall have the power to accelerate the time at which an Option may first be exercised or the time during which an Option or any part thereof will vest pursuant to subsection 6(e), notwithstanding the provisions in the Option stating the time at which it may first be exercised or the time during which it will vest. (b) Neither an Optionee nor any person to whom an Option is transferred under subsection 6(d) shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such Option unless and until such person has satisfied all requirements for exercise of the Option pursuant to its terms. (c) Nothing in the Plan or any instrument executed or Option granted pursuant thereto shall confer upon any Employee, Director, Consultant or Optionee any right to continue in the employ of the Company or any Affiliate (or to continue acting as a Director or Consultant) or shall affect the right of the Company or any Affiliate to terminate the employment or relationship as a Director or Consultant of any Employee, Director, or Consultant for any reason, with or without cause. 10. ADJUSTMENTS UPON CHANGES IN STOCK. (a) If any change is made in the stock subject to the Plan, or subject to any Option (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration), the Plan will be appropriately adjusted in the types of securities and maximum number of shares subject to the Plan pursuant to subsection 4(a), and the outstanding Options will be appropriately adjusted in the types of securities and number of shares and price per share of stock subject to such outstanding Options. (b) In the event of: (1) a dissolution, liquidation or sale of substantially all of the assets of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; or (3) a reverse merger in which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, then to the extent permitted by applicable law: (i) any surviving corporation shall either assume any Options outstanding under the Plan or shall substitute similar Options for those outstanding under the Plan, or (ii) such Options shall terminate to the extent not exercised prior to such event; provided, however, that the time during which some or all of such Options may be exercised may, at the discretion of the Board, be accelerated to prior to such event. 11. AMENDMENT OF THE PLAN AND OPTIONS. (a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 10 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company within twelve (12) months before or after the adoption of the amendment, where the amendment will modify the Plan in any way (including, but not limited to, the modification of the eligibility requirements for participation in the Plan) if such modification requires stockholder approval in order for the Plan to comply with any NASDAQ or securities exchange listing requirements. (b) The Board may in its sole discretion submit any other amendment to the Plan for stockholder approval. (c) It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide Optionees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Options and/or to bring the Plan and/or Options granted under it into compliance therewith. (d) Rights and obligations under any Option granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the person to whom the Option was granted and (ii) such person consents in writing. (e) The Board at any time, and from time to time, may amend the terms of any one or more Options; provided, however, that the rights and obligations under any Option shall not be impaired by any such amendment unless (i) the Company requests the consent of the person to whom the Option was granted and (ii) such person consents in writing. 12. TERMINATION OR SUSPENSION OF THE PLAN. (a) The Board may suspend or terminate the Plan at any time. No Options may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any Option granted while the Plan is in effect shall not be impaired by suspension or termination of the Plan, except with the consent of the person to whom the Option was granted. 13. EFFECTIVE DATE OF PLAN. The Plan shall become effective upon adoption by the Board. EX-10.39 5 f88686exv10w39.txt EXHIBIT 10.39 EXHIBIT 10.39 LEASE (SINGLE TENANT; STAND-ALONE; NET - "AS-IS") BETWEEN THE IRVINE COMPANY AND MOLECULAR DEVICES CORPORATION LEASE (SINGLE TENANT; STAND-ALONE; NET - "AS-IS") THIS LEASE is made as of the 28th day of May, 2002, by and between THE IRVINE COMPANY, a Delaware corporation hereafter called "LANDLORD," and MOLECULAR DEVICES CORPORATION, a Delaware corporation hereinafter called "TENANT." ARTICLE I. BASIC LEASE PROVISIONS Each reference in this Lease to the "BASIC LEASE PROVISIONS" shall mean and refer to the following collective terms, the application of which shall be governed by the provisions in the remaining Articles of this Lease. 1. Premises: The Premises are more particularly described in Section 2.1. 2. Address of Building: 1312 Crossman Avenue, Sunnyvale, CA 94089 3. Use of Premises: General office or laboratory research and development facility, including wet chemistry, manufacturing and biology labs, clean rooms and instrument assembly, and other legal uses. 4. Commencement Date: May 1,2003 5. Term: The Term of this Lease shall expire at midnight on October 31, 2007. 6. Basic Rent: Ninety-Two Thousand Seven Hundred Eighteen Dollars ($92,718.00) per month. Basic Rent is subject to adjustment as follows: Commencing May 1, 2004, the Basic Rent shall be Ninety-Five Thousand Five Hundred Dollars ($95,500.00) per month. Commencing May 1, 2005, the Basic Rent shall be Ninety-Eight Thousand Three Hundred Sixty-Five Dollars ($98,365.00) per month. Commencing May 1, 2006, the Basic Rent shall be One Hundred One Thousand Three Hundred Fifteen Dollars ($101,315.00) per month. Commencing May 1, 2007, the Basic rent shall be One Hundred Four Thousand Three Hundred Fifty-Five Dollars ($104,355.00) per month. 7. Guarantor(s): N/A 8. Floor Area: Approximately 54,540 rentable square feet 9. Security Deposit: $114,791.00 10 Broker(s): CRESA Partners 11. Additional Insureds: Insignia/ESG, Inc. 12. Address for Payments and Notices: LANDLORD TENANT THE IRVINE COMPANY MOLECULAR DEVICES CORPORATION c/o Insignia/ESG, Inc. 1312 Crossman Avenue 160 West Santa Clara Street Sunnyvale, CA 94089 Suite 1350 San Jose, CA 95113 with a copy of notices to: THE IRVINE COMPANY dba Office Properties 8105 Irvine Center Drive, Suite 300 Irvine, CA 92618 Attn: Senior Vice President, Operations Office Properties 13. Tenant's Liability Insurance Requirement $2,000,000.00 1 ARTICLE II. PREMISES SECTION 2.1. LEASED PREMISES. Landlord leases to Tenant and Tenant leases from Landlord the premises shown in Exhibit A (the "PREMISES"), containing approximately the rentable square footage set forth as the "FLOOR AREA" in Item 8 of the Basic Lease Provisions. The Premises consist of all of the rentable square footage within the building identified in Item 2 of the Basic Lease Provisions (the "BUILDING"). The Building and all attendant Common Areas shall hereinafter be referred to as the "SITE"). All references to "FLOOR AREA" in this Lease shall mean the rentable square footage set forth in Item 8 of the Basic Lease Provisions. The rentable square footage set forth in Item 8 may include or have been adjusted by various factors, including, without limitation, a load factor for any vertical penetrations, stairwells or similar features or areas of the Building. Tenant agrees that the Floor Area set forth in Item 8 shall be binding on Landlord and Tenant for purposes of this Lease regardless of whether any future or differing measurements of the Premises or the Building are consistent or inconsistent with the Floor, Area set forth in Item 8. SECTION 2.2. ACCEPTANCE OF PREMISES. Tenant acknowledges that neither Landlord nor any representative of Landlord has made any representation or warranty with respect to the Premises, the Building or the Site or their respective suitability or fitness for any purpose, including without limitation any representations or warranties regarding zoning or other land use matters, and that neither Landlord nor any representative of Landlord has made any representations or warranties regarding (i) what other tenants or uses may be permitted or intended in the Building or the Site, or (ii) any exclusivity of use by Tenant with respect to its permitted use of the Premises as set forth in Item 3 of the Basic Lease Provisions. Tenant further acknowledges that neither Landlord nor any representative of Landlord has agreed to undertake any alterations or additions or construct any improvements to the Premises and that Tenant's lease of the Premises shall be on an "as is" basis. As of the Commencement Date, Tenant shall be conclusively deemed to have accepted the Premises and those portions of the Building and Site in which Tenant has any rights under this Lease, which acceptance shall mean that it is conclusively established that the Premises and those portions of the Building and Site in which Tenant has any rights under this Lease were in satisfactory condition and in conformity with the provisions of this Lease. Nothing contained in this Section shall affect the commencement of the Term or the obligation of Tenant to pay rent. SECTION 2.3. BUILDING NAME AND ADDRESS. Tenant shall not utilize any name selected by Landlord from time to time for the Building and/or the Site as any part of Tenant's corporate or trade name. Landlord shall have the right to change the name, address, number or designation of the Building or Site, provided that Landlord shall reimburse Tenant for any actual costs incurred (but not to exceed $1,500.00) as a result of such change. ARTICLE III. TERM SECTION 3.1. GENERAL. Subject to the provisions of Section 3.2 below, the term of this Lease ("TERM") shall commence on the date set forth in Item 4 of the Basic Lease Provisions (the "COMMENCEMENT DATE"), and shall expire on the date set forth in Item 5 of the Basic Lease Provisions (the "EXPIRATION DATE"). SECTION 3.2. RIGHT TO EXTEND THIS LEASE. Provided that Tenant is not in default under any provision of this Lease at the time of exercise of the extension right granted herein, and provided further that Tenant will be occupying the entire Premises at the commencement of the extension term, Tenant may extend the Term of this Lease for one (1) period of sixty (60) months. Tenant shall exercise its right to extend the Term by and only by delivering to Landlord, not less than six (6) months or more than nine (9) months prior to the expiration date of the Term, Tenant's written notice of its irrevocable commitment to extend (the "Commitment Notice"). Should Tenant fail timely to deliver the Commitment Notice, then this extension right shall thereupon lapse and be of no further force or effect. The Basic Rent payable under the Lease during the extension of the Term shall be at the prevailing "Fair Market Rent" (including periodic adjustments) for comparable space as of the commencement of the extension period. In no event shall the monthly Basic Rent payable for the extension period be less than the Basic Rent payable during the month immediately preceding the commencement of such extension period. For purposes hereof, "Fair Market Rent" shall mean the effective base rental rates (including periodic adjustments to such base rental rates) then being received for premises of similar size and quality to the Premises, located in industrial parks in the Sunnyvale area which are similar in size and quality to the Property, leased for terms of approximately five years, and otherwise subject to leases containing substantially similar terms as those contained in this Lease. Notwithstanding the foregoing, "Fair Market Rent" shall not include any rental value attributable to improvements, alterations, fixtures, equipment, and personal property installed in the Premises at Tenant's expense. Not more than six months nor less than four months prior to the commencement of the extension term, Landlord and Tenant shall meet and attempt in good faith to determine and mutually agree upon the Basic Rent to be paid during the extension term pursuant to the provisions above. If, 90 days prior to the commencement of the extension term, the parties have not reached agreement, each party shall appoint an Appraiser (hereinafter defined) and shall give notice to the other party of the identity of the Appraiser no later than 75 days prior to the commencement of the extension term. For purposes hereof, "Appraiser" means a real estate broker or MAI designated appraiser, in either case with not less than 5 years of full time commercial appraisal or commercial brokerage experience in the Sunnyvale area. If either party fails to timely appoint an Appraiser, the sole Appraiser appointed shall determine the Basic Rent to be charged during the extension term, based on the criteria described above. If two Appraisers are appointed, they shall immediately meet and attempt to agree upon such Basic Rent. If they are unable to do so within 20 days after their first meeting, they shall jointly appoint a third Appraiser and the third Appraiser shall make such determination within 20 days of his/her appointment. The determination of Basic Rent as provided herein shall be binding upon the parties hereto. 2 Promptly following determination of the Basic Rent as set forth herein, Landlord shall prepare an appropriate amendment to the Lease memorializing the extension of the Term in accordance with the foregoing, and Tenant shall duly execute and return same to Landlord within fifteen (15) days. Any attempt to assign or transfer any right or interest created by this paragraph, except in connection with an authorized assignment of this Lease, shall be void from its inception. Tenant shall have no other right to extend the Term beyond the single sixty (60) month extension created by this paragraph. Unless agreed to in a writing signed by Landlord and Tenant, any extension of the Term, whether created by an amendment to this Lease or by a holdover of the Premises by Tenant, or otherwise, shall be deemed a part of, and not in addition to, any duly exercised extension period permitted by this paragraph. Time is specifically made of the essence of this paragraph. ARTICLE IV. RENT AND OPERATING EXPENSES SECTION 4.1. BASIC RENT. From and after the Commencement Date, Tenant shall pay to Landlord without deduction or offset, the rental amount for the Premises shown in Item 6 of the Basic Lease Provisions (the "BASIC RENT"), including subsequent adjustments, if any. Any rental adjustment to Basic Rent shown in Item 6 shall be deemed to occur on the specified monthly anniversary of the Commencement Date, whether or not the Commencement Date occurs at the end of a calendar month. The rent shall be due and payable in advance commencing on the Commencement Date (as prorated for any partial month) and continuing thereafter on the first day of each successive calendar month of the Term. No demand, notice or invoice shall be required for the payment of Basic Rent. An installment of rent in the amount of one (1) full month's Basic Rent at the initial rate specified in Item 6 of the Basic Lease Provisions and one (1) month's estimated Tenant's Share of Operating Expenses (as defined in Section 4.2) shall be delivered to Landlord concurrently with Tenant's execution of this Lease and shall be applied against the Basic Rent and Operating Expenses first due hereunder. SECTION 4.2. OPERATING EXPENSES. (a) Tenant shall pay to Landlord, as additional rent, Tenant's Share of all Operating Expenses, as defined in Section 4.2(f), incurred by Landlord in the operation of the Building and the Site. The term "TENANT'S SHARE" means one hundred percent (100%) of any Operating Expenses determined by Landlord to benefit or relate substantially to the Building and/or the Site. The full amount of any management fee payable by Landlord for the management of Tenant's Premises that is calculated as a percentage of the rent payable by Tenant shall be paid in full by Tenant as additional rent. (b) Prior to the start of each full Expense Recovery Period (as defined in this Section 4.2), Landlord shall give Tenant a written estimate of the amount of Tenant's Share of Operating Expanses for the applicable Expense Recovery Period. Failure to provide such estimate shall not relieve Tenant from its obligation to pay Tenant's Share of Operating Expenses or estimated amounts thereof, if and when Landlord provides such estimate or final payment amount. Tenant shall pay the estimated amounts to Landlord in equal monthly installments, in advance concurrently with payments of Basic Rent. If Landlord has not furnished its written estimate for any Expense Recovery Period by the time set forth above, Tenant shall continue to pay monthly the estimated Tenant's Share of Operating Expenses in effect during the prior Expense Recovery Period; provided that when the new estimate is delivered to Tenant, Tenant shall, at the next monthly payment date which is at least thirty (30) days following Landlord's written estimate, pay any accrued estimated Tenant's Share of Operating Expenses based upon the new estimate. For purposes hereof, "EXPENSE RECOVERY PERIOD" shall mean every twelve month period during the Term (or portion thereof for the first and last lease years) commencing July 1 and ending June 30, provided that Landlord shall have the right to change the date on which an Expense Recovery Period commences in which event appropriate reasonable adjustments shall be made to Tenant's Share of Operating Expenses so that the amount payable by Tenant shall not materially vary as a result of such change. (c) Within one hundred twenty (120) days after the end of each Expense Recovery Period, Landlord shall furnish to Tenant a statement showing in reasonable detail the actual or prorated Tenant's Share of Operating Expenses incurred by Landlord during the period, and the parties shall within thirty (30) days thereafter make any payment or allowance necessary to adjust Tenant's estimated payments of Tenant's Share of Operating Expenses, if any, to the actual Tenant's Share of Operating Expenses as shown by the annual statement. Any delay or failure by Landlord in delivering any statement hereunder shall not constitute a waiver of Landlords right to require Tenant to pay Tenant's Share of Operating Expenses pursuant hereto. Any amount due Tenant shall be credited against installments next coming due under this Section 4.2, and any deficiency shall be paid by Tenant together with the next installment. Should tenant fail to object in writing to Landlord's determination of Tenant's Share of Operating Expenses within ninety (90) days following delivery of Landlord's expense statement, Landlord's determination of Tenant's Share of Operating Expenses for the applicable Expense Recovery Period shall be conclusive and binding on the parties for all purposes and any future claims to the contrary shall be barred. (d) Even though this Lease has terminated and the Tenant has vacated the Premises, when the final determination is made of Tenant's Share of Operating Expenses for the Expense Recovery Period in which this Lease terminates, Tenant shall within thirty (30) days of written notice pay the entire increase over the estimated Tenant's Share of Operating Expenses already paid. Conversely, any overpayment by Tenant shall be rebated by Landlord to Tenant not later than thirty (30) days after such final determination. (e) If at any time during any Expense Recovery Period, any one or more of the Operating Expenses are increased to a rate(s) or amount(s) in excess of the rate(s) or amount(s) used in calculating the estimated Tenant's Share of Operating Expenses for the year, then the estimate of Tenant's Share of Operating Expenses may be increased by written notice from Landlord for the month in which such rate(s) or amount(s) becomes effective and for all succeeding months by an amount equal to Tenant's Share of the increase. If Landlord gives Tenant written notice of the amount or estimated amount of the increase, the month in which the increase will or has become effective, then Tenant shall pay the increase to Landlord as a part of Tenant's monthly payments of the estimated 3 Tenant's Share of Operating Expenses as provided in Section 4.2(b), commencing with the month which is at least thirty (30) days following Tenant's receipt of Landlord's notice. In addition, Tenant shall pay upon written request any such increases which were incurred prior to the Tenant commencing to pay such monthly increase. (f) The term "OPERATING EXPENSES" shall mean and include all Site Costs, as defined in subsection (g), and Property Taxes, as defined in subsection (h). (g) The term "SITE COSTS" shall include all expenses of operation, repair and maintenance of the Building and the Site, including without limitation all appurtenant Common Areas (as defined in Section 6.2), and shall include the following charges by way of illustration but not limitation: water and sewer charges; insurance premiums and deductibles and/or reasonable premium and deductible equivalents should Landlord elect to self-insure all or any portion of any risk that Landlord is authorized to insure hereunder; license, permit, and inspection fees; heat; light; power; air conditioning; supplies; materials; equipment; tools; the cost of any environmental, insurance, tax or other consultant utilized by Landlord in connection with the Building and/or Site; establishment of reasonable reserves for replacements and/or repairs; costs incurred in connection with compliance with any laws or changes in laws applicable to the Building or the Site and not required due to the particular use of any other tenant the cost of any capital investments or replacements (other than tenant improvements for specific tenants) to the extent of the amortized amount thereof over the useful life of such capital investments or replacements calculated at a market cost of funds, all as determined by Landlord, for each such year or useful life during the Term; costs associated with the maintenance of an air conditioning, heating and ventilation service agreement; reasonably allocated wages and salaries, fringe benefits, and payroll taxes for administrative and other personnel directly applicable to the building and/or Site, including both Landlord's personnel and outside personnel; any expense incurred pursuant to Sections 6.1, 6.2, 6.4, 7.2, and 10.2; and a reasonable overhead/management fee for the professional operation of the Building and the Site. It is understood and agreed that Site Costs may include competitive charges for direct services provided by any subsidiary, division or affiliate of Landlord. (h) The term "PROPERTY TAXES" as used herein shall include any form of federal, state, county or local government or municipal taxes, fees, charges or other impositions of every kind (whether general, special, ordinary or extraordinary) related to the ownership, leasing or operation of the Premises, Building or Site, including without limitation, the following: (i) all real estate taxes or personal property taxes, as such property taxes may be reassessed from time to time; and (ii) other taxes, charges and assessments which are levied with respect to this Lease or to the Building and/or the Site, and any improvements, fixtures and equipment and other property of Landlord located in the Building and/or the Site, (iii) all assessments and fees for public improvements, services, and facilities and impacts thereon, including without limitation arising out of any Community Facilities Districts, "Mello Roos" districts, similar assessment districts, and any traffic impact mitigation assessments or fees; (iv) any tax, surcharge or assessment which shall be levied in addition to or in lieu of real estate or personal property taxes, other than taxes covered by Article VIII; and (v) taxes based on the receipt of rent (including gross receipts or sales taxes applicable to the receipt of rent), and (vi) costs and expenses incurred in contesting the amount or validity of any Property Tax by appropriate proceedings. Notwithstanding the foregoing, general net income or franchise taxes imposed against Landlord shall be excluded. (i) Notwithstanding anything to the contrary contained in this Lease, the following shall not be included within Operating Expenses: (i) Leasing commissions, attorneys' fees, costs, disbursements, and other expenses incurred in connection with negotiations or disputes with tenants, or in connection with leasing, renovating, or improving space for tenants or other occupants or prospective tenants or other occupants of the Project. (ii) The cost of any service sold to any tenant (including Tenant) or other occupant for which Landlord is entitled to be reimbursed as an additional charge or rental over and above the basic rent and escalations payable under the lease with that tenant. (iii) Any depreciation on the Project. (iv) Except as authorized in subsection (g) above, costs of a capital nature, including but not limited to capital improvements and alterations, capital repairs, capital equipment, and capital tools as determined in accordance with generally accepted accounting principles. (v) Expenses in connection with services or other benefits of a type that are not available to Tenant without separate charge but which are provided another tenant or occupant of the Project. (vi) Overhead profit increments paid to Landlord's subsidiaries or affiliates for management or other services on or to the building or for supplies or other materials to the extent that the cost of the services, supplies, or materials exceeds the cost that would have been paid had the services, supplies, or materials been provided by unaffiliated parties on a competitive basis. (vii) All interest, loan fees, and other carrying costs related to any mortgage or deed of trust or related to any capital item, and all rental and other payable due under any ground or underlying lease, or any lease for any equipment ordinarily considered to be a capital nature (except janitorial equipment which is not affixed to the Project). (viii) Any compensation paid to clerks, attendants, or other persons in commercial concessions operated by Landlord. 4 (ix) Advertising and promotional expenditures. (x) Costs of repairs and other work occasioned by fire, windstorm, or other casualty to the extent such costs are either (A) covered by insurance proceeds or (B) in excess of Fifty Thousand Dollars ($50,000.00) during any Expense Recovery Period. (xi) Any costs, fines, or penalties incurred due to violations by Landlord of any governmental rule or authority, this Lease or any other lease in the Project, or due to Landlord's negligence or willful misconduct. (xii) The cost of correcting any building code or other violations which were violations prior to the Commencement Date of this Lease. (xiii) The cost of containing, removing, or otherwise remediating any contamination of the Project (including the underlying land and ground water) by any toxic or hazardous materials (including, without limitation, asbestos and "PCB's") where such contamination was not caused by Tenant. (xiv) Management costs to the extent they exceed management costs charged for similar facilities in the area. (xv) Costs for sculpture, paintings, or other objects of art (and insurance thereon or extraordinary security in connection therewith). (xvi) Wages, salaries, or other compensation paid to any employees above the grade of portfolio manager, it being understood that management personnel costs shall be equitably allocated based on portfolio responsibility. (xvii) Any other expense that under generally accepted accounting principles and practice consistently applied would not be considered a normal maintenance or operating expense. (h) Provided Tenant is not then in default hereunder, Tenant shall have the right to cause a certified public accountant, engaged on a non-contingency fee basis, to audit Operating Expenses by inspecting Landlord's general ledger of expenses not more than once during any Expense Recovery Period. However, to the extent that insurance premiums or any other component of Operating Expenses is determined by Landlord on the basis of an internal allocation of costs utilizing information Landlord in good faith deems proprietary, such expense component shall not be subject to audit so long as it does not exceed the amount per square foot typically imposed by landlords of comparable projects in the Sunnyvale, California area. Tenant shall give notice to Landlord of Tenant's intent to audit within ninety (90) days after Tenant's receipt of Landlord's expense statement which sets forth Landlord's actual Operating Expenses. Such audit shall be conducted at a mutually agreeable time during normal business hours at the office of Landlord or its management agent where such accounts are maintained. If Tenant's audit determines that actual Operating Expenses have been overstated by more than five percent (5%), then subject to Landlord's right to review and/or contest the audit results, Landlord shall reimburse Tenant for the reasonable out-of-pocket costs of such audit. Tenant's rent shall be appropriately adjusted to reflect any overstatement in Operating Expenses. In addition, if any component of Operating Expenses is determined to be either inappropriate or excessive during an Expense Recovery Period, and if the Building Cost Base or Property Tax Base also included such component, then the appropriate Base shall concurrently be adjusted if and to the extent appropriate. In the event of a dispute between Landlord and Tenant regarding such audit, either party may elect to submit the matter for binding arbitration pursuant to Section 14.7(b) below. All of the information obtained by Tenant and/or its auditor in connection with such audit, as well as any compromise, settlement, or adjustment reached between Landlord and Tenant as a result thereof, shall be held in strict confidence and, except as may be required pursuant to litigation, shall not be disclosed to any third party, directly or indirectly, by Tenant or its auditor or any of their officers, agents or employees. Landlord may require Tenant's auditor to execute a separate confidentiality agreement affirming the foregoing as a condition precedent to any audit. In the event of a violation of this confidentiality covenant in connection with any audit, then in addition to any other legal or equitable remedy available to Landlord, Tenant shall forfeit its right to any reconciliation or cost reimbursement payment from Landlord due to said audit (and any such payment theretofore made by Landlord shall be promptly returned by Tenant), and Tenant shall have no further audit rights under this Lease. Notwithstanding the foregoing, Tenant shall have no right of audit with respect to any Expense Recovery Period unless the total Operating Expenses per square foot for such Expense Recovery Period, as set forth in Landlords annual expense reconciliation, exceed the total Operating Expenses per square foot during the prior Expense Recovery Period, as increased by the percentage change in the United States Department of Labor, Bureau of Labor Statistics, Consumer Price Index for all Urban Consumers, San Francisco - Oakland - San Jose Area Average, all items (1982-84 = 100) (the "Index"), which change in the Index shall be measured by comparing the Index published for January of the applicable Expense Recovery Period with the Index published for the prior January. SECTION 4.3. SECURITY DEPOSIT. Concurrently with Tenant's delivery of this Lease, Tenant shall deposit with Landlord the sum, if any, stated in Item 9 of the Basic Lease Provisions, to be held by Landlord as security for the full and faithful performance of all of Tenants obligations under this Lease (the "SECURITY DEPOSIT"). Landlord shall not be required to keep this Security Deposit separate from its general funds, and Tenant shall not be entitled to interest on the Security Deposit. Upon any Event of Default by Tenant (as defined in Section 14.1), Landlord may, in its sole and absolute discretion, retain, use or apply the whole or any part of the Security Deposit to pay any sum which Tenant is obligated to pay under this Lease, sums that Landlord may expend or be required to expend by reason of the Event of Default by Tenant or any loss or damage that Landlord may suffer by reason of the Event of Default or costs incurred by Landlord in connection with the repair or restoration of the Premises pursuant to Section 15.3 of this Lease upon expiration or earlier termination of this Lease. In no event shall Landlord be obligated to apply the Security Deposit upon an Event of Default and Landlord's rights and 5 remedies resulting from an Event of Default, including without limitation, Tenant's failure to pay Basic Rent, Tenant's Share of Operating Expenses or any other amount due to Landlord pursuant to this Lease, shall not be diminished or altered in any respect due to the fact that Landlord is holding the Security Deposit. If any portion of the Security Deposit is applied by Landlord as permitted by this Section, Tenant shall within fifteen (15) days after written demand by Landlord deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount. If Tenant fully performs its obligations under this Lease, the Security Deposit shall be returned to Tenant (or, at Landlord's option, to the last assignee of Tenant's interest in this Lease) within thirty (30) days after the expiration of the Term and Tenants vacation of the Premises. ARTICLE V. USES SECTION 5.1. USE. Tenant shall use the Premises only for the purposes stated in Item 3 of the Basic Lease Provisions, all in accordance with applicable laws and restrictions and pursuant to approvals to be obtained by Tenant from all relevant and required governmental agencies and authorities. The parties agree that any additional use without the prior written consent of Landlord shall entitle Landlord to injunctive relief in addition to any other available remedy. Tenant, at its expense, shall procure, maintain and make available for Landlord's inspection throughout the Term, all governmental approvals, licenses and permits required for the proper and lawful conduct of Tenant's permitted use of the Premises. Tenant shall not use or allow the Premises to be used for any unlawful purpose, nor shall Tenant permit any nuisance or commit any waste in the Premises or the Site. Tenant shall not perform any work or conduct any business whatsoever in the Site other than inside the Premises. Tenant shall not do or permit to be done anything which will invalidate or increase all applicable insurance policy(ies) covering the Building, the Site and/or their contents, and shall comply with all applicable insurance underwriters rules. Tenant shall comply at its expense with all present and future laws, ordinances, restrictions, regulations, orders, rules and requirements of all governmental authorities that pertain to Tenant or its use of the Premises, including without limitation all federal and state occupational health and safety requirements, whether or not Tenant's compliance will necessitate expenditures or interfere with its use and enjoyment of the Premises. Notwithstanding the foregoing or anything to the contrary contained in this Lease, Tenant shall not be responsible for compliance with any applicable requirements where such compliance is not related specifically to Tenant's use and occupancy of the Premises. For example, if any governmental authority should require the Building or the Premises to be structurally strengthened against earthquake, or should require the removal of asbestos from the Premises, and such measures are imposed as a general requirement applicable to all tenants rather than as a condition to Tenant's specific use or occupancy of the Premises, such work shall be performed by and at the sole cost of Landlord (subject to inclusion in Site Costs if and to the extent permitted pursuant to Section 4.2 above). Tenant shall promptly upon demand reimburse Landlord for any additional insurance premium charged by reason of Tenants failure to comply with the provisions of this Section, and shall indemnify Landlord from any liability and/or expense resulting from Tenant's noncompliance. SECTION 5.2. SIGNS. Except as approved in writing by Landlord, in its sole and absolute discretion, Tenant shall have no right to maintain signs in any location in, on or about the Premises, the Building or the Site and shall not place or erect any signs that are visible from the exterior of the Building; provided that Tenant shall have the right to maintain its exterior monument signage in place as of the date hereof. The size, design, graphics, material, style, color and other physical aspects of any permitted sign shall be subject to Landlord's written determination, as determined solely by Landlord, prior to installation, that signage is in compliance with any covenants, conditions or restrictions encumbering the Premises and Landlord's signage program for the Site, as in effect front time to time and approved by the City in which the Premises are located ("SIGNAGE CRITERIA"). Prior to placing or erecting any such signs, Tenant shall obtain and deliver to Landlord a copy of any applicable municipal or other governmental permits and approvals and comply with any applicable insurance requirements for such signage. Tenant shall be responsible for the cost of any permitted sign, including the fabrication, installation, maintenance and removal thereof and the cost of any permits therefor. If Tenant fails to maintain its sign in good condition after thirty (30) days written notice from Landlord, or if Tenant fails to remove same upon termination of this Lease and repair and restore any damage caused by the sign or its removal, Landlord may do so at Tenant's expense. Landlord shall have the right to temporarily remove any signs where necessitated by any repairs or maintenance in or upon the Building. The term "sign" as used in this Section shall include all signs, designs, monuments, displays, advertising materials, logos, banners, projected images, pennants, decals, pictures, notices, lettering, numerals or graphics. SECTION 5.3. HAZARDOUS MATERIALS. (a) For purposes of this Lease, the term "HAZARDOUS MATERIALS" includes (i) any "hazardous material" as defined in Section 25501(o) of the California Health and Safety Code, (ii) hydrocarbons, polychlorinated biphenyls or asbestos, (iii) any toxic or hazardous materials, substances, wastes or materials as defined pursuant to any other applicable state, federal or local law or regulation, and (iv) any other substance or matter which may result in liability to any person or entity as result of such person's possession, use, release or distribution of such substance or matter under any statutory or common law theory. (b) Tenant shall not cause or permit any Hazardous Materials to be brought upon, stored, used, generated, released or disposed of on, under, from or about the Premises (including without limitation the soil and groundwater thereunder) without the prior written consent of Landlord, which consent shall not be unreasonably withheld so long as Tenant complies with the requirements of this Section 5.3. Notwithstanding the foregoing, Tenant shall have the right, without obtaining prior written consent of Landlord, to utilize within the Premises a reasonable quantity of standard office products that may contain Hazardous Materials (such as photocopy toner, "White Out", and the like), as well as such other substances as are disclosed in the "Environmental Questionnaire" defined below, provided, however, that (i) Tenant shall maintain such products in their original retail packaging, shall follow all instructions on such packaging with respect to the storage, use and disposal of such products, and shall otherwise comply with all applicable laws with respect to such products, and (ii) all of the other terms and provisions of this Section 5.3 shall apply with respect to Tenant's storage, use and disposal of all such products. Landlord may require that Tenant demonstrate that any such Hazardous Materials will be generated, stored, used 6 and disposed of in a manner that complies with all applicable laws and regulations pertaining thereto and with good business practices. Tenant understands that Landlord may utilize an environmental consultant to assist in determining conditions of approval in connection with the storage, generation, release, disposal or use of Hazardous Materials by Tenant on or about the Premises, and/or to conduct periodic inspections of the storage, generation, use, release and/or disposal of such Hazardous Materials by Tenant on and from the Premises, and Tenant agrees that any costs incurred by Landlord in connection therewith shall be reimbursed by Tenant to Landlord in the event of a violation by Tenant of its obligations under this Section. (c) Prior to the execution of this Lease, Tenant shall complete, execute and deliver to Landlord an Environmental Questionnaire and Disclosure Statement (the "ENVIRONMENTAL QUESTIONNAIRE") in the form of Exhibit B, attached hereto. The completed Environmental Questionnaire shall be deemed incorporated into this Lease for all purposes, and Landlord shall be entitled to rely fully on the information contained therein. On each anniversary of the Commencement Date until the expiration or sooner termination of this Lease, Tenant shall disclose to Landlord in writing the names and amounts of all Hazardous Materials which were stored, generated, used, released and/or disposed of on, under or about the Premises for the twelve-month period prior thereto, and which Tenant desires to store, generate, use, release and/or dispose of on, under or about the Premises for the succeeding twelve-month period. In addition, to the extent Tenant is permitted to utilize Hazardous Materials upon the Premises, Tenant shall promptly provide Landlord with complete and legible copies of all the following environmental documents relating thereto that are filed with any governmental agency, which may include without limitation the following: reports filed pursuant to any self-reporting requirements; permit applications, permits, monitoring reports, emergency response or action plans, workplace exposure and community exposure warnings or notices and all other report, disclosures, plans or documents (even those which may be characterized as confidential) relating to water discharges, air pollution, waste generation or disposal, and underground storage tanks for Hazardous Materials; orders, report, notices, listings and correspondence (even those which may be considered confidential) of or concerning the release, investigation of, compliance, cleanup, remedial and corrective actions, and abatement of Hazardous Materials. Tenant shall also properly deliver to Landlord all complaints, pleadings and other legal documents filed by or against Tenant related to Tenant's use, handling, storage, release and/or disposal of Hazardous Materials. (d) If Landlord has a reasonable basis to believe Tenant has not complied with its obligations under this Section 5.3, then Landlord and its agents shall have the right, but not the obligation, to inspect, sample and/or monitor the Premises and/or the soil or groundwater thereunder to determine whether Tenant is complying with the terms of this Section 5.3, and in connection therewith Tenant shall provide Landlord with full access to all facilities, records and personnel related thereto, subject to the requirements of Section 7.5. Landlord, at Tenant's expense, shall have the right, but not the obligation, to join and participate in any legal proceedings or actions initiated in connection with any claims arising out of the storage, generation, use, release and/or disposal by Tenant or its agents, employees, contractors, licensees or invitees of Hazardous Materials on, under, from or about the Premises. (e) If the presence of any Hazardous Materials on, under, from or about the Premises or the Site caused or permitted by Tenant or its agents, employees, contractors, licensees or invitees results in (i) injury to any person, (ii) injury to or any contamination of the Premises or the Site, or (iii) injury to or contamination of any real or personal property wherever situated, Tenant, at its expense, shall promptly take all actions necessary to return the Premises and the Site and any other affected real or personal property owned by Landlord to the condition existing prior to the introduction of such Hazardous Materials and to remedy or repair any such injury or contamination, including without limitation, any cleanup, remediation, removal, disposal, neutralization or other treatment of any such Hazardous Materials. Notwithstanding the foregoing, Tenant shall not, without Landlord's prior written consent, which consent shall not be unreasonably withheld, take any remedial action in response to the presence of any Hazardous Materials on, from, under or about the Premises or the Site or any other affected real or personal property owned by Landlord or enter into any similar agreement, consent, decree or other compromise with any governmental agency with respect to any Hazardous Materials claims; provided however, Landlord's prior written consent shall not be necessary in the event that the presence of Hazardous Materials on, under or about the Premises or the Site or any other affected real or personal properly owned by Landlord (i) imposes an immediate threat to the health, safety or welfare of any individual and (ii) is of such a nature that an immediate remedial response is necessary and it is not possible to obtain Landlord's consent before taking such action. To the fullest extent permitted by law, Tenant shall indemnify, hold harmless, protect and defend (with attorneys acceptable to Landlord) Landlord and any successors to all or any portion of Landlord's interest in the Premises and the Site from and against any and all liabilities, losses, damages, diminution in value, judgments, fines, demands, claims, recoveries, deficiencies, costs and expenses (including without limitation reasonable attorneys' fees, court costs and other professional expenses), whether foreseeable or unforeseeable, arising directly or indirectly out of the use, generation, storage, treatment, release, on- or off-site disposal or transportation of Hazardous Materials (A) on, into, from, under or about the Premises by Tenant, its agents, employees, contractors, licensees or subtenants during the Term unless caused by Landlord. Such indemnity obligation shall specifically include, without limitation, the cost of any required or necessary repair, restoration, cleanup or detoxification of the Premises, the Building and the Site, the preparation of any closure or other required plans, whether or not such action is required or necessary during the Term or after the expiration of this Lease and any Loss of rental due to the inability to lease the Premises or any portion of the Building or Site as a result of such Hazardous Material or remediation thereof. If it is at any time discovered that Tenant or its agents, employees, contractors, licensees or subtenants may have caused or permitted the release of a Hazardous Material on, under, from or about the Premises, the Building or the Site, Tenant shall, at Landlord's request, immediately prepare and submit to Landlord a comprehensive plan, consistent with the requirements of applicable laws and subject to Landlord's approval, specifying the actions to be taken, by Tenant to return the Premises, the Building or the Site or any other real or personal property owned by Landlord to the condition existing prior to the introduction of such Hazardous Materials. Upon Landlord's approval of such cleanup plan, Tenant shall, at its expense, and without limitation of any rights and remedies of Landlord under this Lease or at law or in equity, immediately implement such plan and proceed to cleanup such Hazardous Materials in 7 accordance with applicable laws and as required by such plan and this Lease. The provisions of this Section 5.3(e) shall expressly survive the expiration or sooner termination of this Lease. (f) Landlord hereby discloses to Tenant, and Tenant hereby acknowledges, certain facts relating to Hazardous Materials at the Site known by Landlord to exist as of the date of this Lease, as more particularly described in Exhibit C attached hereto. Tenant shall have no liability or responsibility with respect to the Hazardous Materials facts described in Exhibit C nor with respect to any Hazardous Materials which Tenant proves were neither released on the Premises during the Term nor caused or permitted by Tenant, its agents, employees, contractors, licensees or invitees. Notwithstanding the preceding two sentences, Tenant agrees to notify its agents, employees, contractors, licensees, and Invitees of any exposure or potential exposure to Hazardous Materials at the Premises that Landlord brings to Tenant's attention. Tenant hereby acknowledges that this disclosure satisfies any obligation of Landlord to Tenant pursuant to California Health & Safely Code Section 25359.7, or any amendment or substitute thereto or any other disclosure obligations of Landlord. ARTICLE VI. COMMON AREAS; SERVICES SECTION 6.1. UTILITIES AND SERVICES. Tenant shall be responsible for and shall pay promptly, directly to the appropriate supplier, all charges for water, gas, electricity, sewer, heat, light, power, telephone, telecommunications service, refuse pickup, janitorial service, interior landscape maintenance and all other utilities, materials and services furnished directly to Tenant or the Premises, or used by Tenant in, on or about the Premises during the Term, together with any taxes thereon. If any utilities or services are not separately metered or assessed to Tenant, Landlord shall make a reasonable determination of Tenant's proportionate share of the cost of such utilities and services, including without limitation, after-hours HVAC usage, and Tenant shall pay such amount to Landlord, as an item of additional rent, within thirty (30) days after receipt of Landlord's statement or invoice therefor. Alternatively, Landlord may elect to include such cost in the definition of Site Costs in which event Tenant shall pay Tenant's proportionate share of such costs in the manner set forth in Section 4.2. Landlord shall not be liable for damages or otherwise for any failure or interruption of any utility or other service furnished to the Premises, and no such failure or interruption shall be deemed an eviction or entitle Tenant to terminate this Lease or withhold or abate any rent due hereunder. Landlord shall at all reasonable times have free access to the Building and Premises to install, maintain, repair, replace or remove all electrical and mechanical installations of Landlord. Tenant acknowledges that the costs incurred by Landlord related to providing above-standard utilities to Tenant, including, without limitation, telephone lines, may be charged to Tenant. SECTION 6.2. OPERATION AND MAINTENANCE OF COMMON AREAS. During the Term, Landlord shall operate and maintain all Common Areas within the Site in a first class manner. The term "COMMON AREAS" shall mean all areas of the Site which are not held for exclusive use by persons entitled to occupy space including Tenant, and their respective employees and invitees, including without limitation parking areas and structures, driveways, sidewalks, landscaped and planted areas, and electrical and utility rooms and roof access entries, if any, in the Building. SECTION 6.3. USE OF COMMON AREAS. The occupancy by Tenant of the Premises shall include the use of the Common Areas as provided in this Article VI, subject, however, to compliance with all rules and regulations as are prescribed from time to time by Landlord. Landlord shall operate and maintain the Common Areas in a good and first-class manner. All costs incurred by Landlord for the maintenance and operation of the Common Areas shall be included in Site Costs except as set forth in Section 4.2. Landlord shall at all times during the Term have exclusive control of the Common Areas, and may restrain or permit any use or occupancy, except as authorized by Landlord's rules and regulations. Tenant shall keep the Common Areas clear of any obstruction or unauthorized use related to Tenants operations or use of Premises, including without limitation, planters and furniture. Nothing in this Lease shall be deemed to impose liability upon Landlord for any damage to or loss of the property of, or for any injury to, Tenant, its invitees or employees. Landlord may temporarily close any portion of the Common Areas for repairs, remodeling and/or alterations to prevent a public dedication or the accrual of prescriptive rights, or for any other reason deemed sufficient by Landlord, without liability to Landlord. SECTION 6.4. PARKING. Tenant shall be entitled to use its allocated share of the vehicle parking spaces on those portions of the Common Areas designated by Landlord for parking on an unreserved and unassigned basis. For purposes of this Section 6.4 Tenant's allocated share shall mean vehicle parking spaces equal to the same portion of all vehicle parking spaces available for the Site as the ratio of Floor Area to the total rentable square footage of the Site. Tenant shall not use more than its allocated share of vehicle parking spaces. All parking spaces shall be used only for parking of vehicles no larger than full size passenger automobiles, sports utility vehicles or pickup trucks. Tenant shall not permit or allow any vehicles that belong to or are controlled by Tenant or Tenant's employees, suppliers, shippers, customers or invitees to be loaded, unloaded or parked in areas other than those designated by Landlord for such activities. If Tenant permits or allows any of the prohibited activities described above, then Landlord shall have the right, with reasonable telephonic notice, in addition to such other rights and remedies that Landlord may have, to remove or tow away the vehicle involved and charge the costs to Tenant. Parking within the Common Areas shall be limited to striped parking stalls, and no parking shall be permitted in any driveways, access ways or in any area which would prohibit or impede the free flow of traffic within the Common Areas. There shall be no parking of any vehicles for longer than a five (5) day period unless otherwise authorized by Landlord, and vehicles which have been abandoned or parked in violation of the terms hereof may be towed away at the owner's expense. Nothing contained in this Lease shall be deemed to create liability upon Landlord for any damage to motor vehicles of visitors or employees, for any loss of property from within those motor vehicles, or for any injury to Tenant, its visitors or employees, unless ultimately determined to be caused by the sole active negligence or willful misconduct of Landlord. Landlord shall have the right to establish and from time to time amend, and to enforce against all users all reasonable rules and regulations (including the designation of areas for employee parking) that Landlord may deem necessary and advisable for the proper and efficient operation and maintenance of parking within the Common Areas. Landlord shall have the right to construct, maintain and operate 8 lighting facilities within the parking areas; to change the area, level, location and arrangement of the parking areas and improvements therein; to restrict parking by tenants, their officers, agents and employees to employee parking areas; to enforce parking charges (by operation of meters or otherwise); and to do and perform such other acts in and to the parking areas and improvements therein as, in the use of good business judgment, Landlord shall determine to be advisable so long as the number of parking stalls is not materially diminished thereby. Any person using the parking area shall observe all directional signs and arrows and any posted speed limits. Parking areas hall be used only for parking vehicles. Washing, waxing, cleaning or servicing of vehicles, or the storage of vehicles for longer than five days, is prohibited unless otherwise authorized by Landlord. Tenant shall be liable for any damage to the parking areas caused by Tenant or Tenant's employees, suppliers, shippers, customers or invitees, including without limitation damage from excess oil leakage. Tenant shall have no right to install any fixtures, equipment or personal property in the parking areas. SECTION 6.5. CHANGES AND ADDITIONS BY LANDLORD. Landlord reserves the right to make alterations or additions to the Building or the Site, or to the attendant fixtures, equipment and Common Areas. Landlord may at any time relocate or remove any of the driveways, sidewalks, landscaped and planted areas and parking areas of the Common Areas from time to time. No change shall entitle Tenant to any abatement of rent or other claim against Landlord, provided that the change does not deprive Tenant of reasonable access to or use of the Premises. ARTICLE VII. MAINTAINING THE PREMISES SECTION 7.1. TENANT'S MAINTENANCE AND REPAIR. Tenant at its sole expense shall maintain and make all repairs and replacements necessary to keep the Premises and the Building in the condition as existed on the Commencement Date (or on any later date that the improvements may have been installed), excepting ordinary wear and tear, including without limitation all interior and exterior glass, windows, doors, door closures, hardware, fixtures, electrical, plumbing, fire extinguisher equipment and other equipment. Any damage or deterioration of the Premises shall not be deemed ordinary wear and tear if the same could have been prevented by good maintenance practices by Tenant. As part of its maintenance obligations hereunder, Tenant shall, at Landlord's request, provide Landlord with copies of all maintenance schedules, reports and notices prepared by, for or on behalf of Tenant. All repairs and replacements shall be at least equal in quality to the original work, shall be made only by a licensed contractor approved in writing in advance by Landlord and shall be made only at the time or times approved by Landlord. Any contractor utilized by Tenant shall be subject to Landlord's standard requirements for contractors, as modified from time to time. Landlord may impose reasonable restrictions and requirements with respect to repairs, as provided in Section 7.3, and the provisions of Section 7.4 shall apply to all repairs. Alternatively, unless Tenant has a service contract with a Landlord-approved vendor, Landlord may elect to perform any repair and maintenance of the electrical and mechanical systems and any air conditioning, ventilating or heating equipment serving the Premises and include the cost thereof as part of Tenants Share of Operating Expenses. If Tenant fails to properly maintain and/or repair the Premises or the Building as herein provided following Landlord's notice and the expiration of the applicable cure period (or earlier if Landlord determines that such work must be performed prior to such time in order to avoid damage to the Premises or Building or other detriment), then Landlord may elect, but shall have no obligation, to perform any repair or maintenance required hereunder on behalf of Tenant and at Tenant's expense, and Tenant shall reimburse Landlord upon demand for all costs incurred upon submission of an invoice. SECTION 7.2. LANDLORD'S MAINTENANCE AND REPAIR. Subject to Section 7.1 and Article XI, Landlord shall provide service, maintenance and repair with respect to any air conditioning, ventilating or heating equipment which serves the Premises and shall maintain in good repair the roof, foundations, footings, the exterior surfaces of the exterior walls of the Building (excluding exterior glass), and the structural, electrical and mechanical systems, except that Tenant at its expense shall make all repairs reasonably necessary as a result of the act or negligence of Tenant, its agents, employees, invitees, subtenants or contractors. Landlord shall have the right to employ or designate any reputable person or firm, including any employee or agent of Landlord or any of Landlord's affiliates or divisions, to perform any service, repair or maintenance function. Landlord need not make any other improvements or repairs except as specifically required under this Lease, and nothing contained in this Section shall limit Landlord's right to reimbursement from Tenant for maintenance, repair costs and replacement costs as provided elsewhere in this Lease. Tenant understands that it shall not make repairs at Landlord's expense or by rental offset. Tenant further understands that Landlord shall not be required to make any repairs to the roof, foundations, footings, the exterior surfaces of the exterior walls of the Building (excluding exterior glass), or structural, electrical or mechanical systems unless and until Tenant has notified Landlord in writing of the need for such repair and Landlord shall have a reasonable period of time thereafter to commence and complete said repair, if warranted. All costs of any maintenance, repairs and replacement on the part of Landlord provided hereunder shall be considered part of Site Costs. Tenant further agrees that if Tenant fails to report any such need for repair in writing within sixty (60) days of its discovery by Tenant, Tenant shall be responsible for any costs and expenses and other damages related to such repair which are in excess of those which would have resulted had such need for repair been reported to Landlord within such sixty (60) day period. SECTION 7.3. ALTERATIONS. Except as otherwise provided in this Section, Tenant shall make no alterations, additions, fixtures or improvements ("ALTERATIONS") to the Premises or the Building without the prior written consent of Landlord, which consent shall not be unreasonably withheld, delayed or conditioned. In the event that any requested Alteration would result in a change from Landlord's building standard materials and specifications ("STANDARD IMPROVEMENTS"), Landlord may withhold consent to such Alteration in its sole and absolute discretion. In the event landlord so consents to a change from the Standard Improvements (such change being referred to as a "NON-STANDARD IMPROVEMENT"), Tenant shall be responsible for the cost of replacing such Non-Standard Improvement with the applicable Standard Improvement ("REPLACEMENTS") which Replacements shall be completed prior to the Expiration Date or earlier termination of this Lease. Landlord's consent shall not be required for any Alterations which cost less than One Dollar ($1.00) per square foot of the improved portions of the 9 Premises (excluding warehouse square footage) and do not (i) affect the exterior of the Building or outside areas (or be visible from adjoining sites), or (ii) affect or penetrate any of the structural portions of the Building, including but not limited to the roof, or (iii) require any change to the basic floor plan of the Premises or any change to any structural or mechanical systems of the Premises, or (iv) fail to comply with any applicable governmental requirements or require any governmental permit as a prerequisite to the construction thereof, or (v) result in the Premises requiring building services beyond the level normally provided to other tenants, or (vi) interfere in any manner with the proper functioning of, or Landlord's access to, any mechanical, electrical, plumbing or HVAC systems, facilities or equipment located in or serving the Building, or (vii) diminish the value of the Premises including, without limitation, using lesser quality materials than those existing in the Premises, or (viii) alter or replace Standard Improvements. Landlord may impose any reasonable condition to its consent, including but not limited to a requirement that the installation and/or removal of all Alterations and Replacements be covered by a lien and completion bond satisfactory to Landlord in its sole and absolute discretion and requirements as to the manner and time of performance of such work. Landlord shall in all events, whether or not Landlord's consent is required, have the right to approve the contractor performing the installation and removal of Alterations and Replacements and Tenant shall not permit any contractor not approved by Landlord to perform any work on the Premises or on the Building. Tenant shall obtain all required permits for the installation and removal of Alterations and Replacements and shall perform the installation and removal of Alterations and Replacements in compliance with all applicable laws, regulations and ordinances, including without limitation the Americans with Disabilities Act, all covenants, conditions and restrictions affecting the Site, and the Rules and Regulations as described in Article XVII. Tenant understands and agrees that Landlord shall be entitled to a supervision fee in the amount of five percent (5%) of the cost of the Alterations, provided that the supervision fee shall not exceed either (i) Five Thousand Dollars ($5,000.00) if the proposed Alterations would affect the structural components or exiting of the Building or (ii) One Thousand Dollars ($1,000.00) otherwise. Notwithstanding the foregoing, however, Landlord shall not charge a supervision fee for Alteration projects costing less than Ten Thousand Dollars ($10,000.00) and not affecting the structural components or exiting of the Building. Under no circumstances shall Tenant make any Alterations or Replacements which incorporate any Hazardous Materials, including without limitation asbestos-containing construction materials into the Premises, the Building or the Common Area. If any governmental entity requires, as a condition to any proposed Alterations by Tenant, that improvements be made to the Common Areas, and if Landlord consents to such improvements to the Common Areas (which consent may be withheld in the sole and absolute discretion of Landlord), then Tenant shall, at Tenant's sole expense, make such required improvements to the Common Areas in such manner, utilizing such materials, and with such contractors, architects and engineers as Landlord may require in its sole and absolute discretion. Any request for Landlord's consent to any proposed Alterations shall be made in writing and shall contain architectural plans describing the work in detail reasonably satisfactory to Landlord. Unless Landlord otherwise agrees in writing, all Alterations made or affixed to the Premises, the Building or to the Common Area (excluding movable trade fixtures and furniture), including without limitation all Tenant Improvements constructed pursuant to the Work Letter (except as otherwise provided in the Work Letter), shall become the property of Landlord and shall be surrendered with the Premises at the end of the Term; except that Landlord may, by notice to Tenant given at the time of granting its consent to the proposed Alteration, require Tenant to remove by the Expiration Date, or sooner termination date of this Lease all or any of the Alterations installed either by Tenant or by Landlord at Tenant's request, including without limitation all Tenant Improvements constructed pursuant to the Work Letter (except as otherwise provided in the Work Letter), and to repair any damage to the Premises, the Building or the Common Area arising from that removal and restore the Premises to their condition prior to making such Alterations. SECTION 7.4. MECHANIC'S LIENS. Tenant shall keep the Premises and the Site free from any liens arising out of any work performed, materials furnished, or obligations incurred by or for Tenant. Upon request by Landlord, Tenant shall promptly (but in no event later than fifteen (15) business days following such request) cause any such lien to be released by posting a bond in accordance with California Civil Code Section 3143 or any successor statute. In the event that Tenant shall not, within thirty (30) days following the imposition of any lien, cause the lien to be released of record by payment or posting of a proper bond, Landlord shall have, in addition to all other available remedies, the right to cause the lien to be released by any means it deems proper, including payment of or defense against the claim giving rise to the lien. All expenses so incurred by Landlord, including Landlord's attorneys' fees, and any consequential or other damages incurred by Landlord arising out of such lien, shall be reimbursed by tenant upon demand, together with interest from the date of payment by Landlord at the maximum rate permitted by law until paid. Tenant shall give Landlord no less than ten (10) days' prior notice in writing before commencing construction of any kind on the Premises or Common Area and shall again notify Landlord that construction has commenced, such notice to be given on the actual date on which construction commences, so that Landlord may post and maintain notices of nonresponsibility on the Premises or Common Area, as applicable, which notices Landlord shall have the right to post and which Tenant agrees it shall not disturb. Tenant shall also provide Landlord notice in writing within ten (10) days following the date on which such work is substantially completed. SECTION 7.5. ENTRY AND INSPECTION. Landlord shall at all reasonable times, upon written or oral notice (except in emergencies, when no notice shall be required) have the right to enter the Premises to inspect them, to supply services in accordance with this Lease, to have access to install, repair, maintain, replace or remove all electrical and mechanical installations of Landlord and to protect the interests of Landlord in the Premises, and to submit the Premises to prospective or actual purchasers or encumbrance holders (or, during the last one hundred and eighty (180) days of the Term or when an uncured Tenant Event of Default exists, to prospective tenants), all without being deemed to have caused an eviction of Tenant and without abatement of rent except as provided elsewhere in this Lease. Landlord shall have the tight, if desired, to retain a key which unlocks all of the doors in the Premises, excluding Tenant's vaults and safes, and Landlord shall have the right to use any and all means which Landlord may deem proper to open the doors in an emergency in order to obtain entry to the Premises, and any entry to the Premises obtained by Landlord shall not under any circumstances be deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or any eviction of Tenant from the Premises. Tenant shall have the right to have 10 a representative present during any entry by Landlord. Any entries by Landlord shall be subject to the reasonable security measures of Tenant. ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PROPERTY Tenant shall be liable for and shall pay, at least ten (10) days before delinquency, all taxes and assessments levied against all personal property of Tenant located in the Premises, and, if required by Landlord, against all Non Standard Improvements to the Premises (as defined in Section 7.3) made by Landlord or Tenant, and against any Alterations (as defined in Section 7.3) made to the Premises or the Building by or on behalf of Tenant. If requested by Landlord, Tenant shall cause its personal property, Non-Standard Improvements and Alterations to be assessed and billed separately from the real property of which the Premises form a part. If any taxes required to be paid by Tenant on Tenant's personal property, Non-Standard Improvements and/or Alterations are levied against Landlord or Landlord's property and if Landlord pays the same, or if the assessed value of Landlord's property is increased by the inclusion of a value placed upon the personal property, Non-Standard Improvements and/or Alterations and if Landlord pays the taxes based upon the increased assessment, Landlord shall have the right to require that Tenant pay to Landlord the taxes so levied against Landlord or the proportion of the taxes resulting from the increase in the assessment. In calculating what portion of any tax bill which is assessed against Landlord separately, or Landlord and Tenant jointly, is attributable to Tenant's Non-Standard Improvements, Alterations and personal property, Landlords reasonable determination shall be conclusive. ARTICLE IX. ASSIGNMENT AND SUBLETTING SECTION 9.1. RIGHTS OF PARTIES. (a) Notwithstanding any provision of this Lease to the contrary, and except as to transfers expressly permitted without Landlord's consent pursuant to Section 9.4, Tenant will not, either voluntarily or by operation of law, assign, sublet, encumber, or otherwise transfer all or any part of Tenant's interest in this Lease or the Premises, or permit the Premises to be occupied by anyone other than Tenant, without Landlord's prior written consent, which consent shall not unreasonably be withheld in accordance with the provisions of Section 9.1(b). No assignment (whether voluntary, involuntary or by operation of law) and no subletting shall be valid or effective without Landlord's prior written consent and, at Landlord's election, any such assignment or subletting shall be void and of no force and effect and any such attempted assignment or subletting shall constitute an Event of Default of this Lease. Landlord shall not be deemed to have given its consent to any assignment or subletting by any course of action other than written consent. To the extent not prohibited by provisions of the Bankruptcy Code, 11 U.S.C. Section 101 et seq. (the "BANKRUPTCY CODE"), including Section 365(f)(1), Tenant on behalf of itself and its creditors, administrators and assigns waives the applicability of Section 365(e) of the Bankruptcy Code unless the proposed assignee of the Trustee for the estate of the bankrupt meets Landlord's standard for consent as set forth in Section 9.1(b) of this Lease. If this Lease is assigned to any person or entity pursuant to the provisions of the Bankruptcy Code, any and all monies or other considerations to be delivered in connection with the assignment shall be delivered to Landlord, shall be and remain the exclusive property of Landlord and shall not constitute property of Tenant or of the estate of Tenant within the meaning of the Bankruptcy Code. Any person or entity to which this Lease is assigned pursuant to the provisions of the Bankruptcy Code shall be deemed to have assumed all of the obligations arising under this Lease on and after the date of the assignment, and shall upon demand execute and deliver to Landlord an instrument confirming that assumption. (b) If Tenant desires to transfer an interest in this Lease or the Premises, it shall first notify Landlord of its desire and shall submit in writing to Landlord: (i) the name and address of the proposed transferee; (ii) the nature of any proposed transferee's business to be carried on in the Premises; (iii) the terms and provisions of any proposed sublease, assignment or other transfer, including a copy of the proposed assignment, sublease or transfer form; (iv) evidence that the proposed assignee, subtenant or transferee will comply with the requirements of Exhibit D hereto; (v) a completed Environmental Questionnaire from the proposed assignee, subtenant or transferee; (vi) any other information requested by Landlord and reasonably related to the transfer and (vii) the fee described in Section 9.1(e). Except as provided in Section 9.1 (c), Landlord shall not unreasonably withhold its consent, provided that the parties agree that it shall be reasonable for Landlord to withhold its consent if (1) the use of the Premises will not be consistent with the provisions of this Lease; (2) the proposed assignee or subtenant has been required by any prior landlord, lender or governmental authority to take remedial action in connection with Hazardous Materials contaminating a property arising out of the proposed assignee's or subtenant's actions or use of the property in question or is subject to any enforcement order issued by any governmental authority in connection with the use, disposal or storage of a Hazardous Material; (3) insurance requirements of the proposed assignee or subtenant may not be brought into conformity with Landlord's then current leasing practice; (4) a proposed subtenant or assignee has not demonstrated to the reasonable satisfaction of Landlord that it is financially responsible or has failed to submit to Landlord all reasonable information as requested by Landlord concerning the proposed subtenant or assignee, including, but not limited to, a certified balance sheet of the proposed subtenant or assignee as of a date within ninety (90) days of the request for Landlord's consent, statements of income or profit and loss of the proposed subtenant or assignee for the two-year period preceding the request for Landlord's consent and/or a certification signed by the proposed subtenant or assignee that it has not been evicted or been in arrears in rent at any other leased premises for the 3-year period preceding the request for Landlord's consent; (5) the proposed assignee or subtenant is a prospect with whom Landlord is negotiating to become a tenant at the Site; or (6) the proposed transfer will impose additional burdens or adverse tax effects on Landlord. If Tenant has any exterior sign rights under this Lease, such rights are personal to Tenant and may not be assigned or transferred to any assignee of this Lease or subtenant of the Premises without Landlord's prior written consent, which may be withheld in Landlord's sole and absolute discretion. If Landlord consents to the proposed transfer, Tenant may within ninety (90) days after the date of the consent effect the transfer upon the terms described in the information furnished to Landlord; provided that any 11 material change in the terms shall be subject to Landlord's consent as set forth in this Section 9.1. Landlord shall approve or disapprove any requested transfer within fifteen (15) days following receipt of Tenant's written request, the information set forth above, and the fee set forth below, (c) Notwithstanding the provisions of Section 9.1(b) above, but except for any Permitted Transfer pursuant to Section 9.4, in lieu of consenting to a proposed assignment of this Lease or a subletting of the entire Premises with a sublease term that would extend beyond the date that is six (6) mouths prior to the expiration date of this Lease, Landlord may elect, within the fifteen (15) day period permitted for Landlord to approve or disapprove a requested transfer, to terminate this Lease effective thirty (30) days' following written notice by Landlord of its election to so terminate. Landlord may thereafter, at its option, assign, sublet or re-let any space so obtained by termination to any third party, including without limitation the proposed transferee of Tenant. (d) In the event that Landlord approves the requested assignment or subletting, Tenant agrees that fifty percent (50%) of any amounts paid by the assignee or subtenant, however described, in excess of (i) the Basic Rent payable by Tenant hereunder, or in the cast of a sublease of a potion of the Premises, in excess of the Basic Rent reasonably allocable to such portion, plus (ii) Tenant's direct and customary out-of-pocket costs which Tenant certifies to Landlord have been paid to provide occupancy related services to such assignee or subtenant of a nature commonly provided by landlords of similar space, shall be the property of Landlord and such amounts shall be payable directly to Landlord by the assignee or subtenant or, at Landlord's option, by Tenant within ten (10) days of Tenant's receipt thereof. At Landlord's request, a written agreement shall be entered into by and among Tenant, Landlord and the proposed assignee or subtenant confirming the requirements of this Section 9.1(d). (e) Tenant shall pay to Landlord a fee equal to the greater of (i) Landlord's actual costs related to such assignment, subletting or other transfer or (ii) Five Hundred Dollars ($500.00), to process any request by Tenant for an assignment, subletting or other transfer under this Lease. Tenant shall pay Landlord the sum of Five Hundred Dollars ($500.00) concurrently with Tenant's request for consent to any assignment, subletting or other transfer, and Landlord shall have no obligation to consider such request unless accompanied by such payment. Tenant shall pay Landlord upon demand any costs in excess of such payment to the extent Landlord's actual costs related to such request exceeds $500.00. Such fee is hereby acknowledged as a reasonable amount to reimburse Landlord for its costs of review and evaluation of a proposed transfer, SECTION 9.2. EFFECT OF TRANSFER. No subletting or assignment, even with the consent of Landlord, shall relieve Tenant of its obligation to pay rent and to perform all its other obligations under this Lease. Moreover, Tenant shall indemnify and hold Landlord harmless, as provided in Section 10.3, for any act or omission by an assignee or subtenant. Each assignee, other than Landlord, shall assume all obligations of Tenant under this Lease and shall be liable jointly and severally with Tenant for the payment of all rent, and for the due performance of all of Tenant's obligations, under this Lease. No assignment or subletting shall be effective or binding on Landlord unless documentation in form and substance satisfactory to Landlord in its reasonable discretion evidencing the transfer, and in the case of an assignment, the assignee's assumption of the obligations of Tenant under this Lease, is delivered to Landlord and both the assignee/subtenant and Tenant deliver to Landlord an executed consent to transfer instrument prepared by Landlord and consistent with the requirements of this Article. The acceptance by Landlord of any payment due under this Lease from any other person shall not be deemed to be a waiver by Landlord of any provision of this Lease or to be a consent to any transfer. Consent by Landlord to one or more transfers shall not operate as a waiver or estoppel to the future enforcement by Landlord of its rights under this Lease or as a consent to any subsequent transfer. SECTION 9.3. SUBLEASE REQUIREMENTS. The following terms and conditions shall apply to any subletting by Tenant of all or any part of the Premises and shall be deemed included in each sublease: (a) Each and every provision contained in this Lease (other than with respect to the payment of rent hereunder) is incorporated by reference into and made a part of such sublease, with "LANDLORD" hereunder meaning the sublandlord therein and "TENANT" hereunder meaning the subtenant therein, except as otherwise set forth in the sublease. (b) Tenant hereby irrevocably assigns to Landlord all of Tenant's interest in all rentals and income arising from any sublease of the Premises, and Landlord may collect such rent and income and apply same toward Tenant's obligations under this Lease; provided, however, that until there is an Event of Default by Tenant, Tenant shall have the right to receive and collect the sublease rentals. Landlord shall not, by reason of this assignment or the collection of sublease rentals, be deemed liable to the subtenant for the performance of any of Tenant's obligations under the sublease. Tenant hereby irrevocably authorizes and directs any subtenant, upon receipt of a written notice from Landlord stating that an uncured Event of Default exists in the performance of Tenant's obligations under this Lease, to pay to Landlord all sums then and thereafter due under the sublease. Tenant agrees that the subtenant may rely on that notice without any duty of further inquiry and notwithstanding any notice or claim by Tenant to the contrary. Tenant shall have no right or claim against the subtenant or Landlord for any rentals so paid to Landlord. (c) In the event of the termination of this Lease for any reason, including without limitation as the result of an Event of Default by Tenant or by the mutual agreement of Landlord and Tenant, Landlord may, at its sole option, take over Tenant's entire interest in any sublease and, upon notice from Landlord, the subtenant shall attorn to Landlord. In no event, however, shall Landlord be liable for any previous act or omission by Tenant under the sublease or for the return of any advance rental payments or deposits under the sublease that have not been actually delivered to Landlord, nor shall Landlord be bound by any sublease modification executed without Landlord's consent or for any advance rental payment by the subtenant in excess of one month's rent. The general provisions of this Lease, including without limitation those pertaining to insurance and indemnification, shall be dented incorporated by reference into the sublease despite the termination of this Lease. In the event Landlord does 12 not elect to take over Tenant's interest in a sublease in the event of any such termination of this Lease, such sublease shall terminate concurrently with the termination of this Lease and such subtenant shall have no further rights under such sublease and Landlord shall have no obligations to such subtenant. SECTION 9.4. CERTAIN TRANSFERS. Notwithstanding any provision to the contrary herein, Tenant may, without Landlord's consent but with prior notice to Landlord and subject to the requirements of Sections 9.2 and 9.3, assign this Lease or sublet the Premises to (a) any entity which results from a merger by Tenant with or into another entity or a reorganization of Tenant, so long as the net worth of the successor or reorganized entity after such merger is at least equal to the greater of the net worth of Tenant as of the execution of this Lease by Landlord or the net worth of Tenant immediately prior to the date of such merger or reorganization, evidence of which, satisfactory to Landlord, shall be presented to Landlord prior to such merger or reorganization; (b) any entity which controls, is controlled by, or is under common control with Tenant; or (c) any entity which acquires substantially all of the assets of Tenant, as a going concern, with respect to the business that is being conducted in the Premises (hereinafter each a "Permitted Transfer"). In addition, a sale or transfer of the capital stock of Tenant shall be deemed a Permitted Transfer if (l) such sale or transfer occurs in connection with any bona fide financing or capitalization for the benefit of Tenant, or (2) Tenant becomes a publicly traded corporation. Landlord shall have no tight to terminate the Lease in connection with, and shall have no right to any sums or other economic consideration resulting from, any Permitted Transfer. ARTICLE X. INSURANCE AND INDEMNITY SECTION 10.1. TENANT'S INSURANCE. Tenant, at its sole cost and expense, shall provide and maintain in effect the insurance described in Exhibit D. Evidence of that insurance must be delivered to Landlord prior to the Commencement Date. SECTION 10.2. LANDLORD'S INSURANCE. Landlord may, at its election, provide any or all of the following types of insurance, with or without deductible and in amounts and coverages as may be determined by Landlord in its sole and absolute discretion: "all risk" or similar property insurance, subject to standard exclusions, covering the Building and/or Site, and such other risks as Landlord or its mortgagees may from time to time deem appropriate, including Tenant Improvements made by Landlord pursuant to the Work Letter, and commercial general liability coverage. Landlord shall not be required to carry insurance of any kind on Tenant's Alterations or on Tenant's other property, including, leasehold improvements, trade fixtures, furnishings, equipment, plate glass, signs and all other items of personal property, and shall not be obligated to repair or replace that property should damage occur. All proceeds of insurance maintained by Landlord upon the Building and/or Site shall be the property of Landlord, whether or not Landlord is obligated to or elects to make any repairs. At Landlord's option, Landlord may self-insure all or any portion of the risks for which Landlord elects to provide insurance hereunder. SECTION 10.3. TENANT'S INDEMNITY. To the fullest extent permitted by law, Tenant shall defend, indemnify, protect, save and hold harmless Landlord, its agents, and any and all affiliates of Landlord, including, without limitation, any corporations or other entities controlling, controlled by or under common control with Landlord, from and against any and all claims, liabilities, costs or expenses arising either before or after the Commencement Date from Tenant's use or occupancy of the Premises, the Building or the Common Areas, including, without limitation, the use by Tenant, its agents, employees, invitees or licensees of any recreational facilities within the Common Areas, or from the conduct of its business, or from any activity, work, or thing done, permitted or suffered by Tenant or its agents, employees, invitees or licensees in or about the Premises, the Building or the Common Areas, or from any Event of Default in the performance of any obligation on Tenant's part to be performed under this Lease, or from any act or negligence of Tenant or its agents, employees, visitors, patrons, guests, invitees or licensees. Landlord may, at its option, require Tenant to assume Landlord's defense in any action covered by this Section through counsel satisfactory to Landlord. The provisions of this Section shall expressly survive the expiration or sooner termination of this Lease. Tenant's obligations under this Section shall not apply in the event that the claim, liability, cost or expense is caused by the gross negligence or willful misconduct of Landlord, SECTION 10.4. LANDLORD'S NONLIABILITY. Landlord shall not be liable to Tenant, its employees, agents and invitees, and Tenant hereby waives all claims against Landlord and knowingly assumes the risk of for loss of or damage to any property, or loss or interruption of business or income, or any other loss, cost, damage, injury or liability whatsoever (including without limitation any consequential damages and lost profit or opportunity costs) resulting from, but not limited to, Acts of God, acts of civil disobedience or insurrection, acts or omissions of third parties and/or of other tenants within the Site or their agents, employees, contractors, guests or invitees, fire, explosion, falling plaster, steam, gas, electricity, water or rain which may leak or flow from or into any pan of the Premises or from the breakage, leakage, obstruction or other defects of the pipes, sprinklers, wires, appliances, plumbing, air conditioning, electrical works, roof, windows or other fixtures in the Building, whether the damage or injury results from conditions arising in the Premises or in the Building, except to the extent the injury or damage is caused by Landlord's gross negligence and is not covered by the insurance carried (or otherwise required herein to be carried) by Tenant. It is understood that any such condition may require the temporary evacuation or closure of all or a portion of the Building. Landlord shall have no liability (including without limitation consequential damages and lost profit or opportunity costs) and, except as provided in Sections 11.1 and 12.1 below, there shall be no abatement of rent, by reason of any injury to or interference with Tenant's business arising from the making of any repairs, alterations or improvements to any portion of the Building, including repairs to the Premises, nor shall any related activity by Landlord constitute an actual or constructive eviction; provided, however, that in making repairs, alteration or improvements, Landlord shall interfere as little as reasonably practicable with the conduct of Tenant's business in the Premises. Neither Landlord nor its agents shall be liable for interference with light or other similar intangible interests, Tenant shall immediately notify Landlord in case of fire or accident in the Premises, the Building or the Site and of defects in any improvements or equipment. 13 SECTION 10.5. WAIVER OF SUBROGATION. Landlord and Tenant each hereby waives all rights of recovery against the other and the other's agents on account of loss and damage occasioned to the property of such waiving party to the extent only that such loss or damage is required to be insured against, or, if not required, is actually insured against, under any property insurance policies contemplated by this Article X; provided however, that (i) the foregoing waiver shall not apply to the extent of Tenant's obligations to pay deductibles under any such policies and this Lease and (ii) to the extent Tenant fails to maintain the insurance required to be maintained by Tenant pursuant to this Lease, Landlord shall not be deemed to have waived any right of recovery against Tenant. By this waiver it is the intent of the parties that neither Landlord nor Tenant shall be liable to any insurance company (by way of subrogation or otherwise) insuring the other party for any loss or damage insured against under any property insurance policies contemplated by this Lease, even though such loss or damage might be occasioned by the negligence of such party, its agents, employees, contractors, guests or invitees. ARTICLE XI. DAMAGE OR DESTRUCTION SECTION 11.1. RESTORATION. (a) If the Premises or the Building or a part thereof are materially damaged by any fire, flood, earthquake or other casualty, Landlord shall have the right to terminate this Lease upon written notice to Tenant if: (i) Landlord reasonably determines either (A) that the cost of repair would exceed ten percent (10%) of the replacement cost of the Building and the damage is not covered by Landlord's insurance or (B) that the cost of repair would exceed twenty-five percent (25%) of the Building's replacement cost; (ii) Landlord reasonably determines that the Premises cannot, with reasonable diligence, be fully repaired by Landlord (or cannot be safely repaired because of the presence of hazardous factors, including without limitation Hazardous Materials, earthquake faults and other similar dangers) within two hundred (200) days after the date of the damage; (iii) an uncured Event of Default by Tenant has occurred; or (iv) the material damage occurs during the final twelve (12) months of the Term. Landlord shall notify Tenant in writing ("Landlord's Notice") within thirty (30) days after the damage occurs as to (A) whether Landlord is terminating this Lease as a result of such material damage and (B) if Landlord is not terminating this Lease, the number of days within which Landlord has estimated that the Premises, with reasonable diligence, are likely to be fully repaired (the "Designated Repair Period"). In the event Landlord elects to terminate this Lease, this Lease shall terminate as of the date specified for termination by Landlord's Notice (which termination date shall in no event be later than thirty (30) days following the date of the damage, or, if no such date is specified, such termination shall be the date of Landlord's Notice). (b) If Landlord has the right to terminate this Lease pursuant to Section 11.1(a) and does not elect to so terminate this Lease, and provided that at the time of Landlord's Notice neither an Event of Default exists nor has Landlord delivered Tenant a notice of any failure by Tenant to fulfill an obligation under this Lease which, unless cured by Tenant within the applicable grace period, would constitute an Event of Default, then within twenty (20) days following delivery of Landlord's Notice pursuant to Section 11.1(a), Tenant may elect to terminate this Lease by written notice to Landlord, but only if (i) Landlord's notice specifies that Landlord has determined that the Premises cannot be repaired, with reasonable diligence, within two hundred (200) days after the date of damage or (ii) the casualty has occurred within the final twelve (12) months of the Term and such material damage has a materially adverse impact on Tenant's continued use of the Premises. If Tenant fails to provide such termination notice within such twenty (20) day period, Tenant shall be deemed to have waived any termination right under this Section 11.1(b) or any other applicable law. (c) In the event that neither Landlord nor Tenant terminates this Lease pursuant to this Section 11.1 as a result of material damage to the Building or Premises resulting from a casualty, Landlord shall repair all material damage to the Premises or the Building as soon as reasonably possible and this Lease shall continue in effect for the remainder of the Term. Subject to any provision to the contrary in the Work Letter, such repair by Landlord shall include repair of material damage to the Tenant Improvements constructed pursuant to the Work Letter, so long as insurance proceeds from insurance required to be carried by Tenant are made available to Landlord. Landlord shall, subject to Tenant's consent, have the right, but not the obligation, to repair or replace any other leasehold improvements made by Tenant or any Alterations (as defined in Section 7.3) constructed by Tenant. If Landlord elects to repair or replace such leasehold improvements and/or Attentions, all insurance proceeds available for such repair or replacement shall be made available to Landlord. Landlord shall have no liability to Tenant in the event that the Premises or the Building has not been fully repaired within the Designated Repair Period specified by Landlord in Landlord's Notice to Tenant as described in Section 11.1(a), provided that Landlord shall use commercially reasonable efforts to complete construction by such date. If Landlord determines at any time that the actual repair period will exceed the Designated Repair Period (or, if later, 200 days from the date of the damage), then Landlord shall so notify Tenant and Tenant may, within five (5) business days thereafter, elect to terminate this Lease; otherwise, the Designated Repair Period shall be deemed extended to the revised date set forth by Landlord. Should Landlord fail substantially to complete the repairs within the Designated Repair Period (or, if later, by the date that is 200 days following the casualty event), as the Designated Repair Period may have been extended as aforesaid, then Tenant may terminate this Lease by written notice to Landlord within five (5) business days thereafter. Notwithstanding the foregoing, the repair of damage to the Premises to the extent such damage is not materiel shall be governed by Sections 7.1 and 7.2. (d) Commencing on the sixth business day following the date of such material damage to the Building, and ending on the sooner of the date the damage is repaired or the date this Lease is terminated, the rental to be paid under this Lease shall be abated in the same proportion that the Floor Area of the Premises that is rendered unusable by the damage from time to time bears to the total Floor Area of the Premises. (e) Landlord shall not be required to repair or replace any improvements or fixtures that tenant is obligated to repair or replace pursuant to Section 7.1 or any other provision of this Lease and Tenant shall continue to be obligated to repair or replace any such improvements or fixtures, notwithstanding any provisions to the 14 contrary in this Article XI. In addition, in the event the damage or destruction to the Premises or Building are due in substantial part to the fault or neglect of Tenant or its employees, subtenants, invitees or representatives, notwithstanding the provisions of Section 10.5, the costs of such repairs or replacement to the Premises or Building shall be borne by Tenant to the extent that insurance proceeds sufficient to complete such repair or replacement are not made available to Landlord and in addition, Tenant shall not be entitled to terminate this Lease as a result, notwithstanding the provisions of Section 11.1(b). (f) Tenant shall fully cooperate with Landlord in removing Tenant's personal property and any debris from the Premises to facilitate all inspections of the Premises and the making of any repairs. Notwithstanding anything to the contrary contained in this Lease, if Landlord in good faith believes there is a risk of injury to persons or damage to property from entry into the Building or Premises following any damage or destruction thereto, Landlord may restrict entry into the Building or the Premises by Tenant, its employees, agents and contractors in a non-discriminatory manner, without being deemed to have violated Tenant's rights of quiet enjoyment to, or made an unlawful detainer of, or evicted Tenant from, the Premises. Upon request, Landlord shall consult with Tenant to determine if there are safe methods of entry into the Building or the Premises solely in order to allow Tenant to retrieve files, data in computers, and necessary inventory, subject however to all indemnities and waivers of liability from Tenant to Landlord contained in this Lease and any additional indemnities and waivers of liability which Landlord may require. SECTION 11.2. LEASE GOVERNS. Tenant agrees that the provisions of this Lease, including without limitation Section 11.1, shall govern any damage or destruction and shall accordingly supersede any contrary statute or rule of law. ARTICLE XII. EMINENT DOMAIN SECTION 12.1. TOTAL OR PARTIAL TAKING. If all or a material portion of the Premises is taken by any lawful authority by exercise of the right of eminent domain, or sold to prevent a taking, either Tenant or Landlord may terminate this Lease effective as of the date possession is required to be surrendered to the authority. In the event neither party has elected to terminate this Lease as provided above, then Landlord shall promptly, after receipt of a sufficient condemnation award, proceed to restore the Premises to substantially their condition prior to the taking, and a proportionate allowance shall be made to Tenant for the rent corresponding to the time during which, and to the part of the Premises of which, Tenant is deprived on account of the taking and restoration. In the event of a taking, Landlord shall be entitled to the entire amount of the condemnation award without deduction for any estate or interest of Tenant provided that nothing in this Section shall be deemed to give Landlord any interest in, or prevent Tenant from seeking any award against the taking authority for, the taking of personal property and fixtures belonging to Tenant or for relocation or business interruption expenses recoverable from the taking authority. SECTION 12.2. TEMPORARY TAKING. No temporary taking of the Premises shall terminate this Lease or give Tenant any right to abatement of rent, and any award specifically attributable to a temporary taking of the Premises shall belong entirely to Tenant. A temporary taking shall be deemed to be a taking of the use or occupancy of the Premises for a period of not to exceed ninety (90) days. SECTION 12.3. TAKING OF PARKING AREA. In the event there shall be a taking of the parking area of the Site such that more than ten percent (10%) of the vehicle parking spaces are taken, Landlord may substitute reasonably equivalent parking in a location reasonably close to the Building; provided that if Landlord fails to make that substitution within ninety (90) days following the taking and if the taking materially impairs Tenant's use and enjoyment of the Premises, Tenant may, at its option, terminate this Lease by written notice to Landlord. If this Lease is not so terminated by Tenant, there shall be no abatement of rent and this Lease shall continue in effect. ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE; FINANCIALS SECTION 13.1. SUBORDINATION. At the option of Landlord or any lender of Landlord's that obtains a security interest in the Building, this Lease shall be either superior or subordinate to all ground or underlying leases, mortgages and deeds of trust, if any, which may hereafter affect the Building, and to all renewals, modifications, consolidations, replacements and extensions thereof; provided, that so long as no Event of Default exists under this Lease, Tenant's possession and quiet enjoyment of the Premises shall not be disturbed and this Lease shall not terminate in the event of termination of any such ground or underlying lease, or the foreclosure of any such mortgage or deed of trust, to which this Lease has been subordinated pursuant to this Section. Tenant shall execute and deliver within ten (10) business days of written request therefor any documents or agreements requested by Landlord or such lessor or lender which provide Tenant with the non-disturbance protections set forth in this Section. In the event of a termination or foreclosure, Tenant shall become a tenant of and attorn to the successor-in-interest to Landlord upon the same terms and conditions as are contained in this Lease, and shall execute any instrument reasonably required by Landlord's successor for that purpose. Tenant shall also, upon written request of Landlord, execute and deliver all instruments as may be required from time to time to subordinate the rights of Tenant under this Lease to any ground or underlying lease or to the lien of any mortgage or deed of trust (provided that such instruments include the nondisturbance and attornment provisions set forth above), or, if requested by Landlord, to subordinate, in whole or in part, any ground or underlying lease or the lien of any mortgage or deed of trust to this Lease. Tenant agrees that any purchaser at a foreclosure sale or lender taking title under a deed-in-lieu of foreclosure shall not be responsible for any act or omission of a prior landlord, shall not be subject to any offsets or defenses Tenant may have against a prior landlord, and shall not be liable for the return of the security deposit to the extent it is not actually received by such purchaser or bound by any rent paid for more than the current month in which the foreclosure occurred. 15 SECTION 13.2. ESTOPPEL CERTIFICATE. Tenant shall, at any time upon not less than ten (10) business days prior written notice from Landlord, execute, acknowledge and deliver to Landlord, in any form that Landlord may reasonably require, assent in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of the modification and certifying that this Lease, as modified, is in full force and effect) and the dates to which the rental, additional rent and other charges have been paid in advance, if any, and (ii) acknowledging that, to Tenant's knowledge, there are no uncured defaults on the part of Landlord, or specifying each default if any are claimed, and (iii) setting forth all further information that Landlord or any purchaser or encumbrancer may reasonably require. Tenant's statement may be relied upon by any prospective purchaser or encumbrancer of all or any portion of the Building or Site. SECTION 13.3. FINANCIALS. (a) Tenant shall deliver to Landlord, prior to the execution of this Lease and thereafter not more than once per year upon Landlord's request, Tenant's current tax returns and financial statements, certified true, accurate and complete by the chief financial officer of Tenant, including a balance sheet and profit and loss statement for the most recent prior year, or, in the event Tenant is a publicly traded corporation on a nationally recognized stock exchange, Tenant's current financial reports filed with the Securities and Exchange Commission (collectively, the "Statements"), which Statements shall accurately and completely reflect the financial condition of Tenant. Landlord agrees that it will keep the Statements confidential, except that Landlord shall have the right to deliver the same to any proposed purchaser of the Building or Site, and to any encumbrance of all or any portion of the Building or Site. (b) Tenant acknowledges that Landlord is relying on the Statements in its determination to enter into this Lease, and Tenant represents to Landlord, which representation shall be deemed made on the date of this Lease and again on the Commencement Date, that no material change in the financial condition of Tenant, as reflected in the Statements, has occurred since the date Tenant delivered the Statements to Landlord. The Statements are represented and warranted by Tenant to be correct and to accurately and fully reflect Tenant's true financial condition as of the date of submission by any Statements to Landlord. ARTICLE XIV. EVENTS OF DEFAULT AND REMEDIES SECTION 14.1. TENANT'S DEFAULTS. In addition to any other breaches of this Lease which are defined as Events of Default in this Lease, the occurrence of any one or more of the following events shall constitute an Event of Default by Tenant: (a) The failure by Tenant to make any payment of Basic Rent or additional rent required to be made by Tenant, as and when due, where the failure continues for a period of three (3) days after written notice from Landlord to Tenant; provided, however, that any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure Section 1161 and 1161(a) as amended. For purposes of these Events of Default and remedies provisions, the term "additional rent" shall be deemed to include all amounts of any type whatsoever other than Basic Rent to be paid by Tenant pursuant to the terms of this Lease, (b) The assignment, sublease, encumbrance or other transfer of this Lease by Tenant, either voluntarily or by operation of law, whether by judgment, execution, transfer by intestacy or testacy, or other means, without the prior written consent of Landlord when consent is required by this Lease. (c) The discovery by Landlord that any financial statement provided by Tenant, or by any affiliate, successor or guarantor of Tenant, was materially false. (d) The failure of Tenant to timely and fully provide any subordination agreement, estoppel certificate or financial statements in accordance with the requirements of Article XIII. (e) The abandonment of the Premises by Tenant. (f) The failure or inability by Tenant to observe or perform any of the express or implied covenants or provisions of this Lease to be observed or performed by Tenant, other than as specified in this Section 14.1, where the failure continues for a period of thirty (30) days after written notice from Landlord to Tenant or such shorter period as is specified in any other provision of this Lease; provided, however, that any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure Section 1161 and 1161(a) as amended. However, if the nature of the failure is such that more than thirty (30) days are reasonably required for its cure, then Tenant shall not be deemed to have committed an Event of Default if Tenant commences the cure within thirty (30) days, and thereafter diligently pursues the cure to completion. (g) (i) The making by Tenant of any general assignment for the benefit of creditors; (ii) the filing by or against Tenant of a petition to have Tenant adjudged a Chapter 7 debtor under the Bankruptcy Code or to have debts discharged or a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Tenant, the same is dismissed within thirty (30) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, if possession is not restored to Tenant within thirty (30) days; (iv) the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where the seizure is not discharged within thirty (30) days; (v) Tenants convening of a meeting of its creditors for the purpose of effecting a moratorium upon or composition of its debts or (vi) the failure of Tenant to 16 pay its material obligations to creditors as and when they become due and payable, other than as a result of a good faith dispute by Tenant as to the amount due to such creditors. Landlord shall not be deemed to have knowledge of any event described in this Section 14.1(g) unless notification in writing is received by Landlord, nor shall there be any presumption attributable to Landlord of Tenant's insolvency. In the event that any provision of this Section l4.1(g) is contrary to applicable law, the provision shall be of no force or effect. SECTION 14.2. LANDLORD'S REMEDIES. (a) If an Event of Default by Tenant occurs, then in addition to any other remedies available to Landlord, Landlord may exercise the following remedies: (i) Landlord may terminate Tenant's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Tenant shall immediately surrender possession of the Premises to Landlord. Such termination shall not affect any accrued obligations of Tenant under this Lease. Upon termination, Landlord shall have the right to reenter the Premises and remove all persons and property. Landlord shall also be entitled to recover from Tenant: (1) The worth at the time of award of the unpaid Basic Rent and additional rent which had been earned at the time of termination; (2) The worth at the time of award of the amount by which the unpaid Basic Rent and additional rent which would have been earned after termination until the time of award exceeds the amount of such loss that Tenant proves could have been reasonably avoided; (3) The worth at the time of award of the amount by which the unpaid Basic Rent and additional rent for the balance of the Term after the time of award exceeds the amount of such loss that Tenant proves could be reasonably avoided; (4) 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 from Tenant's Event of Default, including, but not limited to, the cost of recovering possession of the Premises, refurbishment of the Premises, marketing costs, commissions and other expenses of reletting, including necessary repair, the unamortized portion of any tenant improvements and brokerage commissions funded by Landlord in connection with this Lease, reasonable attorney's fees, and any other reasonable costs; and (5) At Landlord's election, all other amounts in addition to or in lieu of the foregoing as may be permitted by law. Any sum, other than Basic Rent, shall be computed on the basis of the average monthly amount accruing during the twenty-four (24) month period immediately prior to the Event of Default, except that if it becomes necessary to compute such rental before the twenty-four (24) month period has occurred, then the computation shall be on the basis of the average monthly amount during the shorter period. As used in Sections 14.2(a)(i) and (2) above, the "worth at the time of award" shall be computed by allowing interest at the rate of ten percent (10%) per annum. As used in Section l4.2(a)(i)(3) above, the "worth at the time of award" shall be computed by discounting the amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). (ii) Landlord may elect not to terminate Tenant's right to possession of the Premises, in which event Landlord may continue to enforce all of its rights and remedies under this Lease, including the right to collect all rent as it becomes due. Efforts by the Landlord to maintain, preserve or relet the Premises, or the appointment of a receiver to protect the Landlord's interests under this Lease, shall not constitute a termination of the Tenant's right to possession of the Premises. In the event that Landlord elects to avail itself of the remedy provided by this Section 14.2(a)(ii), Landlord shall not unreasonably withhold its consent to an assignment or subletting of the Premises subject to the reasonable standards for Landlord's consent as are contained in this Lease. (b) Landlord shall be under no obligation to observe or perform any covenant of this Lease on its part to be observed or performed which accrues after the date of any Event of Default by Tenant unless and until the Event of Default is cured by Tenant, it being understood and agreed that the performance by Landlord of its obligations under this Lease are expressly conditioned upon Tenant's full and timely performance of its obligations under this Lease. The various rights and remedies reserved to Landlord in this Lease or otherwise shall be cumulative and, except as otherwise provided by California law, Landlord may pursue any or all of its rights and remedies at the same time. (c) No delay or omission of Landlord to exercise any right or remedy shall be construed as a waiver of the right or remedy or of any breach or Event of Default by Tenant. The acceptance by Landlord of rent shall not be a (i) waiver of any preceding breach or Event of Default by Tenant of any provision of this Lease, other than the failure of Tenant to pay the particular rent accepted, regardless of Landlord's knowledge of the preceding breach or Event of Default at the time of acceptance of rent, or (ii) a waiver of Landlord's right to exercise any remedy available to Landlord by virtue of the breach or Event of Default. The acceptance of any payment from a debtor in possession, a trustee, a receiver or any other person acting on behalf of Tenant or Tenant's estate shall not waive or cure a breach or Event of Default under Section 14.1 No payment by Tenant or receipt by Landlord of a lesser amount than the rent required by this Lease shall be deemed to be other than a partial payment on account of the earliest due stipulated rent, nor shall any endorsement or statement on any check or letter be deemed an accord and satisfaction and Landlord shall accept the check or payment without prejudice to Landlord's right to recover the balance of the rent or pursue any other remedy available to it. No act or thing done by Landlord or Landlord's 17 agents during the Term shall be deemed an acceptance of, surrender of the Premises, and no agreement to accept a surrender shall be valid unless in writing and signed by Landlord. No employee of Landlord or of Landlord's agents shall have any power to accept the keys to the Premises prior to the termination of this Lease, and the delivery of the keys to any employee shall not operate as a termination of this Lease or a surrender of the Premises. (d) Any agreement for free or abated rent or other charges, or for the giving or paying by Landlord to or for Tenant of any cash or other bonus, inducement or consideration for Tenant's entering into this Lease ("Inducement Provisions") shall be deemed conditioned upon Tenant's full and faithful performance of the terms, covenants and conditions of this Lease. Upon an Event of Default under this Lease by Tenant, any such Inducement Provisions shall automatically be deemed deleted from this Lease and of no further force or effect and the amount of any rent reduction or abatement or other bonus or consideration already given by Landlord or received by Tenant as an Inducement shall be immediately due and payable by Tenant to Landlord, notwithstanding any subsequent cure of said Event of Default by Tenant. The acceptance by Landlord of rent or the cure of the Event of Default which initiated the operation of this Section 14.1 shall not be deemed a waiver by Landlord of the provisions of this Section 44.2(d). SECTION 14.3. LATE PAYMENTS. (a) Any payment due to Landlord under this Lease, including without limitation Basic Rent, Tenant's Share of Operating Expenses or any other payment due to Landlord under this Lease, that is not received by Landlord within five (5) days following the date due shall bear interest at the maximum rate permitted by law from the date due until fully paid. The payment of interest shall not cure any breach or Event of Default by Tenant under this Lease. In addition, Tenant acknowledges that the late payment by Tenant to Landlord of Basic Rent and Tenant's Share of Operating Expenses will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult and impracticable to ascertain. Those costs may include, but are not limited to, administrative, processing and accounting charges, and late charges which may be imposed on Landlord by the terms of any pound lease, mortgage or trust deed covering the Premises. Accordingly, if any Basic Rent or Tenant's Share of Operating Expenses due from Tenant shall not be received by Landlord or Landlord's designee within five (5) days following the date due, then Tenant shall pay to Landlord, in addition to the interest provided above, a late charge, which the Tenant agrees is reasonable, in a sum equal to three percent (%) of the amount overdue for each delinquent payment. Acceptance of a late charge by Landlord shall not constitute a waiver of Tenant's breech or Event of Default with respect to the overdue amount, nor shall it prevent Landlord from exercising any of its other rights and remedies. (b) Should Tenant deliver to Landlord, at any time during the Term, three (3) or more insufficient checks, the Landlord may require that all monies then and thereafter due from Tenant be paid to Landlord by cashiers check. If any check for any payment to Landlord hereunder is returned by the bank for any reason, such payment shall not be deemed to have been received by Landlord and Tenant shall be responsible for any applicable late charge, internet payment and the charge to Landlord by its bank for such returned check. Nothing in this Section shall be construed to compel Landlord to accept Basic Rent, Tenant's Share or Operating Expenses or any other payment from Tenant if there exists an Event of Default unless such payment fully cures any and all such Event of Default. Any acceptance of any such payment shall not be deemed to waive any other right of Landlord under this Lease. Any payment by Tenant to Landlord may be applied by Landlord, in its sole and absolute discretion, in any order determined by landlord to any amounts then due to Landlord. SECTION 14.4. [INTENTIONALLY OMITTED) SECTION 14.5. DEFAULT BY LANDLORD. Landlord shall not be deemed to be in default in the performance of any obligation under this Lease, and Tenant shall have no rights to take any action against Landlord, unless and until Landlord has failed to perform the obligation within thirty (30) days after written notice by Tenant to Landlord specifying in reasonable detail the nature and extent of the failure; provided, however, that if the nature of Landlord's obligation is such that more than thirty (30) days are required for its performance, then landlord shall not be deemed to be in default if it commences performance within the thirty (30) day period and thereafter diligently pursues the cure to completion. In the event of Landlord's default under this Lease, Tenant's sole remedies shall be to seek damages or specific performance from Landlord, provided that any damages shall be limited to Tenant's actual out-of-pocket expenses and shall in no event include any consequential damages, lost profits or opportunity costs, SECTION 14.6. EXPENSES AND LEGAL FEES. All sums reasonably incurred by Landlord in connection with any Event of Default by Tenant under this Lease or holding over of possession by Tenant after the expiration or earlier termination of this Lease, or any action related to a filing for bankruptcy or reorganization by Tenant, including without limitation all costs, expenses and actual accountants, appraisers, attorneys and other professional fees, and any collection agency or other collection charges, shall be due and payable to Landlord on demand, and shall bear interest at the rate of ten percent (10%) per annum. Should either Landlord or Tenant bring any action in connection with this Lease, the prevailing party shall be entitled to recover as a part of the action its reasonable attorneys' fees, and all other cost. The prevailing party for the purpose of this Section shall be determined by the trier of the facts. SECTION 14.7. WAIVER OF JURY TRIAL. LANDLORD AND TENANT EACH ACKNOWLEDGES THAT IT IS AWARE OF AND HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT TO ITS RIGHTS TO TRIAL BY JURY, AND EACH PARTY DOES HEREBY EXPRESSLY AND KNOWINGLY WAIVE AND RELEASE ALL SUCH RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER (AND/OR AGAINST ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, OR SUBSIDIARY OR AFFILIATED ENTITIES) ON ANY MATTERS WHATSOEVER ARISING OUT 18 OF IN ANY WAY CONNECTED WITH THIS LEASE, TENANT'S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM OF INJURY OR DAMAGE, FURTHERMORE, THIS WAIVER AND RELEASE OF ALL RIGHTS TO A JURY TRIAL IS DEEMED TO BE INDEPENDENT OF EACH AND EVERY OTHER PROVISION, COVENANT, AND/OR CONDITION SET FORTH IN THIS LEASE. SECTION 14.8. SATISFACTION OF JUDGMENT. The obligations of Landlord do not constitute the personal obligations of the individual partners, trustees, directors, officers or shareholders of Landlord or its constituent partners. Should Tenant recover a money judgment against Landlord, such judgment shall be satisfied only from the interest of Landlord in the Site and out of the rent or other income from such property receivable by Landlord or out of consideration received by Landlord from the sale or other disposition of all or any part of Landlord's right, title or interest in the Site and no action for any deficiency may be sought or obtained by Tenant. SECTION 14.9. LIMITATION OF ACTIONS AGAINST LANDLORD. Any claim, demand or right of any kind by Tenant which is based upon or arises in connection with this Lease, including without limitation any arising under a tort or contact cause of action, shall be barred unless Tenant commences an action thereon within six (6) months after the date that the act, omission, event or default upon which the claim, demand or right arises, has occurred. ARTICLE XV. END OF TERM SECTION 15.1. HOLDING OVER. This Lease shall terminate without further notice upon the expiration of the Term, and any holding over by Tenant after the expiration shall not constitute a renewal or extension of this Lease, or give Tenant any rights under this Lease, except when in writing signed by both parties. Any period of time following the Expiration Date or earlier termination of this Lease required for Tenant to remove its property or to place the Premises in the condition required pursuant to Section 15.3 (or for Landlord to do so if Tenant fails to do so) shall be deemed a holding over by Tenant. If Tenant holds over for any period after the Expiration Date (or earlier termination) of the Term without the prior written consent of Landlord, such possession shall constitute a tenancy at sufferance only and an Event of Default under this Lease; such holding over with the prior written consent of Landlord shall constitute a month-to-month tenancy commencing on the first (1st) day following the termination of this Lease and terminating thirty (30) days following delivery of written notice of termination by either Landlord or Tenant to the other. In either of such events, possession shall be subject to all of the terms of this Lease, except that the monthly Basic Rent shall be one hundred fifty percent (150%) of the greater of (a) the Basic Rent for the month immediately preceding the date of termination or (b) the fair market rental for the Premises. If Tenant fails to surrender the Premises upon the expiration of this Lease despite demand to do so by Landlord, Tenant shall indemnify and hold Landlord harmless from all loss or liability, including without limitation, any claims made by any succeeding tenant relating to such failure to surrender. Acceptance by Landlord of rent after the termination shall not constitute a consent to a holdover or result in a renewal of this Lease. The foregoing provisions of this Section are in addition to and do not affect Landlord's right of re-entry or any other rights of Landlord under this Lease or at law. SECTION 15.2. MERGER ON TERMINATION. The voluntary or other surrender of this Lease by Tenant, or a natural termination of this Lease, shall terminate any or all existing subleases unless Landlord, at its option, elects in writing to treat the surrender or termination as an assignment to it of any or all subleases affecting the Premises. SECTION 15.3. SURRENDER OF PREMISES; REMOVAL OF PROPERTY. Subject to the provisions of 7.3 of this Lease, upon the Expiration Date or upon any earlier termination of this Lease, Tenant shall quit and surrender possession of the Premises to Landlord in as good order, condition and repair as when received or as hereinafter may be improved by landlord or Tenant, reasonable wear and tear and repairs which are Landlord's obligation excepted, and shall, without expense to Landlord, remove or cause to be removed from the Premises all personal property and debris, except for any items that Landlord may by written authorization allow to remain. Tenant shall repair all damage to the Premises resulting from the removal which repair shall include the patching and filling of holes and repair of structural damage, provided that Landlord may instead elect to repair any structural damage at Tenant's expense. If Tenant shall fail to comply with the provisions of this Section, Landlord may effect the removal and/or make any repair, and the cost to Landlord shall be additional rent payable by Tenant upon demand. If Tenant fails to remove Tenant's personal property from the Premises upon the expiration of the Term. Landlord may remove, store, dispose of and/or retain such personal property, at Landlord's option, in accordance with then applicable laws, all at the expense of Tenant. If requested by Landlord, Tenant shall execute, acknowledge and deliver to Landlord an instrument in writing releasing and quitclaiming to Landlord all right, title and interest of Tenant in the Premises. ARTICLE XVI. PAYMENTS AND NOTICES All sums payable by Tenant to Landlord shall be deemed to be rent under this Lease and shall be paid, without deduction or offset, in lawful money of the United Slates to Landlord at its address set forth in Item 12 of the Basic Lease Provisions, or at any other place as Landlord may designate in writing. Unless this Lease expressly provides otherwise, as for example in the payment of Basic Rent and the Tenant's Share of Operating Costs pursuant to Sections 4.1 and 4.2, all payments shall be due and payable within five (5) days after demand. All payments requiring proration shall be prorated on the basis of a thirty (30) day month and a three hundred sixty (360) day year. Any notice, election, demand, consent, approval or other communication to be given or other document to be delivered by either party to the other may be delivered in person or by courier or overnight delivery service to the other party, or may be deposited in the United States mail, duly registered or certified, postage prepaid, return receipt requested, and addressed to the other party at the address set forth in Item 12 of the Basic Lease Provisions, or if to Tenant, at that address or, from and after the Commencement Date, at the Premises (whether or not Tenant has departed from, abandoned or vacated the Premises). Either party may, by written notice to the other, served in 19 the manner provided in this Article, designate a different address. If any notice or other document is sent by mail, it shall be deemed served or delivered seventy-two (72) hours after mailing. If more than one person or entity is named as Tenant under this Lease, service of any notice upon any one of them shall be deemed as service upon all of them. ARTICLE XVII. RULES AND REGULATIONS Tenant agrees to observe faithfully and comply strictly with the Rules and Regulations, attached as Exhibit E and any reasonable and nondiscriminatory amendments, modifications and/or additions as may be adopted and published by written notice to tenants by Landlord for the safety, care, security, good order, or cleanliness of the Premises, Building, Site and Common Areas. Landlord shall not be liable to Tenant for any violation of the Rules and Regulations or the breach of any covenant or condition in any lease by any other tenant or such tenant's agents, employees, contractors, guests or invitees. One or more waivers by Landlord of any breach of the Rules and Regulations by tenant or by any other tenant(s) shall not be a waiver of any subsequent breach of that rule or any other. Tenant's failure to keep and observe the Rules and Regulations shall constitute a breach of this Lease. In the case of any conflict between the Rules and Regulations and this Lease, this Lease shall be controlling. ARTICLE XVIII. BROKER'S COMMISSION The parties recognize as the broker(s) who negotiated this Lease the firm(s), if any, whose name(s) is (are) stated in Item 10 of the Basic Lease Provisions; and agree that Landlord shall be responsible for the payment of brokerage commissions to those broker(s) unless otherwise provided in this Lease. Tenant warrants that it has had no dealings with any other real estate broker or agent in connection with the negotiation of this Lease, and Tenant agrees to indemnify and hold Landlord harmless from any cost, expense or liability (including reasonable attorneys' fees) for any compensation, commissions or charges claimed by any other real estate broker, or agent employed or claiming to represent or to have been employed by Tenant in connection with the negotiation of this Lease. The foregoing agreement shall survive the termination of this Lease. If Tenant fails to take possession of the Premises or if this Lease otherwise terminates prior to the Expiration Date as the result of failure of performance by Tenant, Landlord shall be entitled to recover from Tenant the unamortized portion of any brokerage commission funded by Landlord in addition to any other damages to which Landlord may be entitled. ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST In the event of any transfer of Landlord interest in the Premises, the transferor shall be automatically relieved of all further obligations on the part of Landlord, and the transferor shall be relieved of any obligation to pay any funds in which Tenant has an interest to the extent that such funds have been turned over, subject to that interest, to the transferee and Tenant is notified of the transfer as required by law. No beneficiary of a deed of trust to which this Lease is or may be subordinate, and no landlord under a so-called sale-leaseback, shall be responsible in connection with the Security Deposit, unless the mortgagee or beneficiary under the deed of trust or the landlord actually receives the Security Deposit. It is intended that the covenants and obligations contained in this Lease on the part of Landlord shall, subject to the foregoing, be binding on Landlord, its successors and assigns, only during and in respect to their respective successive periods of ownership. ARTICLE XX. INTERPRETATION SECTION 20.1. GENDER AND NUMBER. Whenever the context of this Lease requires the words "Landlord" and "Tenant" shall include the plural as well as the singular, and words used in neuter, masculine or feminine genders shall include the others. SECTION 20.2. HEADINGS. The captions and headings of the articles and sections of this Lease are for convenience only, are not a part of this Lease and shall have no effect upon its construction or interpretation. SECTION 20.3. JOINT AND SEVERAL LIABILITY. If more than one person or entity is named as Truant, the obligations imposed upon each shall be joint and several and the act of or notice front, or notice or refund to, or the signature of, any one or more of them shall be binding on all of them with respect to the tenancy of this Lease, including, but not limited to, any renewal, extension, termination or modification of this Lease. SECTION 20.4. SUCCESSORS. Subject to Articles IX and XIX, all rights and liabilities given to or imposed upon Landlord and Tenant shall extend to and bind their respective heirs, executors, administrators, successors and assigns. Nothing contained in this Section is intended, or shall be construed, to grant to any person other than Landlord and Tenant and their successors and assigns any rights or remedies under this Lease. SECTION 20.5. TIME OF ESSENCE. Time is of the essence with respect to the performance of every provision of this Lease. SECTION 20.6. CONTROLLING LAW/VENUE. This Lease shall be governed by and interpreted in accordance with the laws of the State of California. Any litigation commenced concerning any matters whatsoever arising out of or in any way connected to this Lease shall be initiated in the Superior Court of the county in which the Site is located. SECTION 20.7. SEVERABILITY. If any term or provision of this Lease, the deletion of which would not adversely affect the receipt of any material benefit by either party or the deletion of which is consented to by the party adversely affected, shall be held invalid or unenforceable to any extent, the remainder of this Lease shall not 20 be affected and each term and provision of this Lease shall be valid and enforceable to the fittest extent permitted by law. SECTION 20.8. WAIVER AND CUMULATIVE REMEDIES. One or more waivers by Landlord or Tenant of any breach of any term, Covenant or condition contained in this Lease shall not be a waiver of any subsequent breach of the same or any other term, covenant or condition. Consent to any act by one of the parties shall not be deemed to render unnecessary the obtaining of that party's consent to any subsequent act. No breach by Tenant of this Lease shall be deemed to have been waived by Landlord unless the waiver is in a writing signed by Landlord. The right and remedies of Landlord under this Lease shall be cumulative and in addition to any and all other rights and remedies which Landlord may have. SECTION 20.9. INABILITY TO PERFORM. In the event that either party stall be delayed or hindered in or prevented from the performance of any work or in performing any act required under this Lease by reason of any cause beyond the reasonable control of that party, other than financial inability, then the performance of the work or the doing of the act shall be excused for the period of the delay and the time for performance shall be extended for a period equivalent to the period of the delay. The provisions of this Section shall not operate to excuse Tenant from the prompt payment of rent or from the timely performance of any other obligation under this Lease within Tenant's reasonable control. SECTION 20.10. ENTIRE AGREEMENT. This Lease and its exhibits and other attachments cover in full each and every agreement of every kind between the parties concerning the Premises, the Building and the Site, and all preliminary negotiations, oral agreements, understandings and/or practices, except those contained in this Lease, are superseded and of no further effect. Tenant waives its rights to rely on any representations or promises made by Landlord or others which are not contained in this Lease. No verbal agreement or implied covenant shall be held to modify the provisions of this Lease, any statute, law, or custom to the contrary notwithstanding. SECTION 20.11. QUIET ENJOYMENT. Upon the observance and performance of all the covenants, terms and conditions on Tenant's part to be observed and performed, and subject to the other provisions of this Lease, Tenant shall have the right of quiet enjoyment and use of the Premises for the Term without hindrance or interruption by Landlord or any other person claiming by or through Landlord. SECTION 20.12. SURVIVAL. All covenants of Landlord or Tenant which reasonably would be intended to survive the expiration or sooner termination of this Lease, including without limitation any warranty or indemnity hereunder, shall so survive and continue to be binding upon and inure to the benefit of the respective parties and their successors and assigns. SECTION 20.13. INTERPRETATION. This Lease shall not be construed in favor of or against either party, but shall be construed as if both parties prepared this Lease. ARTICLE XXI. EXECUTION AND RECORDING SECTION 21.1. COUNTERPARTS. This Lease may be executed in one or more counterparts, each of which shall constitute an original and all of which shall be one and the same agreement. SECTION 21.2. CORPORATE, LIMITED LIABILITY COMPANY AND PARTNERSHIP AUTHORITY. If Tenant is a corporation, limited liability company or partnership, each individual executing this Lease on behalf of the corporation, limited liability company or partnership represents and warrants that he or she is duly authorized to execute and deliver this Lease on behalf of the corporation, limited liability company or partnership, and that this Lease is binding upon the corporation, limited liability company or partnership in accordance with its terms. Tenant shall, at Landlord's request, deliver a certified copy of its board of directors' resolution, operating agreement or partnership agreement or certificate authorizing or evidencing the execution of this Lease. SECTION 21.3. EXECUTION OF LEASE; NO OPTION OR OFFER. The submission of this Lease to Tenant shall be for examination purposes only, and shall not constitute an offer to or option for Tenant to lease the Premises. Execution of this Lease by Tenant and its return to Landlord shall not be binding upon Landlord, notwithstanding any time interval, until Landlord has in fact executed and delivered this Lease to Tenant, it being intended that this Lease shall only become effective upon execution by Landlord and delivery of a fully executed counterpart to Tenant. SECTION 21.4. RECORDING. Tenant shall not record this Lease without the prior written consent of Landlord. Tenant, upon the request of Landlord, shall execute and acknowledge a "short form" memorandum of this Lease for recording purposes. SECTION 21.5. AMENDMENTS. No amendment or termination of this Lease shall be effective unless in writing signed by authorized signatories of Tenant and Landlord, or by their respective successors in interest. No actions, policies, oral or informal arrangements, business dealings or other course of conduct by or between the parties shall be deemed to modify this Lease in any respect. SECTION 21.6. EXECUTED COPY. Any fully executed photocopy or similar reproduction of this Lease shall be deemed an original for all purposes. SECTION 21.7. ATTACHMENTS. All exhibits, amendments, riders and addenda attached to this Lease are hereby incorporated into and made a part of this Lease. 21 ARTICLE XXII. MISCELLANEOUS SECTION 22.1. CHANGES REQUESTED BY LENDER. If, in connection with obtaining financing for the Site, the lender shall request reasonable modifications in this Lease as a condition to the financing, Tenant will not unreasonably withhold or delay its consent, provided that the modifications do not increase in any manner the obligations of Tenant or diminish Tenant's rights hereunder or materially and adversely affect the leasehold interest created by this Lease. SECTION 22.2. MORTGAGEE PROTECTION. No act or failure to act on the part of Landlord which would otherwise entitle Tenant to be relieved of its obligations hereunder shall result in such a release or termination unless (a) Tenant has given notice by registered or certified mail to any beneficiary of a deed of trust or mortgage covering the Building whose address has been furnished to Tenant and (b) such beneficiary is afforded a reasonable opportunity to cure the default by Landlord (which in no event shall be less than thirty (30) days), including, if necessary to effect the cure, time to obtain possession of the Building by power of sale or judicial foreclosure provided that such foreclosure remedy is diligently pursued. Tenant agrees that each beneficiary of a deed of trust or mortgage covering the Building is an express third party beneficiary hereof, Tenant shall have no right or claim for the collection of any deposit from such beneficiary or from any purchaser at a foreclosure sale unless such beneficiary or purchaser shall have actually received and not refunded the deposit, and Tenant shall comply with any written directions by any beneficiary to pay rent due hereunder directly to such beneficiary without determining whether a default exists under such beneficiary's deed of trust. SECTION 22.3. COVENANTS AND CONDITIONS. All of the provisions of this Lease shall be construed to be conditions as well as covenants as though the words specifically expressing or imparting covenants and conditions were used in each separate provision. SECTION 22.4. SECURITY MEASURES. Tenant hereby acknowledges that Landlord shall have no obligation whatsoever to provide guard service or other security measures for the benefit of the Premises or the Site. Tenant assumes all responsibility for the protection of Tenant, its employees, agents, invitees and property from acts of third parties. Nothing herein contained shall prevent Landlord, at its sole option, from providing security protection for the Site or any part thereof, in which event the cost thereof shall be included within the definition of Site Costs. LANDLORD: TENANT: THE IRVINE COMPANY MOLECULAR DEVICES CORPORATION By: By: ----------------------------------- ----------------------------------- Donald S. McNutt Name (Print): Senior Vice President, Leasing Title (Print): Office Properties By: By: ----------------------------------- ----------------------------------- Chris Popma, Vice President Name: Asset Management, Office Properties Title: 22 EXHIBIT A [GRAPHIC] EXHIBIT B --------- THE IRVINE COMPANY - INVESTMENT PROPERTIES GROUP HAZARDOUS MATERIAL SURVEY FORM The purpose of this form is to obtain information regarding the use of hazardous substances on Investment Properties Group ("IPG") property. Prospective tenants and contractors should answer the questions in light of their proposed activities on the premises. Existing tenants and contractors should answer the questions as they relate to ongoing activities on the premises and should update any information previously submitted. If additional space is needed to answer the questions, you may attach separate sheets of paper to this form. When completed, the form should be sent to the following address: INSIGNIA/ESG, INC. 160 West Santa Clara Street, Suite 1350 San Jose, CA 95113 Your cooperation in this matter is appreciated. If you have any questions, please call your property manager at (949) 753-4744 for assistance. 1. GENERAL INFORMATION. Name of Responding Company: ----------------------------------------------- Check all that apply: Tenant ( ) Contractor ( ) Prospective ( ) Existing ( ) Mailing Address: ---------------------------------------------------------- Contact person & Title: --------------------------------------------------- Telephone Number: ( ) ---------------------------------- Current TIC Tenant(s): Address of Lease Premises: ------------------------------------------------ Length of Lease or Contract Term: ----------------------------------------- Prospective TIC Tenant(s): Address of Leased Premises: ----------------------------------------------- Address of Current Operations: -------------------------------------------- Describe the proposed operations to take place on the property, including principal products manufactured or services to be conducted. Existing tenants and contractors should describe any proposed changes to ongoing operations. -------------------------------------------------------------------------- -------------------------------------------------------------------------- -------------------------------------------------------------------------- 1 of 5 2. HAZARDOUS MATERIALS. For the purposes of this Survey Form, the term "hazardous material" means any raw material, product or agent considered hazardous under any state or federal law. The term does not include wastes which are intended to be discarded. 2.1 Will any hazardous materials be used or stored on site? Chemical Products Yes ( ) No ( ) Biological Hazards/ Yes ( ) No ( ) Infectious Wastes Radioactive Materials Yes ( ) No ( ) Petroleum Products Yes ( ) No ( ) 2.2 List any hazardous materials to be used or stored, the quantities that will be onsite at any given time, and the location and method of storage (e.g., bottles in storage closet on the premises). Location and Method Hazardous Materials of Storage Quantity ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- 2.3 Is any underground storage of hazardous materials proposed or currently conducted on the premises? Yes ( ) No ( ) If yes, describe the materials to be stored, and the size and construction of the tank. Attach copies of any permits obtained for the underground storage of such substances. -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- 3. HAZARDOUS WASTE. For the purposes of this Survey Form, the term "hazardous waste" means any waste (including biological, infectious or radioactive waste) considered hazardous under any state or federal law, and which is intended to be discarded. 3.1 List any hazardous waste generated or to be generated on the premises, and indicate the quantity generated on a monthly basis. Location and Method Hazardous Materials of Storage Quantity ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- 2 of 5 3.2 Describe the method(s) of disposal (including recycling) for each waste. Indicate where and how often disposal will take place. Location and Method Hazardous Materials of Storage Disposal Method ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- 3.3 Is any treatment or processing of hazardous, infectious or radioactive wastes currently conducted or proposed to be conducted on the premise? Yes ( ) No ( ) If yes, please describe any existing or proposed treatment methods. -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- 3.4 Attach copies of any hazardous waste permits or licenses issued to your company with respect to its operations on the premises. 4. SPILLS 4.1 During the past year, have any spills or releases of hazardous materials occurred on the premises? Yes ( ) No ( ) If so, please describe the spill and attach the results of any testing conducted to determine the extent of such spills. -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- 4.2 Were any agencies notified in connection with such spills? Yes ( ) No ( ) If so, attach copies of any spill reports or other correspondence with regulatory agencies. 4.3 Were any clean-up actions undertaken in connection with the spills? Yes ( ) No ( ) If so, briefly describe the actions taken. Attach copies of any clearance letters obtained from any regulatory agencies involved and the results of any final soil or groundwater sampling done upon completion of the clean-up work. -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- 5. WASTEWATER TREATMENT/DISCHARGE 5.1 Do you discharge industrial wastewater to: ________ storm drain? ________ sewer? ________ surface water? ________ no industrial discharge 3 of 5 5.2 Is your industrial wastewater treated before discharge? Yes ( ) No ( ) If yes, describe the type of treatment conducted. -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- 5.3 Attach copies of any wastewater discharge permits issued to your company with respect to its operations on the premises. 6. AIR DISCHARGES. 6.1 Do you have any air filtration systems or stacks that discharge into the air? Yes ( ) No ( ) 6.2 Do you operate any equipment that require air emissions permits? Yes ( ) No ( ) 6.3 Attach copies of any air discharge permits pertaining to these operations. 7. HAZARDOUS MATERIALS DISCLOSURES. 7.1 Does your company handle an aggregate of at least 500 pounds, 55 gallons or 200 cubic feet of hazardous material at any given time? Yes ( ) No ( ) 7.2 Has your company prepared a Hazardous Materials Disclosure - Chemical Inventory and Business Emergency Plan or similar disclosure document pursuant to state or county requirements? Yes ( ) No ( ) If so, attach a copy. 7.3 Are any of the chemicals used in your operations regulated under Proposition 65? If so, describe the procedures followed to comply with these requirements. -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- 7.4 Is your company subject to OSHA Hazard Communication Standard Requirements? Yes ( ) No ( ) If so, describe the procedures followed to comply with these requirements. -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- 8. ANIMAL TESTING. -------------- 8.1 Does your company bring or intend to bring live animals onto the premises for research or development purposes? Yes ( ) No ( ) If so, describe the activity. -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- 4 of 5 8.2 Does your company bring or intend to bring animal body parts or bodily fluids onto the premises for research or development purposes? Yes ( ) No ( ) If so, describe the activity. -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- 9. ENFORCEMENT ACTIONS, COMPLAINTS. 9.1 Has your company ever been subject to any agency enforcement actions, administrative orders, lawsuits, or consent orders/decrees regarding environmental compliance or health and safety? Yes ( ) No ( ) If so, describe the actions and any continuing obligations imposed as a result of these actions. 9.2 Has your company ever received any request for information, notice of violation or demand letter, complaint, or inquiry regarding environmental compliance or health and safety? Yes ( ) No ( ) 9.3 Has an environmental audit ever been conducted which concerned operations or activities on premises occupied by you? Yes ( ) No ( ) 9.4 If you answered "yes" to any questions in this section, describe the environmental action or complaint and any continuing compliance obligation imposed as a result of the same. -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- By: ---------------------------------------- Name: ------------------------------- Title: ----------------------------- Date: ------------------------------ 5 of 5 JANUARY 14, 1997 SUNNYVALE LEASES EXHIBIT C HAZARDOUS MATERIALS DISCLOSURE Tenant acknowledges the following disclosure, by Landlord with respect to Hazardous Materials at the Premises. Tenant agrees to comply with the precautionary requirements and other provisions, set forth below, that arc associated with these Hazardous Materials. (1) Portions of the structures on the Premises may contain asbestos-containing materials. Accordingly, Tenant agrees that it will not make any repairs or alterations to the structures on the Premises: (a) without inquiring from Landlord whether Tenant's planned repairs or alterations are likely to disturb asbestos-containing materials in the structure, and (b) if, in Landlords judgment, the planned repairs or alterations will disturb the asbestos-containing materials, without securing Landlord's prior consent to the repairs or alterations. (2) Portions of the groundwater in the City of Sunnyvale contain volatile organic compounds and/or solvents. These substances may be present in the groundwater beneath the Premises. Landlord is unaware of any practical impediment to the use or occupancy of the Premises as a result of the presence of these substances in the groundwater. (3) Tenant agrees that its exemption in Section 5.3(f) of the Lease from liability or responsibility with respect to the Hazardous Materials described in this Exhibit C shall not extend to any such Hazardous Materials whose presence was caused or permitted by Tenant, its agents, employees, contractors, contractors, licensees, or invitees. EXHIBIT D --------- TENANT'S INSURANCE The following standards for Tenants insurance shall be in effect at the Building. Landlord reserves the right to adopt reasonable nondiscriminatory modifications and additions to those standards. Tenant agrees to obtain and present evidence to Landlord that it has fully complied with the insurance requirements. 1. Tenant shall, at Its sole cost and expense, commencing on the date Tenant Is given access to the Premises for any purpose and during the entire Term, procure, pay for and keep in full force and effect: (i) commercial general liability insurance with respect to the Premises and the operations of or on behalf of Tenant in, on or about the Premises, including but not limited to personal injury, owned and nonowned automobile, blanket contractual, independent contractors, broad form property damage (with an exception to any pollution exclusion `with respect to damage arising out of heat, smoke or fumes from a hostile fire), fire and water legal liability, products liability (if a product is sold from the Premises), liquor law liability (if alcoholic beverages are sold, sewed or consumed within the Premises), and severability of interest, which policy(ies) shall be written on an "occurrence" basis and for not less than the amount set forth in Item 13 of the Basic Lease Provisions, with a combined single limit (with a $50,000 minimum limit on fire legal liability) per occurrence for bodily injury, death, and property damage liability, or the current limit of liability carried by Tenant, whichever is greater, and subject to such increases in amounts as Landlord may determine from time to time; (ii) workers' compensation insurance coverage as required by law, together with employers' liability insurance; (iii) with respect to improvements, alterations, and the like required or permitted to be made by Tenant under this Lease, builder's all-risk insurance, in an amount equal to the replacement cost of the work (provided that such coverage shall not be required until any such improvements or alterations are made); (iv) insurance against fire, vandalism, malicious mischief and such other additional perils as may be included in a standard "all risk" form in general use in the county in which the Premises are situated, insuring Tenant's leasehold improvements, trade fixtures, furnishings, equipment and items of personal property of Tenant located in the Premises, in an amount equal to not less than ninety percent (90%) of their actual replacement cost (with replacement cost endorsement); and (v) business interruption Insurance in amounts satisfactory to cover one (1) year of loss. In no event shall the limits of any policy be considered as limiting the liability of Tenant under this Lease. 2. In the event Landlord consents to Tenant's use, generation or storage of Hazardous Materials on, under or about the Premises pursuant to Section 5.3 of this Lease, then Tenant shall notify Landlord in writing before it brings such Hazardous Materials to the Premises and Landlord shall thereafter have the continuing right to require Tenant, at Tenant's sole cost and expense (provided the same is available for purchase upon commercially reasonable terms), to purchase insurance specified and approved by Landlord, with coverage not less than Five Million Dollars ($5,000,000.00), insuring (i) any Hazardous Materials shall be removed from the Premises, (ii) the Premises shall be restored to a clean, healthy, safe and sanitary condition, and (iii) any liability of Tenant, Landlord and Landlord's officers, directors, shareholders, agents, employees, and representatives, arising from such Hazardous Materials. 3. All policies of insurance required to be carried by Tenant pursuant to this Exhibit D containing a deductible exceeding Ten Thousand Dollars ($10,000.00) per occurrence must be approved in writing by Landlord prior to the issuance of such policy. Tenant shall be solely responsible for the payment of all deductibles. 4. All policies of insurance required to be carried by Tenant pursuant to this Exhibit D shall be written by responsible insurance companies authorized to do business in the State of California and with a Best's rating of not less than "A" subject to final acceptance and approval by Landlord. Any insurance required of Tenant may be furnished by Tenant under any blanket policy carried by it or under a separate policy, so long as (i) the Premises are specifically covered (by rider, endorsement or otherwise) and (ii) the policy otherwise complies with the provisions of this Exhibit D. A true and exact copy of each paid up policy evidencing the insurance (appropriately authenticated by the Insurer) or a certificate of insurance, certifying that the policy has been issued, provides the coverage required by this Exhibit D and contains the required provisions, shall be delivered to Landlord prior to the date Tenant is given the right of possession of the Premises. Proper evidence of the renewal of any insurance coverage shall also be delivered to Landlord not less than thirty (30) days prior to the expiration of the coverage. Landlord may at anytime, and from time to time, inspect and/or copy any and all insurance policies required by this Lease. 5. Each policy evidencing insurance required to be carried by Tenant pursuant to this Exhibit D shall contain the following provisions and/or clauses satisfactory to Landlord: (i) a provision that the policy and the coverage provided shall be primary and that any coverage carried by Landlord shall be noncontributory with respect to any policies carried by Tenant except as to workers' compensation insurance; (ii) a provision including Landlord, the Additional Insureds identified in Item 11 of the Basic Lease Provisions, and any other parties in interest designated by Landlord as an additional insured, except as to workers' compensation insurance; (iii) a waiver by the insurer of any right to subrogation against Landlord, its agent, employees, contractors and representatives which arises or might arise by reason of any payment under the policy or by reason of any act or omission of Landlord, its agents, employees, contractors or representatives; and (iv) a provision that the insurer will not cancel or change the coverage provided by the policy without first giving Landlord thirty (30) days prior written notice. 6. In the event that Tenant fails to procure, maintain and/or pay for, at the times and for the durations specified in this Exhibit D, any insurance required by this Exhibit D, or fails to carry insurance required by any governmental authority, Landlord may at its election procure that insurance and pay the premiums, in which event Tenant shall repay Landlord all sums paid by Landlord, together with interest at the maximum rate permitted by law and any related costs or expenses incurred by Landlord, within ten (10) days following Landlord's written demand to Tenant. -1- EXHIBIT E --------- RULES AND REGULATIONS This Exhibit sets forth the rules and regulations governing Tenant's use of the Premises leased to Tenant pursuant to the terms, covenants and conditions of the Lease to which this Exhibit is attached and therein made part thereof. In the event of any conflict or inconsistency between this Exhibit and the Lease, the Lease shall control. 1. Tenant shall not place anything or allow anything to be placed near the glass of any window, door, partition or wall which may appear unsightly from outside the Premises. 2. The walls, walkways, sidewalks, entrance passages, courts and vestibules shall not be obstructed or used for any purpose other than ingress and egress of pedestrian travel to and from the Premises, and shall not be used for loitering or gathering, or to display, store or place any merchandise, equipment or devices, or for any other purpose. The walkways, entrance passageways, courts, vestibules and roof are not for the use of the general public and Landlord shall in all cases retain the right to control and prevent access thereto by all persons whose presence in the judgment of the Landlord shall be prejudicial to the safety, character, reputation and interests of the Building and its tenants, provided that nothing herein contained shall be construed to prevent such access to persons with whom Tenant normally deals in the ordinary course of Tenant's business unless such persons are engaged in illegal activities. No tenant or employee or invitee of any tenant shall be permitted upon the roof of the Building. 3. No awnings or other projection shall be attached to the outside walls of the Building. No security bars or gates, curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with, any window or door of the Premises without the prior written consent of Landlord. Neither the interior nor exterior of any windows shall be coated or otherwise sunscreened without the express written consent of Landlord. 4. Tenant shall not mark, nail, paint, drill into, or in any way deface any part of the Premises or the Building, Tenant shall not lay linoleum, tile, carpet or other similar floor covering so that the same shall be affixed to the floor of the Premises in any manner except as approved by Landlord in writing. The expense of repairing any damage resulting from a violation of this rule or removal of any floor covering shall be borne by Tenant. 5. The toilet rooms, urinals, wash bowls and other plumbing apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein. The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose employees or invitees, caused it. 6. Landlord shall direct electricians as to the manner and location of any future telephone wiring. No boring or cutting for wires will be allowed without the prior consent of Landlord. The locations of the telephones, call boxes and other office equipment affixed to the Premises shall be subject to the prior written approval of Landlord. 7. The Premises shall not be used for manufacturing or for the storage of merchandise except as such storage may be incidental to the permitted use of the Premises. No exterior storage shall be allowed at any time without the prior written approval of Landlord. The Premises shall not be used for cooking or washing clothes without the prior written consent of Landlord, or for lodging or sleeping or for any immoral or illegal purposes. 8. Tenant shall not make, or permit to be made, any unseemly or disturbing noises or disturb or interfere with occupants of this or neighboring buildings or premises or those having business with them, whether by the use of any musical instrument, radio, phonograph, noise, or otherwise. Tenant shall not use, keep or permit to be used, or kept, any foul or obnoxious gas or substance in the Premises or permit or suffer the Premises to be used or occupied in any manner offensive or objectionable to Landlord or other occupants of this or neighboring buildings or premises by reason of any odors, fumes or gases. 9. No animals shall be permitted at any time within the Premises. 10. Tenant shall not use the name of the Building or the Project in connection with or in promoting or advertising the business of Tenant, except as Tenant's address, without the written consent of Landlord. Landlord shall have the right to prohibit any advertising by any Tenant which, in Landlord's reasonable opinion, tends to impair the reputation of the Project or its desirability for its intended uses, and upon written notice from Landlord any Tenant shall refrain from or discontinue such advertising. 11. Canvassing, soliciting, peddling, parading, picketing, demonstrating or otherwise engaging in any conduct that unreasonably impairs the value or use of the Premises or the Project are prohibited and each Tenant shall cooperate to prevent the same. 12. No equipment of any type shall be placed on the Premises which in Landlord's opinion exceeds the load limits of the floor or otherwise threatens the soundness of the structure or improvements of the Building. 1 of 2 13. No air conditioning unit or other similar apparatus shall be installed or used by any Tenant without the prior written consent of Landlord. 14. The entire Premises, including vestibules entrances, doors, fixtures, windows and plate glass, shall at all times be maintained in a safe, neat and clean condition by Tenant. All trash, refuse and waste materials shall be regularly removed from the Premises by Tenant and placed in the containers at the locations designated by Landlord for refuse collection. All cardboard boxes must be "broken down" prior to being placed in the trash container. All styrofoam chips must be bagged or otherwise contained prior to placement in the trash container, so as not to constitute a nuisance. Pallets may not be disposed of in the trash container or enclosures. The burning of trash, refuse or waste materials is prohibited. 15. Tenant shall use at Tenant's cost such pest extermination contractor as Landlord may direct and at such intervals as Landlord may require. 16. All keys for the Premises shall be provided to Tenant by Landlord and Tenant shall return to Landlord any of such keys so provided upon the termination of the Lease. Tenant shall not change locks or install other locks on doors of the Premises, without the prior written consent of Landlord. In the event of loss of any keys furnished by Landlord for Tenant, Tenant shall pay to Landlord the costs thereof. 17. No person shall enter or remain within the Project while intoxicated or under the influence of liquor or drugs. Landlord shall have the right to exclude or expel from the Project any person who, in the absolute discretion of Landlord, is under the influence of liquor or drugs. Landlord reserves the right to amend or supplement the foregoing Rules and Regulations and to adopt and promulgate additional rules and regulations applicable to the Premises. Notice of such rules and regulations and amendments and supplements thereto, if any, shall be given to the Tenant. 2 of 2 EX-10.40 6 f88686exv10w40.txt EXHIBIT 10.40 EXHIBIT 10.40 [Molecular Devices Corporation letterhead] April 11, 2002 Joseph D. Keegan, Ph.D. c/o Molecular Devices Corporation 1311 Orleans Drive Sunnyvale, CA 94089 Dear Joe: This will serve to confirm the agreement of Molecular Devices Corporation (the "Company") that, in consideration of your election to forgo the change-in-control severance benefits under your Employment Agreement dated March 11, 1998 (the "Employment Agreement"), you will be entitled to benefits under the Company's 2001 Change In Control Severance Plan (the "Plan"). In addition, the Company hereby agrees that it will not terminate the Plan or implement any amendment of the Plan that would result in lesser benefits to you under the Plan than you currently have under the Employment Agreement without (a) your written consent or (b) restoring to you your rights under the Employment Agreement. Very truly yours, Molecular Devices Corporation By: /s/ Tim Harkness ---------------------------- Tim Harkness, CFO/VP Finance AGREED: /s/ Joseph D. Keegan, Ph.D. - -------------------------------- Joseph D. Keegan, Ph.D. MOLECULAR DEVICES CORPORATION CHANGE IN CONTROL SEVERANCE BENEFIT PLAN FOR JOSEPH D. KEEGAN PRESIDENT AND CHIEF EXECUTIVE OFFICER SECTION 1. INTRODUCTION. The Molecular Devices Corporation Change in Control Severance Benefit Plan (the "Plan") was established effective February 15, 2001. The purpose of the Plan is to provide for the payment of severance benefits to certain eligible employees of Molecular Devices Corporation (the "Company") whose employment with the Company is terminated following a Change in Control. This Plan shall supersede any severance benefit plan, policy or practice previously maintained by the Company. This Plan document also is the Summary Plan Description for the Plan. SECTION 2. DEFINITIONS. For purposes of the Plan, the following terms are defined as follows: (a) "BASE SALARY" means the Eligible Employee's annual base salary as in effect during the last regularly scheduled payroll period immediately preceding the Change in Control or as increased thereafter. (b) "BOARD" means the Board of Directors of the Company. (c) "CHANGE IN CONTROL" is defined as one or more of the following events: (i) there is consummated a sale or other disposition of all or substantially all of the assets of the Company (other than a sale to an entity where at least fifty percent (50%) of the combined voting power of the voting securities of such entity are owned by the stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale); (ii) any person, entity or group (other than the Company, a subsidiary or affiliate of the Company, or a Company employee benefit plan, including any trustee of such plan acting as trustee) becomes the beneficial owner, directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company's then outstanding securities other than by virtue of a merger, consolidation or similar transaction; or (iii) there is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Company and, immediately after the consummation of such transaction, the stockholders immediately prior to the consummation of such transaction do not own, directly or indirectly, outstanding voting securities representing more than fifty percent (50%) of the combined outstanding voting power of the surviving entity in such transaction or more than fifty percent (50%) of the combined outstanding voting power of the parent of the surviving entity in such transaction. (d) "COMPANY" means Molecular Devices Corporation or, following a Change in Control, the surviving entity resulting from such transaction. (e) "CONSTRUCTIVE TERMINATION" means a voluntary termination of employment by an Eligible Employee after one of the following is undertaken without the Eligible Employee's express written consent: (i) the assignment to the Eligible Employee of duties or responsibilities that results in a material diminution in the Eligible Employee's authority, duties or responsibilities as in effect immediately prior to the Change in Control; provided, however, that a mere change in the Eligible Employee's title or reporting relationships shall not provide the basis for a Constructive Termination; (ii) a reduction in the Eligible Employee's base salary, as in effect immediately prior to the Change in Control (or as increased thereafter), unless such reduction is made pursuant to an across-the-board reduction of the base salaries of all similarly situated employees of the Company of no more than ten percent (10%); (iii) a change in the Eligible Employee's business location of more than 35 miles from the business location immediately prior to the Change in Control; (iv) a material breach by the Company of any provisions of the Plan or any enforceable written agreement between the Company and the Eligible Employee; or (v) any failure by the Company to obtain assumption of the Plan by any successor or assign of the Company. (f) "CONTINUATION PERIOD" means the period for which an Eligible Employee is entitled to receive the benefits described in Section 4(c). The Continuation Period is eighteen (18) months. (g) "COVERED TERMINATION" means an Involuntary Termination Without Cause or a Constructive Termination, either of which occurs within thirteen (13) months following the effective date of a Change in Control. (h) "INVOLUNTARY TERMINATION WITHOUT CAUSE" means an involuntary termination of employment by the Company other than for one of the following reasons: (i) refusal or failure to follow the lawful and reasonable directions of the Board of Directors or individual to whom the Eligible Employee reports, which refusal or failure is not cured within 30 days following delivery of written notice of such conduct to the Eligible Employee; (ii) a material failure by the Eligible Employee to perform his or her duties in a manner reasonably satisfactory to the Board of Directors that is not cured within 30 days following delivery of written notice of such failure to the Eligible Employee; or (iii) conviction of a felony involving moral turpitude that is likely to inflict or has inflicted material injury on the business of the Company. SECTION 3. ELIGIBILITY FOR BENEFITS. (a) GENERAL RULES. Subject to the requirements set forth in this Section, the Company will provide the severance benefits described in Section 4 of the Plan to Eligible Employees. For purposes of this Plan, "Eligible Employees" are designated executive employees of the Company who have not entered into individual severance benefit or change in control agreements with the Company and whose employment with the Company terminates due to a Covered Termination. (i) In order to be eligible to receive benefits under the Plan, an Eligible Employee must remain on the job until his or her date of termination, as scheduled by the Company. (ii) In order to be eligible to receive benefits under the Plan, an Eligible Employee also must execute a general waiver and release in substantially the form attached hereto as Exhibit A, Exhibit B or Exhibit C, as appropriate, and such release must become effective in accordance with its terms. The Company, in its sole discretion, may modify the form of the required release to comply with applicable state law. Subject to the foregoing, the Company, in its sole discretion, shall determine the form of the required release. (b) EXCEPTIONS TO BENEFIT ENTITLEMENT. An employee who otherwise is an Eligible Employee will not receive benefits under the Plan in any of the following circumstances, as determined by the Company in its sole discretion: (i) The employee has executed an individually negotiated employment contract or agreement with the Company relating to severance benefits or change in control benefits that is in effect on his or her termination date. (ii) The employee's employment with the Company is involuntarily terminated by the Company other than as an Involuntary Termination without Cause. (iii) The employee voluntarily terminates employment with the Company and such termination does not constitute a Constructive Termination. Voluntary terminations include, but are not limited to, resignation, retirement or failure to return from a leave of absence on the scheduled date. (iv) The employee voluntarily terminates employment with the Company in order to accept employment with another entity that is wholly or partly owned (directly or indirectly) by the Company or an affiliate of the Company. SECTION 4. AMOUNT OF BENEFIT. (a) BASE SALARY. Each Eligible Employee shall receive twelve (12) months of Base Salary. Such amount shall be paid in a lump sum and shall be subject to all required tax withholding. (b) BONUS PAYMENT. Each Eligible Employee shall receive a bonus payment equal to what would have been earned at one hundred percent (100%) of target for the year of termination. (c) CONTINUED INSURANCE BENEFITS. Provided that the Eligible Employee elects continued coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), the Company shall pay the portion of premiums of each Eligible Employee's group medical, dental and vision coverage, including coverage for the Eligible Employee's eligible dependents, that the Company paid prior to the Covered Termination, for eighteen (18) months; provided, however, that no such premium payments shall be made following the effective date of the Eligible Employee's coverage by a medical, dental or vision insurance plan of a subsequent employer. Each Eligible Employee shall be required to notify the Company immediately if the Eligible Employee becomes covered by a medical, dental or vision insurance plan of a subsequent employer. No provision of this Plan will affect the continuation coverage rules under COBRA, except that the Company's payment of any applicable insurance premiums during the Continuation Period will be credited as payment by the Eligible Employee for purposes of the Eligible Employee's payment required under COBRA. Therefore, the period during which an Eligible Employee must elect whether or not to continue the Company's group medical, dental or vision coverage under COBRA, the length of time during which COBRA continuation coverage will be made available to the Eligible Employee, and all other rights and obligations of the Eligible Employee under COBRA will be applied in the same manner that such rules would apply in the absence of this Plan. At the conclusion of the Continuation Period, the Eligible Employee will be responsible for the entire payment of premiums required under COBRA for the duration of the COBRA continuation period. For purposes of this Section 4(c), applicable premiums that will be paid by the Company during the Continuation Period shall not include any amounts payable by the Eligible Employee under a Section 125 health care reimbursement plan, which amounts, if any, are the sole responsibility of the Eligible Employee. (d) ACCELERATION OF VESTING. Effective as of the date of the Covered Termination, each Eligible Employee shall be credited with full acceleration of vesting for all options outstanding that the Eligible Employee holds on such date that have not yet vested. Notwithstanding the foregoing, if the acquiring entity in the transaction which constitutes a Change in Control under the Plan intends to utilize the "pooling of interests" accounting method in connection with such transaction, and such transaction would be eligible for the "pooling of interests" accounting method but for the additional vesting credit provided for in this Section 4(d), then Eligible Employees shall not be entitled to receive such additional vesting credit. (e) OUTPLACEMENT SERVICES. On behalf of the Eligible Employee, the Company shall pay for an executive assistance program for a period not to exceed three (3) months and at a cost not to exceed $7,500, provided that the Eligible Employee enrolls in the program within six (6) months following the Covered Termination. SECTION 5. LIMITATIONS ON BENEFITS. (a) RELEASE. To receive benefits under this Plan, an Eligible Employee must execute a release of claims in favor of the Company, in the form attached to this Plan as Exhibit A, Exhibit B or Exhibit C, as appropriate, and such release must become effective in accordance with its terms. (b) CERTAIN REDUCTIONS AND OFFSETS. Notwithstanding any other provision of the Plan to the contrary, any benefits payable to an Eligible Employee under this Plan shall be reduced by any severance benefits payable by the Company to such individual under any other policy, plan, program or arrangement, including, without limitation, a contract between the Eligible Employee and any entity, covering such individual. Furthermore, to the extent that any federal, state or local laws, including, without limitation, so-called "plant closing" laws, require the Company to give advance notice or make a payment of any kind to an Eligible Employee because of that Eligible Employee's involuntary termination due to a layoff, reduction in force, plant or facility closing, sale of business, change of control, or any other similar event or reason, the benefits payable under this Plan shall either be reduced or eliminated. The benefits provided under this Plan are intended to satisfy any and all statutory obligations that may arise out of an Eligible Employee's involuntary termination of employment for the foregoing reasons, and the Plan Administrator shall so construe and implement the terms of the Plan. (c) MITIGATION. Except as otherwise specifically provided herein, Eligible Employees shall not be required to mitigate damages or the amount of any payment provided under this Plan by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Plan be reduced by any compensation earned by any Eligible Employee as a result of employment by another employer or any retirement benefits received by such Eligible Employee after the date of the Covered Termination. (d) TERMINATION OF BENEFITS. Benefits under this Plan shall terminate immediately if the Eligible Employee, at any time, violates any proprietary information or confidentiality obligation to the Company. (e) NON-DUPLICATION OF BENEFITS. No Eligible Employee is eligible to receive benefits under this Plan more than one time. (f) INDEBTEDNESS OF ELIGIBLE EMPLOYEES. If a terminating employee is indebted to the Company or an affiliate of the Company at his or her termination date, the Company reserves the right to offset any severance payments under the Plan by the amount of such indebtedness. (g) PARACHUTE PAYMENTS. If any payment or benefit the Eligible Employee would receive in connection with a Change in Control from the Company or otherwise ("Payment") would (i) constitute a "parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then such Payment shall be reduced to the Reduced Amount. The "Reduced Amount" shall be either (x) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax or (y) the largest portion, up to and including the total, of the Payment, whichever amount, after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in the Eligible Employee's receipt, on an after-tax basis, of the greater amount of the Payment notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in payments or benefits constituting "parachute payments" is necessary so that the Payment equals the Reduced Amount, reduction shall occur in the following order unless the Eligible Employee elects in writing a different order (provided, however, that such election shall be subject to Company approval if made on or after the date on which the event that triggers the Payment occurs): reduction of cash payments; cancellation of accelerated vesting of stock awards; reduction of employee benefits. In the event that acceleration of vesting of stock award compensation is to be reduced, such acceleration of vesting shall be cancelled in the reverse order of the date of grant of the Eligible Employee's stock awards unless the Eligible Employee elects in writing a different order for cancellation. The accounting firm engaged by the Company for general audit purposes as of the day prior to the effective date of the Change in Control shall perform the foregoing calculations. If the accounting firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, the Company shall appoint a nationally recognized accounting firm to make the determinations required hereunder. The Company shall bear all expenses with respect to the determinations by such accounting firm required to be made hereunder. The accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to the Company and the Eligible Employee within fifteen (15) calendar days after the date on which the Eligible Employee's right to a Payment is triggered (if requested at that time by the Company or the Eligible Employee) or such other time as requested by the Company or the Eligible Employee. If the accounting firm determines that no Excise Tax is payable with respect to a Payment, either before or after the application of the Reduced Amount, it shall furnish the Company and the Eligible Employee with an opinion reasonably acceptable to Executive that no Excise Tax will be imposed with respect to such Payment. Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon the Company and the Eligible Employee. SECTION 6. RIGHT TO INTERPRET PLAN; AMENDMENT AND TERMINATION. (a) EXCLUSIVE DISCRETION. The Plan Administrator shall have the exclusive discretion and authority to establish rules, forms, and procedures for the administration of the Plan and to construe and interpret the Plan and to decide any and all questions of fact, interpretation, definition, computation or administration arising in connection with the operation of the Plan, including, but not limited to, the eligibility to participate in the Plan and amount of benefits paid under the Plan. The rules, interpretations, computations and other actions of the Plan Administrator shall be binding and conclusive on all persons. (b) AMENDMENT OR TERMINATION. The Company reserves the right to amend or terminate this Plan or the benefits provided hereunder at any time; provided, however, that no such amendment or termination shall occur following a Change in Control if such amendment or termination would affect the rights of any persons who were employed by the Company prior to the Change in Control. Any action amending or terminating the Plan shall be in writing and executed by the chairman of the Compensation Committee of the Board of Directors of the Company. SECTION 7. TERMINATION OF CERTAIN EMPLOYEE BENEFITS. All non-health benefits (such as life insurance, disability and 401(k) plan coverage) terminate as of the employee's termination date (except to the extent that a conversion privilege may be available thereunder). SECTION 8. NO IMPLIED EMPLOYMENT CONTRACT. The Plan shall not be deemed (i) to give any employee or other person any right to be retained in the employ of the Company or (ii) to interfere with the right of the Company to discharge any employee or other person at any time and for any reason, which right is hereby reserved. SECTION 9. LEGAL CONSTRUCTION. This Plan is intended to be governed by and shall be construed in accordance with the Employee Retirement Income Security Act of 1974 ("ERISA") and, to the extent not preempted by ERISA, the laws of the State of California. SECTION 10. CLAIMS, INQUIRIES AND APPEALS. (a) APPLICATIONS FOR BENEFITS AND INQUIRIES. Any application for benefits, inquiries about the Plan or inquiries about present or future rights under the Plan must be submitted to the Plan Administrator in writing. The Plan Administrator is: Molecular Devices Corporation Attn: Vice President, Human Resources 1311 Orleans Drive Sunnyvale, CA 94089 (b) DENIAL OF CLAIMS. In the event that any application for benefits is denied in whole or in part, the Plan Administrator must notify the applicant, in writing, of the denial of the application, and of the applicant's right to review the denial. The written notice of denial will be set forth in a manner designed to be understood by the employee and will include specific reasons for the denial, specific references to the Plan provision upon which the denial is based, a description of any information or material that the Plan Administrator needs to complete the review and an explanation of the Plan's review procedure. This written notice will be given to the employee within ninety (90) days after the Plan Administrator receives the application, unless special circumstances require an extension of time, in which case, the Plan Administrator has up to an additional ninety (90) days for processing the application. If an extension of time for processing is required, written notice of the extension will be furnished to the applicant before the end of the initial ninety (90) day period. This notice of extension will describe the special circumstances necessitating the additional time and the date by which the Plan Administrator is to render its decision on the application. If written notice of denial of the application for benefits is not furnished within the specified time, the application shall be deemed to be denied. The applicant will then be permitted to appeal the denial in accordance with the Review Procedure described below. (c) REQUEST FOR A REVIEW. Any person (or that person's authorized representative) for whom an application for benefits is denied (or deemed denied), in whole or in part, may appeal the denial by submitting a request for a review to the Plan Administrator within sixty (60) days after the application is denied (or deemed denied). The Plan Administrator will give the applicant (or his or her representative) an opportunity to review pertinent documents in preparing a request for a review. A request for a review shall be in writing and shall be addressed to: Molecular Devices Corporation Attn: Vice President, Human Resources 1311 Orleans Drive Sunnyvale, CA 94089 A request for review must set forth all of the grounds on which it is based, all facts in support of the request and any other matters that the applicant feels are pertinent. The Plan Administrator may require the applicant to submit additional facts, documents or other material as it may find necessary or appropriate in making its review. (d) DECISION ON REVIEW. The Plan Administrator will act on each request for review within sixty (60) days after receipt of the request, unless special circumstances require an extension of time (not to exceed an additional sixty (60) days), for processing the request for a review. If an extension for review is required, written notice of the extension will be furnished to the applicant within the initial sixty (60) day period. The Plan Administrator will give prompt, written notice of its decision to the applicant. In the event that the Plan Administrator confirms the denial of the application for benefits in whole or in part, the notice will outline, in a manner calculated to be understood by the applicant, the specific Plan provisions upon which the decision is based. If written notice of the Plan Administrator's decision is not given to the applicant within the time prescribed in this Subsection (d), the application will be deemed denied on review. (e) RULES AND PROCEDURES. The Plan Administrator will establish rules and procedures, consistent with the Plan and with ERISA, as necessary and appropriate in carrying out its responsibilities in reviewing benefit claims. The Plan Administrator may require an applicant who wishes to submit additional information in connection with an appeal from the denial (or deemed denial) of benefits to do so at the applicant's own expense. (f) EXHAUSTION OF REMEDIES. No legal action for benefits under the Plan may be brought until the claimant (i) has submitted a written application for benefits in accordance with the procedures described by Section 10(a) above, (ii) has been notified by the Plan Administrator that the application is denied (or the application is deemed denied due to the Plan Administrator's failure to act on it within the established time period), (iii) has filed a written request for a review of the application in accordance with the appeal procedure described in Section 10(c) above and (iv) has been notified in writing that the Plan Administrator has denied the appeal (or the appeal is deemed to be denied due to the Plan Administrator's failure to take any action on the claim within the time prescribed by Section 10(d) above). SECTION 11. BASIS OF PAYMENTS TO AND FROM PLAN. All benefits under the Plan shall be paid by the Company. The Plan shall be unfunded, and benefits hereunder shall be paid only from the general assets of the Company. SECTION 12. OTHER PLAN INFORMATION. (a) EMPLOYER AND PLAN IDENTIFICATION NUMBERS. The Employer Identification Number assigned to the Company (which is the "Plan Sponsor" as that term is used in ERISA) by the Internal Revenue Service is 94-2914362. The Plan Number assigned to the Plan by the Plan Sponsor pursuant to the instructions of the Internal Revenue Service is [510]. (b) ENDING DATE FOR PLAN'S FISCAL YEAR. The date of the end of the fiscal year for the purpose of maintaining the Plan's records is December 31. (c) AGENT FOR THE SERVICE OF LEGAL PROCESS. The agent for the service of legal process with respect to the Plan is Molecular Devices Corporation, Attn: Vice President, Human Resources, 1311 Orleans Drive, Sunnyvale, CA 94089. (d) PLAN SPONSOR AND ADMINISTRATOR. The "Plan Sponsor" and the "Plan Administrator" of the Plan is Molecular Devices Corporation, Attn: Vice President, Human Resources, 1311 Orleans Drive, Sunnyvale, CA 94089. The Plan Sponsor's and Plan Administrator's telephone number is (408) 747-1700. The Plan Administrator is the named fiduciary charged with the responsibility for administering the Plan. SECTION 13. STATEMENT OF ERISA RIGHTS. Participants in this Plan (which is a welfare benefit plan sponsored by Molecular Devices Corporation) are entitled to certain rights and protections under ERISA. An Eligible Employee is considered a participant in the Plan and, under ERISA, is entitled to: (a) Examine, without charge, at the Plan Administrator's office and at other specified locations, such as work sites, all Plan documents and copies of all documents filed by the Plan with the U.S. Department of Labor, such as detailed annual reports; (b) Obtain copies of all Plan documents and Plan information upon written request to the Plan Administrator. The Administrator may make a reasonable charge for the copies; and (c) Receive a summary of the Plan's annual financial report, in the case of a plan that is required to file an annual financial report with the Department of Labor. (Generally, all pension plans and welfare plans with one hundred (100) or more participants must file these annual reports.) In addition to creating rights for Plan participants, ERISA imposes duties upon the people responsible for the operation of the employee benefit plan. The people who operate the Plan, called "fiduciaries" of the Plan, have a duty to do so prudently and in the interest of the Eligible Employees and other Plan participants and beneficiaries. No one, including the employer of the participants or any other person, may fire a participant or otherwise discriminate against participants in any way to prevent a participant from obtaining a Plan benefit or exercising his or her rights under ERISA. If a participant's claim for a Plan benefit is denied in whole or in part, he or she must receive a written explanation of the reason for the denial. A participant has the right to have the Plan Administrator review and reconsider his or her claim. Under ERISA, there are steps a participant can take to enforce the above rights. For instance, if a participant requests materials from the Plan Administrator and does not receive them within thirty (30) days, he or she may file suit in a federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay the participant up to $110 a day until he or she receives the materials, unless the materials were not sent because of reasons beyond the control of the Plan Administrator. If a participant has a claim for benefits that is denied or ignored, in whole or in part, he or she may file suit in a state or federal court. If it should happen that the Plan fiduciaries misuse the Plan's money, or if a participant is discriminated against for asserting his or her rights, the participant may seek assistance from the U.S. Department of Labor, or he or she may file suit in a federal court. The court will decide who should pay court costs and legal fees. If the participant is successful, the court may order the person the participant has sued to pay these costs and fees. If the participant loses, the court may order the participant to pay these costs and fees, for example, if it finds his or her claim is frivolous. If a participant has any questions about the Plan, the participant should contact the Plan Administrator. If a participant has any questions about this statement or about his or her rights under ERISA, the participant should contact the nearest office of the Pension and Welfare Benefits Administration, U.S. Department of Labor, listed in the telephone directory or the Division of Technical Assistance and Inquiries, Pension and Welfare Benefits Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210. SECTION 14. EXECUTION. To record the adoption of the Plan as set forth herein, effective as of February 15, 2001, Molecular Devices Corporation has caused its duly authorized officer to execute the same this 15th day of August, 2001. MOLECULAR DEVICES CORPORATION By: /s/ JOSEPH D. KEEGAN ------------------------------- Title: PRESIDENT AND CHIEF EXECUTIVE OFFICER EX-10.41 7 f88686exv10w41.txt EXHIBIT 10.41 EXHIBIT 10.41 [Molecular Devices Corporation letterhead] April 11, 2002 Timothy A. Harkness c/o Molecular Devices Corporation 1311 Orleans Drive Sunnyvale, CA 94089 Dear Tim: This will serve to confirm the agreement of Molecular Devices Corporation (the "Company") that, in consideration of your election to forgo the change-in-control severance benefits under your Employment Agreement dated July 7, 1998 (the "Employment Agreement"), you will be entitled to benefits under the Company's 2001 Change In Control Severance Plan (the "Plan"). In addition, the Company hereby agrees that it will not terminate the Plan or implement any amendment of the Plan that would result in lesser benefits to you under the Plan than you currently have under the Employment Agreement without (a) your written consent or (b) restoring to you your rights under the Employment Agreement. Very truly yours, Molecular Devices Corporation By: /s/ Joseph D. Keegan, Ph.D. ---------------------------- Joseph D. Keegan, Ph.D. CEO/President AGREED: /s/ Tim Harkness - -------------------------------- Tim Harkness MOLECULAR DEVICES CORPORATION CHANGE IN CONTROL SEVERANCE BENEFIT PLAN FOR TIMOTHY A. HARKNESS CHIEF FINANCIAL OFFICER SECTION 1. INTRODUCTION. The Molecular Devices Corporation Change in Control Severance Benefit Plan (the "Plan") was established effective February 15, 2001. The purpose of the Plan is to provide for the payment of severance benefits to certain eligible employees of Molecular Devices Corporation (the "Company") whose employment with the Company is terminated following a Change in Control. This Plan shall supersede any severance benefit plan, policy or practice previously maintained by the Company. This Plan document also is the Summary Plan Description for the Plan. SECTION 2. DEFINITIONS. For purposes of the Plan, the following terms are defined as follows: (a) "BASE SALARY" means the Eligible Employee's annual base salary as in effect during the last regularly scheduled payroll period immediately preceding the Change in Control or as increased thereafter. (b) "BOARD" means the Board of Directors of the Company. (c) "CHANGE IN CONTROL" is defined as one or more of the following events: (i) there is consummated a sale or other disposition of all or substantially all of the assets of the Company (other than a sale to an entity where at least fifty percent (50%) of the combined voting power of the voting securities of such entity are owned by the stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale); (ii) any person, entity or group (other than the Company, a subsidiary or affiliate of the Company, or a Company employee benefit plan, including any trustee of such plan acting as trustee) becomes the beneficial owner, directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company's then outstanding securities other than by virtue of a merger, consolidation or similar transaction; or (iii) there is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Company and, immediately after the consummation of such transaction, the stockholders immediately prior to the consummation of such transaction do not own, directly or indirectly, outstanding voting securities representing more than fifty percent (50%) of the combined outstanding voting power of the surviving entity in such transaction or more than fifty percent (50%) of the combined outstanding voting power of the parent of the surviving entity in such transaction. (d) "COMPANY" means Molecular Devices Corporation or, following a Change in Control, the surviving entity resulting from such transaction. (e) "CONSTRUCTIVE TERMINATION" means a voluntary termination of employment by an Eligible Employee after one of the following is undertaken without the Eligible Employee's express written consent: (i) the assignment to the Eligible Employee of duties or responsibilities that results in a material diminution in the Eligible Employee's authority, duties or responsibilities as in effect immediately prior to the Change in Control; provided, however, that a mere change in the Eligible Employee's title or reporting relationships shall not provide the basis for a Constructive Termination; (ii) a reduction in the Eligible Employee's base salary, as in effect immediately prior to the Change in Control (or as increased thereafter), unless such reduction is made pursuant to an across-the-board reduction of the base salaries of all similarly situated employees of the Company of no more than ten percent (10%); (iii) a change in the Eligible Employee's business location of more than 35 miles from the business location immediately prior to the Change in Control; (iv) a material breach by the Company of any provisions of the Plan or any enforceable written agreement between the Company and the Eligible Employee; or (v) any failure by the Company to obtain assumption of the Plan by any successor or assign of the Company. (f) "CONTINUATION PERIOD" means the period for which an Eligible Employee is entitled to receive the benefits described in Section 4(c). The Continuation Period is eighteen (18) months. (g) "COVERED TERMINATION" means an Involuntary Termination Without Cause or a Constructive Termination, either of which occurs within thirteen (13) months following the effective date of a Change in Control. (h) "INVOLUNTARY TERMINATION WITHOUT CAUSE" means an involuntary termination of employment by the Company other than for one of the following reasons: (i) refusal or failure to follow the lawful and reasonable directions of the Board of Directors or individual to whom the Eligible Employee reports, which refusal or failure is not cured within 30 days following delivery of written notice of such conduct to the Eligible Employee; (ii) a material failure by the Eligible Employee to perform his or her duties in a manner reasonably satisfactory to the Board of Directors that is not cured within 30 days following delivery of written notice of such failure to the Eligible Employee; or (iii) conviction of a felony involving moral turpitude that is likely to inflict or has inflicted material injury on the business of the Company. SECTION 3. ELIGIBILITY FOR BENEFITS. (a) GENERAL RULES. Subject to the requirements set forth in this Section, the Company will provide the severance benefits described in Section 4 of the Plan to Eligible Employees. For purposes of this Plan, "Eligible Employees" are designated executive employees of the Company who have not entered into individual severance benefit or change in control agreements with the Company and whose employment with the Company terminates due to a Covered Termination. (i) In order to be eligible to receive benefits under the Plan, an Eligible Employee must remain on the job until his or her date of termination, as scheduled by the Company. (ii) In order to be eligible to receive benefits under the Plan, an Eligible Employee also must execute a general waiver and release in substantially the form attached hereto as Exhibit A, Exhibit B or Exhibit C, as appropriate, and such release must become effective in accordance with its terms. The Company, in its sole discretion, may modify the form of the required release to comply with applicable state law. Subject to the foregoing, the Company, in its sole discretion, shall determine the form of the required release. (b) EXCEPTIONS TO BENEFIT ENTITLEMENT. An employee who otherwise is an Eligible Employee will not receive benefits under the Plan in any of the following circumstances, as determined by the Company in its sole discretion: (i) The employee has executed an individually negotiated employment contract or agreement with the Company relating to severance benefits or change in control benefits that is in effect on his or her termination date. (ii) The employee's employment with the Company is involuntarily terminated by the Company other than as an Involuntary Termination without Cause. (iii) The employee voluntarily terminates employment with the Company and such termination does not constitute a Constructive Termination. Voluntary terminations include, but are not limited to, resignation, retirement or failure to return from a leave of absence on the scheduled date. (iv) The employee voluntarily terminates employment with the Company in order to accept employment with another entity that is wholly or partly owned (directly or indirectly) by the Company or an affiliate of the Company. SECTION 4. AMOUNT OF BENEFIT. (a) BASE SALARY. Each Eligible Employee shall receive twelve (12) months of Base Salary. Such amount shall be paid in a lump sum and shall be subject to all required tax withholding. (b) BONUS PAYMENT. Each Eligible Employee shall receive a bonus payment equal to what would have been earned at one hundred percent (100%) of target for the year of termination. (c) CONTINUED INSURANCE BENEFITS. Provided that the Eligible Employee elects continued coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), the Company shall pay the portion of premiums of each Eligible Employee's group medical, dental and vision coverage, including coverage for the Eligible Employee's eligible dependents, that the Company paid prior to the Covered Termination, for eighteen (18) months; provided, however, that no such premium payments shall be made following the effective date of the Eligible Employee's coverage by a medical, dental or vision insurance plan of a subsequent employer. Each Eligible Employee shall be required to notify the Company immediately if the Eligible Employee becomes covered by a medical, dental or vision insurance plan of a subsequent employer. No provision of this Plan will affect the continuation coverage rules under COBRA, except that the Company's payment of any applicable insurance premiums during the Continuation Period will be credited as payment by the Eligible Employee for purposes of the Eligible Employee's payment required under COBRA. Therefore, the period during which an Eligible Employee must elect whether or not to continue the Company's group medical, dental or vision coverage under COBRA, the length of time during which COBRA continuation coverage will be made available to the Eligible Employee, and all other rights and obligations of the Eligible Employee under COBRA will be applied in the same manner that such rules would apply in the absence of this Plan. At the conclusion of the Continuation Period, the Eligible Employee will be responsible for the entire payment of premiums required under COBRA for the duration of the COBRA continuation period. For purposes of this Section 4(c), applicable premiums that will be paid by the Company during the Continuation Period shall not include any amounts payable by the Eligible Employee under a Section 125 health care reimbursement plan, which amounts, if any, are the sole responsibility of the Eligible Employee. (d) ACCELERATION OF VESTING. Effective as of the date of the Covered Termination, each Eligible Employee shall be credited with full acceleration of vesting for all options outstanding that the Eligible Employee holds on such date that have not yet vested. Notwithstanding the foregoing, if the acquiring entity in the transaction which constitutes a Change in Control under the Plan intends to utilize the "pooling of interests" accounting method in connection with such transaction, and such transaction would be eligible for the "pooling of interests" accounting method but for the additional vesting credit provided for in this Section 4(d), then Eligible Employees shall not be entitled to receive such additional vesting credit. (e) OUTPLACEMENT SERVICES. On behalf of the Eligible Employee, the Company shall pay for an executive assistance program for a period not to exceed three (3) months and at a cost not to exceed $7,500, provided that the Eligible Employee enrolls in the program within six (6) months following the Covered Termination. SECTION 5. LIMITATIONS ON BENEFITS. (a) RELEASE. To receive benefits under this Plan, an Eligible Employee must execute a release of claims in favor of the Company, in the form attached to this Plan as Exhibit A, Exhibit B or Exhibit C, as appropriate, and such release must become effective in accordance with its terms. (b) CERTAIN REDUCTIONS AND OFFSETS. Notwithstanding any other provision of the Plan to the contrary, any benefits payable to an Eligible Employee under this Plan shall be reduced by any severance benefits payable by the Company to such individual under any other policy, plan, program or arrangement, including, without limitation, a contract between the Eligible Employee and any entity, covering such individual. Furthermore, to the extent that any federal, state or local laws, including, without limitation, so-called "plant closing" laws, require the Company to give advance notice or make a payment of any kind to an Eligible Employee because of that Eligible Employee's involuntary termination due to a layoff, reduction in force, plant or facility closing, sale of business, change of control, or any other similar event or reason, the benefits payable under this Plan shall either be reduced or eliminated. The benefits provided under this Plan are intended to satisfy any and all statutory obligations that may arise out of an Eligible Employee's involuntary termination of employment for the foregoing reasons, and the Plan Administrator shall so construe and implement the terms of the Plan. (c) MITIGATION. Except as otherwise specifically provided herein, Eligible Employees shall not be required to mitigate damages or the amount of any payment provided under this Plan by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Plan be reduced by any compensation earned by any Eligible Employee as a result of employment by another employer or any retirement benefits received by such Eligible Employee after the date of the Covered Termination. (d) TERMINATION OF BENEFITS. Benefits under this Plan shall terminate immediately if the Eligible Employee, at any time, violates any proprietary information or confidentiality obligation to the Company. (e) NON-DUPLICATION OF BENEFITS. No Eligible Employee is eligible to receive benefits under this Plan more than one time. (f) INDEBTEDNESS OF ELIGIBLE EMPLOYEES. If a terminating employee is indebted to the Company or an affiliate of the Company at his or her termination date, the Company reserves the right to offset any severance payments under the Plan by the amount of such indebtedness. (g) PARACHUTE PAYMENTS. If any payment or benefit the Eligible Employee would receive in connection with a Change in Control from the Company or otherwise ("Payment") would (i) constitute a "parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then such Payment shall be reduced to the Reduced Amount. The "Reduced Amount" shall be either (x) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax or (y) the largest portion, up to and including the total, of the Payment, whichever amount, after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in the Eligible Employee's receipt, on an after-tax basis, of the greater amount of the Payment notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in payments or benefits constituting "parachute payments" is necessary so that the Payment equals the Reduced Amount, reduction shall occur in the following order unless the Eligible Employee elects in writing a different order (provided, however, that such election shall be subject to Company approval if made on or after the date on which the event that triggers the Payment occurs): reduction of cash payments; cancellation of accelerated vesting of stock awards; reduction of employee benefits. In the event that acceleration of vesting of stock award compensation is to be reduced, such acceleration of vesting shall be cancelled in the reverse order of the date of grant of the Eligible Employee's stock awards unless the Eligible Employee elects in writing a different order for cancellation. The accounting firm engaged by the Company for general audit purposes as of the day prior to the effective date of the Change in Control shall perform the foregoing calculations. If the accounting firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, the Company shall appoint a nationally recognized accounting firm to make the determinations required hereunder. The Company shall bear all expenses with respect to the determinations by such accounting firm required to be made hereunder. The accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to the Company and the Eligible Employee within fifteen (15) calendar days after the date on which the Eligible Employee's right to a Payment is triggered (if requested at that time by the Company or the Eligible Employee) or such other time as requested by the Company or the Eligible Employee. If the accounting firm determines that no Excise Tax is payable with respect to a Payment, either before or after the application of the Reduced Amount, it shall furnish the Company and the Eligible Employee with an opinion reasonably acceptable to Executive that no Excise Tax will be imposed with respect to such Payment. Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon the Company and the Eligible Employee. SECTION 6. RIGHT TO INTERPRET PLAN; AMENDMENT AND TERMINATION. (a) EXCLUSIVE DISCRETION. The Plan Administrator shall have the exclusive discretion and authority to establish rules, forms, and procedures for the administration of the Plan and to construe and interpret the Plan and to decide any and all questions of fact, interpretation, definition, computation or administration arising in connection with the operation of the Plan, including, but not limited to, the eligibility to participate in the Plan and amount of benefits paid under the Plan. The rules, interpretations, computations and other actions of the Plan Administrator shall be binding and conclusive on all persons. (b) AMENDMENT OR TERMINATION. The Company reserves the right to amend or terminate this Plan or the benefits provided hereunder at any time; provided, however, that no such amendment or termination shall occur following a Change in Control if such amendment or termination would affect the rights of any persons who were employed by the Company prior to the Change in Control. Any action amending or terminating the Plan shall be in writing and executed by the chairman of the Compensation Committee of the Board of Directors of the Company. SECTION 7. TERMINATION OF CERTAIN EMPLOYEE BENEFITS. All non-health benefits (such as life insurance, disability and 401(k) plan coverage) terminate as of the employee's termination date (except to the extent that a conversion privilege may be available thereunder). SECTION 8. NO IMPLIED EMPLOYMENT CONTRACT. The Plan shall not be deemed (i) to give any employee or other person any right to be retained in the employ of the Company or (ii) to interfere with the right of the Company to discharge any employee or other person at any time and for any reason, which right is hereby reserved. SECTION 9. LEGAL CONSTRUCTION. This Plan is intended to be governed by and shall be construed in accordance with the Employee Retirement Income Security Act of 1974 ("ERISA") and, to the extent not preempted by ERISA, the laws of the State of California. SECTION 10. CLAIMS, INQUIRIES AND APPEALS. (a) APPLICATIONS FOR BENEFITS AND INQUIRIES. Any application for benefits, inquiries about the Plan or inquiries about present or future rights under the Plan must be submitted to the Plan Administrator in writing. The Plan Administrator is: Molecular Devices Corporation Attn: Vice President, Human Resources 1311 Orleans Drive Sunnyvale, CA 94089 (b) DENIAL OF CLAIMS. In the event that any application for benefits is denied in whole or in part, the Plan Administrator must notify the applicant, in writing, of the denial of the application, and of the applicant's right to review the denial. The written notice of denial will be set forth in a manner designed to be understood by the employee and will include specific reasons for the denial, specific references to the Plan provision upon which the denial is based, a description of any information or material that the Plan Administrator needs to complete the review and an explanation of the Plan's review procedure. This written notice will be given to the employee within ninety (90) days after the Plan Administrator receives the application, unless special circumstances require an extension of time, in which case, the Plan Administrator has up to an additional ninety (90) days for processing the application. If an extension of time for processing is required, written notice of the extension will be furnished to the applicant before the end of the initial ninety (90) day period. This notice of extension will describe the special circumstances necessitating the additional time and the date by which the Plan Administrator is to render its decision on the application. If written notice of denial of the application for benefits is not furnished within the specified time, the application shall be deemed to be denied. The applicant will then be permitted to appeal the denial in accordance with the Review Procedure described below. (c) REQUEST FOR A REVIEW. Any person (or that person's authorized representative) for whom an application for benefits is denied (or deemed denied), in whole or in part, may appeal the denial by submitting a request for a review to the Plan Administrator within sixty (60) days after the application is denied (or deemed denied). The Plan Administrator will give the applicant (or his or her representative) an opportunity to review pertinent documents in preparing a request for a review. A request for a review shall be in writing and shall be addressed to: Molecular Devices Corporation Attn: Vice President, Human Resources 1311 Orleans Drive Sunnyvale, CA 94089 A request for review must set forth all of the grounds on which it is based, all facts in support of the request and any other matters that the applicant feels are pertinent. The Plan Administrator may require the applicant to submit additional facts, documents or other material as it may find necessary or appropriate in making its review. (d) DECISION ON REVIEW. The Plan Administrator will act on each request for review within sixty (60) days after receipt of the request, unless special circumstances require an extension of time (not to exceed an additional sixty (60) days), for processing the request for a review. If an extension for review is required, written notice of the extension will be furnished to the applicant within the initial sixty (60) day period. The Plan Administrator will give prompt, written notice of its decision to the applicant. In the event that the Plan Administrator confirms the denial of the application for benefits in whole or in part, the notice will outline, in a manner calculated to be understood by the applicant, the specific Plan provisions upon which the decision is based. If written notice of the Plan Administrator's decision is not given to the applicant within the time prescribed in this Subsection (d), the application will be deemed denied on review. (e) RULES AND PROCEDURES. The Plan Administrator will establish rules and procedures, consistent with the Plan and with ERISA, as necessary and appropriate in carrying out its responsibilities in reviewing benefit claims. The Plan Administrator may require an applicant who wishes to submit additional information in connection with an appeal from the denial (or deemed denial) of benefits to do so at the applicant's own expense. (f) EXHAUSTION OF REMEDIES. No legal action for benefits under the Plan may be brought until the claimant (i) has submitted a written application for benefits in accordance with the procedures described by Section 10(a) above, (ii) has been notified by the Plan Administrator that the application is denied (or the application is deemed denied due to the Plan Administrator's failure to act on it within the established time period), (iii) has filed a written request for a review of the application in accordance with the appeal procedure described in Section 10(c) above and (iv) has been notified in writing that the Plan Administrator has denied the appeal (or the appeal is deemed to be denied due to the Plan Administrator's failure to take any action on the claim within the time prescribed by Section 10(d) above). SECTION 11. BASIS OF PAYMENTS TO AND FROM PLAN. All benefits under the Plan shall be paid by the Company. The Plan shall be unfunded, and benefits hereunder shall be paid only from the general assets of the Company. SECTION 12. OTHER PLAN INFORMATION. (a) EMPLOYER AND PLAN IDENTIFICATION NUMBERS. The Employer Identification Number assigned to the Company (which is the "Plan Sponsor" as that term is used in ERISA) by the Internal Revenue Service is 94-2914362. The Plan Number assigned to the Plan by the Plan Sponsor pursuant to the instructions of the Internal Revenue Service is [510]. (b) ENDING DATE FOR PLAN'S FISCAL YEAR. The date of the end of the fiscal year for the purpose of maintaining the Plan's records is December 31. (c) AGENT FOR THE SERVICE OF LEGAL PROCESS. The agent for the service of legal process with respect to the Plan is Molecular Devices Corporation, Attn: Vice President, Human Resources, 1311 Orleans Drive, Sunnyvale, CA 94089. (d) PLAN SPONSOR AND ADMINISTRATOR. The "Plan Sponsor" and the "Plan Administrator" of the Plan is Molecular Devices Corporation, Attn: Vice President, Human Resources, 1311 Orleans Drive, Sunnyvale, CA 94089. The Plan Sponsor's and Plan Administrator's telephone number is (408) 747-1700. The Plan Administrator is the named fiduciary charged with the responsibility for administering the Plan. SECTION 13. STATEMENT OF ERISA RIGHTS. Participants in this Plan (which is a welfare benefit plan sponsored by Molecular Devices Corporation) are entitled to certain rights and protections under ERISA. An Eligible Employee is considered a participant in the Plan and, under ERISA, is entitled to: (a) Examine, without charge, at the Plan Administrator's office and at other specified locations, such as work sites, all Plan documents and copies of all documents filed by the Plan with the U.S. Department of Labor, such as detailed annual reports; (b) Obtain copies of all Plan documents and Plan information upon written request to the Plan Administrator. The Administrator may make a reasonable charge for the copies; and (c) Receive a summary of the Plan's annual financial report, in the case of a plan that is required to file an annual financial report with the Department of Labor. (Generally, all pension plans and welfare plans with one hundred (100) or more participants must file these annual reports.) In addition to creating rights for Plan participants, ERISA imposes duties upon the people responsible for the operation of the employee benefit plan. The people who operate the Plan, called "fiduciaries" of the Plan, have a duty to do so prudently and in the interest of the Eligible Employees and other Plan participants and beneficiaries. No one, including the employer of the participants or any other person, may fire a participant or otherwise discriminate against participants in any way to prevent a participant from obtaining a Plan benefit or exercising his or her rights under ERISA. If a participant's claim for a Plan benefit is denied in whole or in part, he or she must receive a written explanation of the reason for the denial. A participant has the right to have the Plan Administrator review and reconsider his or her claim. Under ERISA, there are steps a participant can take to enforce the above rights. For instance, if a participant requests materials from the Plan Administrator and does not receive them within thirty (30) days, he or she may file suit in a federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay the participant up to $110 a day until he or she receives the materials, unless the materials were not sent because of reasons beyond the control of the Plan Administrator. If a participant has a claim for benefits that is denied or ignored, in whole or in part, he or she may file suit in a state or federal court. If it should happen that the Plan fiduciaries misuse the Plan's money, or if a participant is discriminated against for asserting his or her rights, the participant may seek assistance from the U.S. Department of Labor, or he or she may file suit in a federal court. The court will decide who should pay court costs and legal fees. If the participant is successful, the court may order the person the participant has sued to pay these costs and fees. If the participant loses, the court may order the participant to pay these costs and fees, for example, if it finds his or her claim is frivolous. If a participant has any questions about the Plan, the participant should contact the Plan Administrator. If a participant has any questions about this statement or about his or her rights under ERISA, the participant should contact the nearest office of the Pension and Welfare Benefits Administration, U.S. Department of Labor, listed in the telephone directory or the Division of Technical Assistance and Inquiries, Pension and Welfare Benefits Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210. SECTION 14. EXECUTION. To record the adoption of the Plan as set forth herein, effective as of February 15, 2001, Molecular Devices Corporation has caused its duly authorized officer to execute the same this 15th day of August, 2001. MOLECULAR DEVICES CORPORATION By: /s/ TIMOTHY A. HARKNESS ------------------------------- Title: CHIEF FINANCIAL OFFICER EX-10.42 8 f88686exv10w42.txt EXHIBIT 10.42 EXHIBIT 10.42 [Molecular Devices Corporation letterhead] April 11, 2002 John S. Senaldi c/o Molecular Devices Corporation 1311 Orleans Drive Sunnyvale, CA 94089 Dear John: This will serve to confirm the agreement of Molecular Devices Corporation (the "Company") that, in consideration of your election to forgo the change-in-control severance benefits under your Employment Agreement dated July 10, 1998 (the "Employment Agreement"), you will be entitled to benefits under the Company's 2001 Change In Control Severance Plan (the "Plan"). In addition, the Company hereby agrees that it will not terminate the Plan or implement any amendment of the Plan that would result in lesser benefits to you under the Plan than you currently have under the Employment Agreement without (a) your written consent or (b) restoring to you your rights under the Employment Agreement. Very truly yours, Molecular Devices Corporation By: /s/ Joseph D. Keegan, Ph.D. ---------------------------- Joseph D. Keegan, Ph.D. CEO/President AGREED: /s/ John S. Senaldi - -------------------------------- John S. Senaldi MOLECULAR DEVICES CORPORATION CHANGE IN CONTROL SEVERANCE BENEFIT PLAN FOR JOHN S. SENALDI VICE PRESIDENT MARKETING SECTION 1. INTRODUCTION. The Molecular Devices Corporation Change in Control Severance Benefit Plan (the "Plan") was established effective February 15, 2001. The purpose of the Plan is to provide for the payment of severance benefits to certain eligible employees of Molecular Devices Corporation (the "Company") whose employment with the Company is terminated following a Change in Control. This Plan shall supersede any severance benefit plan, policy or practice previously maintained by the Company. This Plan document also is the Summary Plan Description for the Plan. SECTION 2. DEFINITIONS. For purposes of the Plan, the following terms are defined as follows: (a) "BASE SALARY" means the Eligible Employee's annual base salary as in effect during the last regularly scheduled payroll period immediately preceding the Change in Control or as increased thereafter. (b) "BOARD" means the Board of Directors of the Company. (c) "CHANGE IN CONTROL" is defined as one or more of the following events: (i) there is consummated a sale or other disposition of all or substantially all of the assets of the Company (other than a sale to an entity where at least fifty percent (50%) of the combined voting power of the voting securities of such entity are owned by the stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale); (ii) any person, entity or group (other than the Company, a subsidiary or affiliate of the Company, or a Company employee benefit plan, including any trustee of such plan acting as trustee) becomes the beneficial owner, directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company's then outstanding securities other than by virtue of a merger, consolidation or similar transaction; or (iii) there is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Company and, immediately after the consummation of such transaction, the stockholders immediately prior to the consummation of such transaction do not own, directly or indirectly, outstanding voting securities representing more than fifty percent (50%) of the combined outstanding voting power of the surviving entity in such transaction or more than fifty percent (50%) of the combined outstanding voting power of the parent of the surviving entity in such transaction. (d) "COMPANY" means Molecular Devices Corporation or, following a Change in Control, the surviving entity resulting from such transaction. (e) "CONSTRUCTIVE TERMINATION" means a voluntary termination of employment by an Eligible Employee after one of the following is undertaken without the Eligible Employee's express written consent: (i) the assignment to the Eligible Employee of duties or responsibilities that results in a material diminution in the Eligible Employee's authority, duties or responsibilities as in effect immediately prior to the Change in Control; provided, however, that a mere change in the Eligible Employee's title or reporting relationships shall not provide the basis for a Constructive Termination; (ii) a reduction in the Eligible Employee's base salary, as in effect immediately prior to the Change in Control (or as increased thereafter), unless such reduction is made pursuant to an across-the-board reduction of the base salaries of all similarly situated employees of the Company of no more than ten percent (10%); (iii) a change in the Eligible Employee's business location of more than 35 miles from the business location immediately prior to the Change in Control; (iv) a material breach by the Company of any provisions of the Plan or any enforceable written agreement between the Company and the Eligible Employee; or (v) any failure by the Company to obtain assumption of the Plan by any successor or assign of the Company. (f) "CONTINUATION PERIOD" means the period for which an Eligible Employee is entitled to receive the benefits described in Section 4(c). The Continuation Period is eighteen (18) months. (g) "COVERED TERMINATION" means an Involuntary Termination Without Cause or a Constructive Termination, either of which occurs within thirteen (13) months following the effective date of a Change in Control. (h) "INVOLUNTARY TERMINATION WITHOUT CAUSE" means an involuntary termination of employment by the Company other than for one of the following reasons: (i) refusal or failure to follow the lawful and reasonable directions of the Board of Directors or individual to whom the Eligible Employee reports, which refusal or failure is not cured within 30 days following delivery of written notice of such conduct to the Eligible Employee; (ii) a material failure by the Eligible Employee to perform his or her duties in a manner reasonably satisfactory to the Board of Directors that is not cured within 30 days following delivery of written notice of such failure to the Eligible Employee; or (iii) conviction of a felony involving moral turpitude that is likely to inflict or has inflicted material injury on the business of the Company. SECTION 3. ELIGIBILITY FOR BENEFITS. (a) GENERAL RULES. Subject to the requirements set forth in this Section, the Company will provide the severance benefits described in Section 4 of the Plan to Eligible Employees. For purposes of this Plan, "Eligible Employees" are designated executive employees of the Company who have not entered into individual severance benefit or change in control agreements with the Company and whose employment with the Company terminates due to a Covered Termination. (i) In order to be eligible to receive benefits under the Plan, an Eligible Employee must remain on the job until his or her date of termination, as scheduled by the Company. (ii) In order to be eligible to receive benefits under the Plan, an Eligible Employee also must execute a general waiver and release in substantially the form attached hereto as Exhibit A, Exhibit B or Exhibit C, as appropriate, and such release must become effective in accordance with its terms. The Company, in its sole discretion, may modify the form of the required release to comply with applicable state law. Subject to the foregoing, the Company, in its sole discretion, shall determine the form of the required release. (b) EXCEPTIONS TO BENEFIT ENTITLEMENT. An employee who otherwise is an Eligible Employee will not receive benefits under the Plan in any of the following circumstances, as determined by the Company in its sole discretion: (i) The employee has executed an individually negotiated employment contract or agreement with the Company relating to severance benefits or change in control benefits that is in effect on his or her termination date. (ii) The employee's employment with the Company is involuntarily terminated by the Company other than as an Involuntary Termination without Cause. (iii) The employee voluntarily terminates employment with the Company and such termination does not constitute a Constructive Termination. Voluntary terminations include, but are not limited to, resignation, retirement or failure to return from a leave of absence on the scheduled date. (iv) The employee voluntarily terminates employment with the Company in order to accept employment with another entity that is wholly or partly owned (directly or indirectly) by the Company or an affiliate of the Company. SECTION 4. AMOUNT OF BENEFIT. (a) BASE SALARY. Each Eligible Employee shall receive twelve (12) months of Base Salary. Such amount shall be paid in a lump sum and shall be subject to all required tax withholding. (b) BONUS PAYMENT. Each Eligible Employee shall receive a bonus payment equal to what would have been earned at one hundred percent (100%) of target for the year of termination. (c) CONTINUED INSURANCE BENEFITS. Provided that the Eligible Employee elects continued coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), the Company shall pay the portion of premiums of each Eligible Employee's group medical, dental and vision coverage, including coverage for the Eligible Employee's eligible dependents, that the Company paid prior to the Covered Termination, for eighteen (18) months; provided, however, that no such premium payments shall be made following the effective date of the Eligible Employee's coverage by a medical, dental or vision insurance plan of a subsequent employer. Each Eligible Employee shall be required to notify the Company immediately if the Eligible Employee becomes covered by a medical, dental or vision insurance plan of a subsequent employer. No provision of this Plan will affect the continuation coverage rules under COBRA, except that the Company's payment of any applicable insurance premiums during the Continuation Period will be credited as payment by the Eligible Employee for purposes of the Eligible Employee's payment required under COBRA. Therefore, the period during which an Eligible Employee must elect whether or not to continue the Company's group medical, dental or vision coverage under COBRA, the length of time during which COBRA continuation coverage will be made available to the Eligible Employee, and all other rights and obligations of the Eligible Employee under COBRA will be applied in the same manner that such rules would apply in the absence of this Plan. At the conclusion of the Continuation Period, the Eligible Employee will be responsible for the entire payment of premiums required under COBRA for the duration of the COBRA continuation period. For purposes of this Section 4(c), applicable premiums that will be paid by the Company during the Continuation Period shall not include any amounts payable by the Eligible Employee under a Section 125 health care reimbursement plan, which amounts, if any, are the sole responsibility of the Eligible Employee. (d) ACCELERATION OF VESTING. Effective as of the date of the Covered Termination, each Eligible Employee shall be credited with full acceleration of vesting for all options outstanding that the Eligible Employee holds on such date that have not yet vested. Notwithstanding the foregoing, if the acquiring entity in the transaction which constitutes a Change in Control under the Plan intends to utilize the "pooling of interests" accounting method in connection with such transaction, and such transaction would be eligible for the "pooling of interests" accounting method but for the additional vesting credit provided for in this Section 4(d), then Eligible Employees shall not be entitled to receive such additional vesting credit. (e) OUTPLACEMENT SERVICES. On behalf of the Eligible Employee, the Company shall pay for an executive assistance program for a period not to exceed three (3) months and at a cost not to exceed $7,500, provided that the Eligible Employee enrolls in the program within six (6) months following the Covered Termination. SECTION 5. LIMITATIONS ON BENEFITS. (a) RELEASE. To receive benefits under this Plan, an Eligible Employee must execute a release of claims in favor of the Company, in the form attached to this Plan as Exhibit A, Exhibit B or Exhibit C, as appropriate, and such release must become effective in accordance with its terms. (b) CERTAIN REDUCTIONS AND OFFSETS. Notwithstanding any other provision of the Plan to the contrary, any benefits payable to an Eligible Employee under this Plan shall be reduced by any severance benefits payable by the Company to such individual under any other policy, plan, program or arrangement, including, without limitation, a contract between the Eligible Employee and any entity, covering such individual. Furthermore, to the extent that any federal, state or local laws, including, without limitation, so-called "plant closing" laws, require the Company to give advance notice or make a payment of any kind to an Eligible Employee because of that Eligible Employee's involuntary termination due to a layoff, reduction in force, plant or facility closing, sale of business, change of control, or any other similar event or reason, the benefits payable under this Plan shall either be reduced or eliminated. The benefits provided under this Plan are intended to satisfy any and all statutory obligations that may arise out of an Eligible Employee's involuntary termination of employment for the foregoing reasons, and the Plan Administrator shall so construe and implement the terms of the Plan. (c) MITIGATION. Except as otherwise specifically provided herein, Eligible Employees shall not be required to mitigate damages or the amount of any payment provided under this Plan by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Plan be reduced by any compensation earned by any Eligible Employee as a result of employment by another employer or any retirement benefits received by such Eligible Employee after the date of the Covered Termination. (d) TERMINATION OF BENEFITS. Benefits under this Plan shall terminate immediately if the Eligible Employee, at any time, violates any proprietary information or confidentiality obligation to the Company. (e) NON-DUPLICATION OF BENEFITS. No Eligible Employee is eligible to receive benefits under this Plan more than one time. (f) INDEBTEDNESS OF ELIGIBLE EMPLOYEES. If a terminating employee is indebted to the Company or an affiliate of the Company at his or her termination date, the Company reserves the right to offset any severance payments under the Plan by the amount of such indebtedness. (g) PARACHUTE PAYMENTS. If any payment or benefit the Eligible Employee would receive in connection with a Change in Control from the Company or otherwise ("Payment") would (i) constitute a "parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then such Payment shall be reduced to the Reduced Amount. The "Reduced Amount" shall be either (x) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax or (y) the largest portion, up to and including the total, of the Payment, whichever amount, after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in the Eligible Employee's receipt, on an after-tax basis, of the greater amount of the Payment notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in payments or benefits constituting "parachute payments" is necessary so that the Payment equals the Reduced Amount, reduction shall occur in the following order unless the Eligible Employee elects in writing a different order (provided, however, that such election shall be subject to Company approval if made on or after the date on which the event that triggers the Payment occurs): reduction of cash payments; cancellation of accelerated vesting of stock awards; reduction of employee benefits. In the event that acceleration of vesting of stock award compensation is to be reduced, such acceleration of vesting shall be cancelled in the reverse order of the date of grant of the Eligible Employee's stock awards unless the Eligible Employee elects in writing a different order for cancellation. The accounting firm engaged by the Company for general audit purposes as of the day prior to the effective date of the Change in Control shall perform the foregoing calculations. If the accounting firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, the Company shall appoint a nationally recognized accounting firm to make the determinations required hereunder. The Company shall bear all expenses with respect to the determinations by such accounting firm required to be made hereunder. The accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to the Company and the Eligible Employee within fifteen (15) calendar days after the date on which the Eligible Employee's right to a Payment is triggered (if requested at that time by the Company or the Eligible Employee) or such other time as requested by the Company or the Eligible Employee. If the accounting firm determines that no Excise Tax is payable with respect to a Payment, either before or after the application of the Reduced Amount, it shall furnish the Company and the Eligible Employee with an opinion reasonably acceptable to Executive that no Excise Tax will be imposed with respect to such Payment. Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon the Company and the Eligible Employee. SECTION 6. RIGHT TO INTERPRET PLAN; AMENDMENT AND TERMINATION. (a) EXCLUSIVE DISCRETION. The Plan Administrator shall have the exclusive discretion and authority to establish rules, forms, and procedures for the administration of the Plan and to construe and interpret the Plan and to decide any and all questions of fact, interpretation, definition, computation or administration arising in connection with the operation of the Plan, including, but not limited to, the eligibility to participate in the Plan and amount of benefits paid under the Plan. The rules, interpretations, computations and other actions of the Plan Administrator shall be binding and conclusive on all persons. (b) AMENDMENT OR TERMINATION. The Company reserves the right to amend or terminate this Plan or the benefits provided hereunder at any time; provided, however, that no such amendment or termination shall occur following a Change in Control if such amendment or termination would affect the rights of any persons who were employed by the Company prior to the Change in Control. Any action amending or terminating the Plan shall be in writing and executed by the chairman of the Compensation Committee of the Board of Directors of the Company. SECTION 7. TERMINATION OF CERTAIN EMPLOYEE BENEFITS. All non-health benefits (such as life insurance, disability and 401(k) plan coverage) terminate as of the employee's termination date (except to the extent that a conversion privilege may be available thereunder). SECTION 8. NO IMPLIED EMPLOYMENT CONTRACT. The Plan shall not be deemed (i) to give any employee or other person any right to be retained in the employ of the Company or (ii) to interfere with the right of the Company to discharge any employee or other person at any time and for any reason, which right is hereby reserved. SECTION 9. LEGAL CONSTRUCTION. This Plan is intended to be governed by and shall be construed in accordance with the Employee Retirement Income Security Act of 1974 ("ERISA") and, to the extent not preempted by ERISA, the laws of the State of California. SECTION 10. CLAIMS, INQUIRIES AND APPEALS. (a) APPLICATIONS FOR BENEFITS AND INQUIRIES. Any application for benefits, inquiries about the Plan or inquiries about present or future rights under the Plan must be submitted to the Plan Administrator in writing. The Plan Administrator is: Molecular Devices Corporation Attn: Vice President, Human Resources 1311 Orleans Drive Sunnyvale, CA 94089 (b) DENIAL OF CLAIMS. In the event that any application for benefits is denied in whole or in part, the Plan Administrator must notify the applicant, in writing, of the denial of the application, and of the applicant's right to review the denial. The written notice of denial will be set forth in a manner designed to be understood by the employee and will include specific reasons for the denial, specific references to the Plan provision upon which the denial is based, a description of any information or material that the Plan Administrator needs to complete the review and an explanation of the Plan's review procedure. This written notice will be given to the employee within ninety (90) days after the Plan Administrator receives the application, unless special circumstances require an extension of time, in which case, the Plan Administrator has up to an additional ninety (90) days for processing the application. If an extension of time for processing is required, written notice of the extension will be furnished to the applicant before the end of the initial ninety (90) day period. This notice of extension will describe the special circumstances necessitating the additional time and the date by which the Plan Administrator is to render its decision on the application. If written notice of denial of the application for benefits is not furnished within the specified time, the application shall be deemed to be denied. The applicant will then be permitted to appeal the denial in accordance with the Review Procedure described below. (c) REQUEST FOR A REVIEW. Any person (or that person's authorized representative) for whom an application for benefits is denied (or deemed denied), in whole or in part, may appeal the denial by submitting a request for a review to the Plan Administrator within sixty (60) days after the application is denied (or deemed denied). The Plan Administrator will give the applicant (or his or her representative) an opportunity to review pertinent documents in preparing a request for a review. A request for a review shall be in writing and shall be addressed to: Molecular Devices Corporation Attn: Vice President, Human Resources 1311 Orleans Drive Sunnyvale, CA 94089 A request for review must set forth all of the grounds on which it is based, all facts in support of the request and any other matters that the applicant feels are pertinent. The Plan Administrator may require the applicant to submit additional facts, documents or other material as it may find necessary or appropriate in making its review. (d) DECISION ON REVIEW. The Plan Administrator will act on each request for review within sixty (60) days after receipt of the request, unless special circumstances require an extension of time (not to exceed an additional sixty (60) days), for processing the request for a review. If an extension for review is required, written notice of the extension will be furnished to the applicant within the initial sixty (60) day period. The Plan Administrator will give prompt, written notice of its decision to the applicant. In the event that the Plan Administrator confirms the denial of the application for benefits in whole or in part, the notice will outline, in a manner calculated to be understood by the applicant, the specific Plan provisions upon which the decision is based. If written notice of the Plan Administrator's decision is not given to the applicant within the time prescribed in this Subsection (d), the application will be deemed denied on review. (e) RULES AND PROCEDURES. The Plan Administrator will establish rules and procedures, consistent with the Plan and with ERISA, as necessary and appropriate in carrying out its responsibilities in reviewing benefit claims. The Plan Administrator may require an applicant who wishes to submit additional information in connection with an appeal from the denial (or deemed denial) of benefits to do so at the applicant's own expense. (f) EXHAUSTION OF REMEDIES. No legal action for benefits under the Plan may be brought until the claimant (i) has submitted a written application for benefits in accordance with the procedures described by Section 10(a) above, (ii) has been notified by the Plan Administrator that the application is denied (or the application is deemed denied due to the Plan Administrator's failure to act on it within the established time period), (iii) has filed a written request for a review of the application in accordance with the appeal procedure described in Section 10(c) above and (iv) has been notified in writing that the Plan Administrator has denied the appeal (or the appeal is deemed to be denied due to the Plan Administrator's failure to take any action on the claim within the time prescribed by Section 10(d) above). SECTION 11. BASIS OF PAYMENTS TO AND FROM PLAN. All benefits under the Plan shall be paid by the Company. The Plan shall be unfunded, and benefits hereunder shall be paid only from the general assets of the Company. SECTION 12. OTHER PLAN INFORMATION. (a) EMPLOYER AND PLAN IDENTIFICATION NUMBERS. The Employer Identification Number assigned to the Company (which is the "Plan Sponsor" as that term is used in ERISA) by the Internal Revenue Service is 94-2914362. The Plan Number assigned to the Plan by the Plan Sponsor pursuant to the instructions of the Internal Revenue Service is [510]. (b) ENDING DATE FOR PLAN'S FISCAL YEAR. The date of the end of the fiscal year for the purpose of maintaining the Plan's records is December 31. (c) AGENT FOR THE SERVICE OF LEGAL PROCESS. The agent for the service of legal process with respect to the Plan is Molecular Devices Corporation, Attn: Vice President, Human Resources, 1311 Orleans Drive, Sunnyvale, CA 94089. (d) PLAN SPONSOR AND ADMINISTRATOR. The "Plan Sponsor" and the "Plan Administrator" of the Plan is Molecular Devices Corporation, Attn: Vice President, Human Resources, 1311 Orleans Drive, Sunnyvale, CA 94089. The Plan Sponsor's and Plan Administrator's telephone number is (408) 747-1700. The Plan Administrator is the named fiduciary charged with the responsibility for administering the Plan. SECTION 13. STATEMENT OF ERISA RIGHTS. Participants in this Plan (which is a welfare benefit plan sponsored by Molecular Devices Corporation) are entitled to certain rights and protections under ERISA. An Eligible Employee is considered a participant in the Plan and, under ERISA, is entitled to: (a) Examine, without charge, at the Plan Administrator's office and at other specified locations, such as work sites, all Plan documents and copies of all documents filed by the Plan with the U.S. Department of Labor, such as detailed annual reports; (b) Obtain copies of all Plan documents and Plan information upon written request to the Plan Administrator. The Administrator may make a reasonable charge for the copies; and (c) Receive a summary of the Plan's annual financial report, in the case of a plan that is required to file an annual financial report with the Department of Labor. (Generally, all pension plans and welfare plans with one hundred (100) or more participants must file these annual reports.) In addition to creating rights for Plan participants, ERISA imposes duties upon the people responsible for the operation of the employee benefit plan. The people who operate the Plan, called "fiduciaries" of the Plan, have a duty to do so prudently and in the interest of the Eligible Employees and other Plan participants and beneficiaries. No one, including the employer of the participants or any other person, may fire a participant or otherwise discriminate against participants in any way to prevent a participant from obtaining a Plan benefit or exercising his or her rights under ERISA. If a participant's claim for a Plan benefit is denied in whole or in part, he or she must receive a written explanation of the reason for the denial. A participant has the right to have the Plan Administrator review and reconsider his or her claim. Under ERISA, there are steps a participant can take to enforce the above rights. For instance, if a participant requests materials from the Plan Administrator and does not receive them within thirty (30) days, he or she may file suit in a federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay the participant up to $110 a day until he or she receives the materials, unless the materials were not sent because of reasons beyond the control of the Plan Administrator. If a participant has a claim for benefits that is denied or ignored, in whole or in part, he or she may file suit in a state or federal court. If it should happen that the Plan fiduciaries misuse the Plan's money, or if a participant is discriminated against for asserting his or her rights, the participant may seek assistance from the U.S. Department of Labor, or he or she may file suit in a federal court. The court will decide who should pay court costs and legal fees. If the participant is successful, the court may order the person the participant has sued to pay these costs and fees. If the participant loses, the court may order the participant to pay these costs and fees, for example, if it finds his or her claim is frivolous. If a participant has any questions about the Plan, the participant should contact the Plan Administrator. If a participant has any questions about this statement or about his or her rights under ERISA, the participant should contact the nearest office of the Pension and Welfare Benefits Administration, U.S. Department of Labor, listed in the telephone directory or the Division of Technical Assistance and Inquiries, Pension and Welfare Benefits Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210. SECTION 14. EXECUTION. To record the adoption of the Plan as set forth herein, effective as of February 15, 2001, Molecular Devices Corporation has caused its duly authorized officer to execute the same this 15th day of August, 2001. MOLECULAR DEVICES CORPORATION By: /s/ JOHN S. SENALDI ------------------------------- Title: VICE PRESIDENT MARKETING EX-21.1 9 f88686exv21w1.txt EXHIBIT 21.1 EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT 1. Molecular Devices GmbH, a corporation organized under the Laws of Germany. 2. Molecular Devices Ltd., a corporation organized under the Laws of England and Wales. 3. Molecular Devices Skatron, a corporation organized under the Laws of Norway. 4. Nihon Molecular Devices, a corporation organized under the Laws of Japan. 5. Cytion S.A., a corporation organized under the Laws of Switzerland. 6. LJL BioSystems, a corporation organized under the Laws of Delaware. 7. LJL BioSystems, Ltd., a corporation organized under the Laws of England and Wales. 8. Universal Imaging Corporation, a corporation organized under the Laws of Pennsylvania. EX-23.1 10 f88686exv23w1.txt EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 333-86155, 333-86159, 333-45288, 333-63036 and 333-91996 pertaining to the LJL BioSystems, Inc. 1994 Equity Incentive Plan, LJL BioSystems, Inc. 1997 Stock Plan, LJL BioSystems, Inc. 1998 Directors' Stock Option Plan, 1995 Stock Option Plan, 1995 Non-Employee Directors' Stock Option Plan, 1995 Employee Stock Purchase Plan and 2001 Stock Option Plan of Molecular Devices Corporation of our report dated January 27, 2003, with respect to the consolidated financial statements and schedule of Molecular Devices Corporation included in the Annual Report (Form 10-K) for the year ended December 31, 2002. /s/ Ernst & Young LLP Palo Alto, California March 25, 2003 1 EX-99.1 11 f88686exv99w1.txt EXHIBIT 99.1 EXHIBIT 99.1 CERTIFICATION Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350, as adopted), Joseph D. Keegan, Ph.D., Chief Executive Officer of Molecular Devices Corporation (the "Company"), and Timothy A. Harkness, Chief Financial Officer of the Company, each hereby certify that, to the best of their knowledge: 1. The Company's Annual Report on Form 10-K for the period ended December 31, 2002, to which this Certification is attached as Exhibit 99.1 (the "ANNUAL REPORT") fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934, and 2. The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company. IN WITNESS WHEREOF, the undersigned have set their hands hereto as of the 27th day of March, 2003. /s/ Joseph D. Keegan /s/ Timothy A. Harkness - -------------------------------------- -------------------------------------- Joseph D. Keegan, Ph.D. Timothy A. Harkness President, Chief Executive Officer Vice President, Finance, Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to Molecular Devices Corporation and will be retained by Molecular Devices Corporation and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.25

                                                                   EXHIBIT 10.25

                          MOLECULAR DEVICES CORPORATION
                             1995 STOCK OPTION PLAN

              ADOPTED BY THE BOARD OF DIRECTORS ON OCTOBER 30, 1995
                APPROVED BY THE STOCKHOLDERS ON DECEMBER 12, 1995
                    AMENDED BY THE BOARD ON JANUARY 29, 1999
                 AS APPROVED BY THE STOCKHOLDERS ON MAY 20, 1999
          AMENDED BY THE BOARD ON FEBRUARY 15, 2001 AND APRIL 17, 2001
                 AS APPROVED BY THE STOCKHOLDERS ON MAY 24, 2001
                    AMENDED BY THE BOARD ON JANUARY 31, 2002
                 AS APPROVED BY THE STOCKHOLDERS ON MAY 23, 2002
                    AMENDED BY THE BOARD ON FEBRUARY 6, 2003

1.    PURPOSES.

      (a) The purpose of the Plan is to provide a means by which selected
      Employees and Directors of and Consultants to the Company, and its
      Affiliates, may be given an opportunity to purchase stock of the Company.

      (b) The Company, by means of the Plan, seeks to retain the services of
      persons who are now Employees or Directors of or Consultants to the
      Company or its Affiliates, to secure and retain the services of new
      Employees, Directors and Consultants, and to provide incentives for such
      persons to exert maximum efforts for the success of the Company and its
      Affiliates.

      (c) The Company intends that the Options issued under the Plan shall, in
      the discretion of the Board or any Committee to which responsibility for
      administration of the Plan has been delegated pursuant to subsection 3(c),
      be either Incentive Stock Options or Nonstatutory Stock Options. All
      Options shall be separately designated Incentive Stock Options or
      Nonstatutory Stock Options at the time of grant, and in such form as
      issued pursuant to Section 6, and a separate certificate or certificates
      will be issued for shares purchased on exercise of each type of Option.

2.    DEFINITIONS.

      (a) "Affiliate" means any parent corporation or subsidiary corporation,
      whether now or hereafter existing, as those terms are defined in Sections
      424(e) and (f) respectively, of the Code.

      (b) "Board" means the Board of Directors of the Company.

      (c) "Code" means the Internal Revenue Code of 1986, as amended.

      (d) "Committee" means a Committee appointed by the Board in accordance
      with subsection 3(c) of the Plan.

      (e) "Company" means Molecular Devices Corporation.



      (f) "Consultant" means any person, including an advisor, engaged by the
      Company or an Affiliate to render consulting services and who is
      compensated for such services, provided that the term "Consultant" shall
      not include Directors who are paid only a director's fee by the Company or
      who are not compensated by the Company for their services as Directors.

      (g) "Continuous Status as an Employee, Director or Consultant" means the
      employment or relationship as a Director or Consultant is not interrupted
      or terminated. The Board, in its sole discretion, may determine whether
      Continuous Status as an Employee, Director or Consultant shall be
      considered interrupted in the case of: (i) any leave of absence approved
      by the Board, including sick leave, military leave, or any other personal
      leave; or (ii) transfers between locations of the Company or between the
      Company, Affiliates or their successors.

      (h) "Covered Employee" means the chief executive officer and the four (4)
      other highest compensated officers of the Company for whom total
      compensation is required to be reported to shareholders under the Exchange
      Act, as determined for purposes of Section 162(m) of the Code.

      (i) "Director" means a member of the Board.

      (j) "Employee" means any person, including Officers and Directors,
      employed by the Company or any Affiliate of the Company. Neither service
      as a Director nor payment of a director's fee by the Company shall be
      sufficient to constitute "employment" by the Company.

      (k) "Exchange Act" means the Securities Exchange Act of 1934, as amended.

      (l) "Fair Market Value" means as of any date, the value of the Common
      Stock of the Company determined as follows:

            (1) If the common stock is listed on any established stock exchange
            or a national market system, including without limitation the
            National Market System of the National Association of Securities
            Dealers, Inc. Automated Quotation ("NASDAQ") System, the Fair Market
            Value of a share of common stock shall be the closing sales price
            for such stock (or the closing bid, if no sales were reported) as
            quoted on such system or exchange (or the exchange with the greatest
            volume of trading in common stock) on the last market trading day
            prior to the day of determination, as reported in the Wall Street
            Journal or such other source as the Board deems reliable;

            (2) If the common stock is quoted on the NASDAQ System (but not on
            the National Market System thereof) or is regularly quoted by a
            recognized securities dealer but selling prices are not reported,
            the Fair Market Value of a share of common stock shall be the mean
            between the bid and asked prices for the common stock on the last
            market trading day prior to the day of determination, as reported in
            the Wall Street Journal or such other source as the Board deems
            reliable;


                                       2


            (3) In the absence of an established market for the common stock,
            the Fair Market Value shall be determined in good faith by the
            Board.

      (m) "Incentive Stock Option" means an Option intended to qualify as an
      incentive stock option within the meaning of Section 422 of the Code and
      the regulations promulgated thereunder.

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

      (o) "Nonstatutory Stock Option" means an Option not intended to qualify as
      an Incentive Stock Option.

      (p) "Officer" means a person who is an officer of the Company within the
      meaning of Section 16 of the Exchange Act and the rules and regulations
      promulgated thereunder.

      (q) "Option" means a stock option granted pursuant to the Plan.

      (r) "Option Agreement" means a written agreement between the Company and
      an Optionee evidencing the terms and conditions of an individual Option
      grant. Each Option Agreement shall be subject to the terms and conditions
      of the Plan.

      (s) "Optionee" means an Employee, Director or Consultant who holds an
      outstanding Option.

      (t) "Outside Director" means a Director who either (i) is not a current
      employee of the Company or an "affiliated corporation" (within the meaning
      of the Treasury regulations promulgated under Section 162(m) of the Code),
      is not a former employee of the Company or an "affiliated corporation"
      receiving compensation for prior services (other than benefits under a tax
      qualified pension plan), was not an officer of the Company or an
      "affiliated corporation" at any time, and is not currently receiving
      direct or indirect remuneration from the Company or an "affiliated
      corporation" for services in any capacity other than as a Director, or
      (ii) is otherwise considered an "outside director" for purposes of Section
      162(m) of the Code.

      (u) "Plan" means this Molecular Devices 1995 Stock Option Plan.

      (v) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
      Rule 16b-3, as in effect when discretion is being exercised with respect
      to the Plan.


                                       3


3.    ADMINISTRATION.

      (a) The Plan shall be administered by the Board unless and until the Board
      delegates administration to a Committee, as provided in subsection 3(c).

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

            (1) To determine from time to time which of the persons eligible
            under the Plan shall be granted Options; when and how each Option
            shall be granted; whether an Option will be an Incentive Stock
            Option or a Nonstatutory Stock Option; the provisions of each Option
            granted (which need not be identical), including the time or times
            such Option may be exercised in whole or in part; and the number of
            shares for which an Option shall be granted to each such person.

            (2) To construe and interpret the Plan and Options granted under it,
            and to establish, amend and revoke rules and regulations for its
            administration. The Board, in the exercise of this power, may
            correct any defect, omission or inconsistency in the Plan or in any
            Option Agreement, in a manner and to the extent it shall deem
            necessary or expedient to make the Plan fully effective.

            (3) To amend the Plan or an Option as provided in Section 11.

            (4) To effect, at any time and from time to time, with the consent
            of any adversely affected Optionee, (1) the cancellation of any
            outstanding Option under the Plan and the grant in substitution
            therefor, more than 6 months after the date of cancellation, of a
            new Option under the Plan covering the same or a different number of
            shares or (2) any other similar action that is not treated as a
            "repricing" under generally accepted accounting principles.

            (5) Generally, to exercise such powers and to perform such acts as
            the Board deems necessary or expedient to promote the best interests
            of the Company.

      (c) The Board may delegate administration of the Plan to a committee
      composed of not fewer than two (2) members (the "Committee"), all of the
      members of which Committee shall be Non-Employee Directors and may also
      be, in the discretion of the Board, Outside Directors. If administration
      is delegated to a Committee, the Committee shall have, in connection with
      the administration of the Plan, the powers theretofore possessed by the
      Board (and references in this Plan to the Board shall thereafter be to the
      Committee), subject, however, to such resolutions, not inconsistent with
      the provisions of the Plan, as may be adopted from time to time by the
      Board. The Board may abolish the Committee at any time and revest in the
      Board the administration of the Plan. Notwithstanding anything in this
      Section 3 to the contrary, the Board or the Committee may delegate to a
      committee of one or more members of the Board the authority to grant
      Options to eligible persons who (1) are not then subject to Section 16 of
      the Exchange Act and/or (2) are either (i) not then Covered Employees and
      are not expected to be Covered Employees at the time of recognition of
      income


                                       4


      resulting from such Option, or (ii) not persons with respect to whom the
      Company wishes to comply with Section 162(m) of the Code.

4.    SHARES SUBJECT TO THE PLAN.

      (a) Subject to the provisions of Section 10 relating to adjustments upon
      changes in stock, the stock that may be sold pursuant to Options shall not
      exceed in the aggregate three million two hundred fifty thousand
      (3,250,000) shares of Company common stock, plus up to one million
      (1,000,000) shares of Company Common Stock to the extent that such shares
      previously reserved under the Company's terminated 1988 Stock Option Plan
      (the "1988 Plan") (i) have not, as of the date of the adoption of this
      Plan, previously been issued pursuant to the exercise of options under the
      1988 Plan, and (ii) are not, as of the date of adoption of this Plan,
      subject to options outstanding under the 1988 Plan. If any Option granted
      under the Plan or any stock option granted under the 1988 Plan shall for
      any reason expire or otherwise terminate, in whole or in part, without
      having been exercised in full, the stock not acquired shall revert to and
      again become available for issuance under this Plan.

      (b) The stock subject to the Plan may be unissued shares or reacquired
      shares, bought on the market or otherwise.

5.    ELIGIBILITY.

      (a) Incentive Stock Options may be granted only to Employees. Nonstatutory
      Stock Options may be granted only to Employees, Directors or Consultants.

      (b) No person shall be eligible for the grant of an Option if, at the time
      of grant, such person owns (or is deemed to own pursuant to Section 424(d)
      of the Code) stock possessing more than ten percent (10%) of the total
      combined voting power of all classes of stock of the Company or of any of
      its Affiliates unless the exercise price of such Option is at least one
      hundred ten percent (110%) of the Fair Market Value of such stock at the
      date of grant and the Option is not exercisable after the expiration of
      five (5) years from the date of grant.

      (c) Subject to the provisions of Section 10 relating to adjustments upon
      changes in stock, no person shall be eligible to be granted Options
      covering more than Five Hundred Thousand (500,000) shares of the Company's
      common stock in any calendar year.

6.    OPTION PROVISIONS.

Each Option shall be in such form and shall contain such terms and conditions as
the Board shall deem appropriate. The provisions of separate Options need not be
identical, but each Option shall include (through incorporation of provisions
hereof by reference in the Option or otherwise) the substance of each of the
following provisions:

      (a) Term. No Option shall be exercisable after the expiration of ten (10)
      years from the date it was granted.


                                       5


      (b) Price. The exercise price of each Incentive Stock Option shall be not
      less than one hundred percent (100%) of the Fair Market Value of the stock
      subject to the Option on the date the Option is granted. The exercise
      price of each Nonstatutory Stock Option shall be not less than eighty-five
      percent (85%) of the Fair Market Value of the stock subject to the Option
      on the date the Option is granted. Notwithstanding the foregoing, an
      Option (whether and Incentive Stock Option or Nonstatutory Stock Option)
      may be granted with an option exercise price lower than that set forth
      above if such option is granted pursuant to an assumption or substitution
      for another option in a manner qualifying with the provisions of Section
      424(a) of the Code.

      (c) Consideration. The purchase price of stock acquired pursuant to an
      Option shall be paid, to the extent permitted by applicable statutes and
      regulations, either (i) in cash at the time the Option is exercised, or
      (ii) at the discretion of the Board or the Committee, at the time of the
      grant of the Option, (A) by delivery to the Company of other common stock
      of the Company, (B) according to a deferred payment or other arrangement
      (which may include, without limiting the generality of the foregoing, the
      use of other common stock of the Company) with the person to whom the
      Option is granted or to whom the Option is transferred pursuant to
      subsection 6(d), or (C) in any other form of legal consideration that may
      be acceptable to the Board.

In the case of any deferred payment arrangement, interest shall be payable at
least annually and shall be charged at the minimum rate of interest necessary to
avoid the treatment as interest, under any applicable provisions of the Code, of
any amounts other than amounts stated to be interest under the deferred payment
arrangement.

      (d) Transferability. An Option shall not be transferable except by will or
      by the laws of descent and distribution, and shall be exercisable during
      the lifetime of the person to whom the Option is granted only by such
      person. A Nonstatutory Stock Option shall not be transferable except by
      will or by the laws of descent and distribution or pursuant to a domestic
      relations order satisfying the requirements of Rule 16b-3 and the rules
      thereunder (a "DRO"), and shall be exercisable during the lifetime of the
      person to whom the Option is granted only by such person or any transferee
      pursuant to a DRO. The person to whom the Option is granted may, by
      delivering written notice to the Company, in a form satisfactory to the
      Company, designate a third party who, in the event of the death of the
      Optionee, shall thereafter be entitled to exercise the Option.

      (e) Vesting. The total number of shares of stock subject to an Option may,
      but need not, be allotted in periodic installments (which may, but need
      not, be equal). The Option Agreement may provide that from time to time
      during each of such installment periods, the Option may become exercisable
      ("vest") with respect to some or all of the shares allotted to that
      period, and may be exercised with respect to some or all of the shares
      allotted to such period and/or any prior period as to which the Option
      became vested but was not fully exercised. The Option may be subject to
      such other terms and conditions on the time or times when it may be
      exercised (which may be based on performance or other criteria) as the
      Board may deem appropriate. The provisions of this subsection 6(e) are
      subject to any Option provisions governing the minimum number of shares as
      to which an Option may be exercised.


                                       6


      (f) Securities Law Compliance. The Company may require any Optionee, or
      any person to whom an Option is transferred under subsection 6(d), as a
      condition of exercising any such Option, (1) to give written assurances
      satisfactory to the Company as to the Optionee's knowledge and experience
      in financial and business matters and/or to employ a purchaser
      representative reasonably satisfactory to the Company who is knowledgeable
      and experienced in financial and business matters, and that he or she is
      capable of evaluating, alone or together with the purchaser
      representative, the merits and risks of exercising the Option; and (2) to
      give written assurances satisfactory to the Company stating that such
      person is acquiring the stock subject to the Option for such person's own
      account and not with any present intention of selling or otherwise
      distributing the stock. The foregoing requirements, and any assurances
      given pursuant to such requirements, shall be inoperative if (i) the
      issuance of the shares upon the exercise of the Option has been registered
      under a then currently effective registration statement under the
      Securities Act of 1933, as amended (the "Securities Act"), or (ii) as to
      any particular requirement, a determination is made by counsel for the
      Company that such requirement need not be met in the circumstances under
      the then applicable securities laws. The Company may, upon advice of
      counsel to the Company, place legends on stock certificates issued under
      the Plan as such counsel deems necessary or appropriate in order to comply
      with applicable securities laws, including, but not limited to, legends
      restricting the transfer of the stock.

      (g) Termination of Employment or Relationship as a Director or Consultant.
      In the event an Optionee's Continuous Status as an Employee, Director or
      Consultant terminates (other than upon the Optionee's death or
      disability), the Optionee may exercise his or her Option (to the extent
      that the Optionee was entitled to exercise it at the date of termination)
      but only within such period of time ending on the earlier of (i) the date
      three (3) months after the termination of the Optionee's Continuous Status
      as an Employee, Director or Consultant, or such longer or shorter period
      specified in the Option Agreement, or (ii) the expiration of the term of
      the Option as set forth in the Option Agreement. If, after termination,
      the Optionee does not exercise his or her Option within the time specified
      in the Option Agreement, the Option shall terminate, and the shares
      covered by such Option shall revert to and again become available for
      issuance under the Plan.

      (h) Disability of Optionee. In the event an Optionee's Continuous Status
      as an Employee, Director or Consultant terminates as a result of the
      Optionee's disability, the Optionee may exercise his or her Option (to the
      extent that the Optionee was entitled to exercise it at the date of
      termination), but only within such period of time ending on the earlier of
      (i) the date twelve (12) months following such termination (or such longer
      or shorter period specified in the Option Agreement), or (ii) the
      expiration of the term of the Option as set forth in the Option Agreement.
      If, at the date of termination, the Optionee is not entitled to exercise
      his or her entire Option, the shares covered by the unexercisable portion
      of the Option shall revert to and again become available for issuance
      under the Plan. If, after termination, the Optionee does not exercise his
      or her Option within the time specified herein, the Option shall
      terminate, and the shares covered by such Option shall revert to and again
      become available for issuance under the Plan.


                                       7


      (i) Death of Optionee. In the event of the death of an Optionee during, or
      within a period specified in the Option after the termination of, the
      Optionee's Continuous Status as an Employee, Director or Consultant, the
      Option may be exercised (to the extent the Optionee was entitled to
      exercise the Option at the date of death) by the Optionee's estate, by a
      person who acquired the right to exercise the Option by bequest or
      inheritance or by a person designated to exercise the option upon the
      Optionee's death pursuant to subsection 6(d), but only within the period
      ending on the earlier of (i) the date eighteen (18) months following the
      date of death (or such longer or shorter period specified in the Option
      Agreement), or (ii) the expiration of the term of such Option as set forth
      in the Option Agreement. If, at the time of death, the Optionee was not
      entitled to exercise his or her entire Option, the shares covered by the
      unexercisable portion of the Option shall revert to and again become
      available for issuance under the Plan. If, after death, the Option is not
      exercised within the time specified herein, the Option shall terminate,
      and the shares covered by such Option shall revert to and again become
      available for issuance under the Plan.

      (j) Early Exercise. The Option may, but need not, include a provision
      whereby the Optionee may elect at any time while an Employee, Director or
      Consultant to exercise the Option as to any part or all of the shares
      subject to the Option prior to the full vesting of the Option. Any
      unvested shares so purchased may be subject to a repurchase right in favor
      of the Company or to any other restriction the Board determines to be
      appropriate.

      (k) Withholding. To the extent provided by the terms of an Option
      Agreement, the Optionee may satisfy any federal, state or local tax
      withholding obligation relating to the exercise of such Option by any of
      the following means or by a combination of such means: (1) tendering a
      cash payment; (2) authorizing the Company to withhold shares from the
      shares of the common stock otherwise issuable to the Optionee as a result
      of the exercise of the Option; or (3) delivering to the Company owned and
      unencumbered shares of the common stock of the Company.

7.    COVENANTS OF THE COMPANY.

      (a) During the terms of the Options, the Company shall keep available at
      all times the number of shares of stock required to satisfy such Options.

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


                                       8


8.    USE OF PROCEEDS FROM STOCK.

Proceeds from the sale of stock pursuant to Options shall constitute general
funds of the Company.

9.    MISCELLANEOUS.

      (a) The Board shall have the power to accelerate the time at which an
      Option may first be exercised or the time during which an Option or any
      part thereof will vest pursuant to subsection 6(e), notwithstanding the
      provisions in the Option stating the time at which it may first be
      exercised or the time during which it will vest.

      (b) Neither an Optionee nor any person to whom an Option is transferred
      under subsection 6(d) shall be deemed to be the holder of, or to have any
      of the rights of a holder with respect to, any shares subject to such
      Option unless and until such person has satisfied all requirements for
      exercise of the Option pursuant to its terms.

      (c) Nothing in the Plan or any instrument executed or Option granted
      pursuant thereto shall confer upon any Employee, Director, Consultant or
      Optionee any right to continue in the employ of the Company or any
      Affiliate (or to continue acting as a Director or Consultant) or shall
      affect the right of the Company or any Affiliate to terminate the
      employment or relationship as a Director or Consultant of any Employee,
      Director, Consultant or Optionee with or without cause.

      (d) To the extent that the aggregate Fair Market Value (determined at the
      time of grant) of stock with respect to which Incentive Stock Options
      granted after 1986 are exercisable for the first time by any Optionee
      during any calendar year under all plans of the Company and its Affiliates
      exceeds one hundred thousand dollars ($100,000), the Options or portions
      thereof which exceed such limit (according to the order in which they were
      granted) shall be treated as Nonstatutory Stock Options.

10.   ADJUSTMENTS UPON CHANGES IN STOCK.

      (a) If any change is made in the stock subject to the Plan, or subject to
      any Option (through merger, consolidation, reorganization,
      recapitalization, stock dividend, dividend in property other than cash,
      stock split, liquidating dividend, combination of shares, exchange of
      shares, change in corporate structure or otherwise), the Plan will be
      appropriately adjusted in the types of securities and maximum number of
      shares subject to the Plan pursuant to subsection 4(a) and the maximum
      number of shares subject to award to any person during any calendar year
      pursuant to subsection 5(c), and the outstanding Options will be
      appropriately adjusted in the types of securities and number of shares and
      price per share of stock subject to such outstanding Options.

      (b) In the event of: (1) a dissolution, liquidation or sale of
      substantially all of the assets of the Company; (2) a merger or
      consolidation in which the Company is not the surviving corporation; or
      (3) a reverse merger in which the Company is the surviving corporation but
      the shares of the Company's common stock outstanding immediately preceding
      the merger are converted by virtue of the merger into other property,
      whether


                                       9


      in the form of securities, cash or otherwise, then to the extent permitted
      by applicable law: (i) any surviving corporation shall assume any Options
      outstanding under the Plan or shall substitute similar Options for those
      outstanding under the Plan, or (ii) such Options shall continue in full
      force and effect. In the event any surviving corporation refuses to assume
      or continue such Options, or to substitute similar options for those
      outstanding under the Plan, then, with respect to Options held by persons
      then performing services as Employees, Directors or Consultants, then such
      Options shall be terminated if not exercised prior to such event;
      provided, however, that the time during which such Options may be
      exercised may, at the discretion of the Board of Directors, be accelerated
      and the Options terminated if not exercised prior to such event.

11.   AMENDMENT OF THE PLAN AND OPTIONS.

      (a) The Board at any time, and from time to time, may amend the Plan.
      However, except as provided in Section 10 relating to adjustments upon
      changes in stock, no amendment shall be effective unless approved by the
      stockholders of the Company within twelve (12) months before or after the
      adoption of the amendment, where the amendment will:

            (1) Increase the number of shares reserved for Options under the
            Plan;

            (2) Modify the requirements as to eligibility for participation in
            the Plan (to the extent such modification requires stockholder
            approval in order for the Plan to satisfy the requirements of
            Section 422 of the Code or any Nasdaq or securities exchange listing
            requirements); or

            (3) Modify the Plan in any other way if such modification requires
            stockholder approval in order for the Plan to satisfy the
            requirements of Section 422 of the Code or to comply with the
            requirements of Rule 16b-3, or any Nasdaq or securities exchange
            listing requirements.

      (b) The Board may in its sole discretion submit any other amendment to the
      Plan for stockholder approval, including, but not limited to, amendments
      to the Plan intended to satisfy the requirements of Section 162(m) of the
      Code and the regulations promulgated thereunder regarding the exclusion of
      performance-based compensation from the limit on corporate deductibility
      of compensation paid to certain executive officers.

      (c) It is expressly contemplated that the Board may amend the Plan in any
      respect the Board deems necessary or advisable to provide Optionees with
      the maximum benefits provided or to be provided under the provisions of
      the Code and the regulations promulgated thereunder relating to Incentive
      Stock Options and/or to bring the Plan and/or Incentive Stock Options
      granted under it into compliance therewith.

      (d) Rights and obligations under any Option granted before amendment of
      the Plan shall not be impaired by any amendment of the Plan unless (i) the
      Company requests the consent of the person to whom the Option was granted
      and (ii) such person consents in writing.


                                       10


      (e) The Board at any time, and from time to time, may amend the terms of
      any one or more Options; provided, however, that the rights and
      obligations under any Option shall not be impaired by any such amendment
      unless (i) the Company requests the consent of the person to whom the
      Option was granted and (ii) such person consents in writing.

12.   TERMINATION OR SUSPENSION OF THE PLAN.

      (a) The Board may suspend or terminate the Plan at any time. Unless sooner
      terminated, the Plan shall terminate on October 29, 2005, which shall be
      within ten (10) years from the date the Plan is adopted by the Board or
      approved by the stockholders of the Company, whichever is earlier. No
      Options may be granted under the Plan while the Plan is suspended or after
      it is terminated.

      (b) Rights and obligations under any Option granted while the Plan is in
      effect shall not be impaired by suspension or termination of the Plan,
      except with the consent of the person to whom the Option was granted.

13.   EFFECTIVE DATE OF PLAN.

The Plan shall become effective as determined by the Board, but no Options
granted under the Plan shall be exercised unless and until the Plan has been
approved by the stockholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the Board,
and, if required, an appropriate permit has been issued by the Commissioner of
Corporations of the State of California.


                                       11

EX-10.38

                                                                   EXHIBIT 10.38

                          MOLECULAR DEVICES CORPORATION
                             2001 STOCK OPTION PLAN

               ADOPTED BY THE BOARD OF DIRECTORS ON JULY 26, 2001
                    AMENDED BY THE BOARD ON FEBRUARY 6, 2003
                        STOCKHOLDER APPROVAL NOT REQUIRED

1.    PURPOSES.

      (a) The purpose of the Plan is to provide a means by which selected
      Employees of the Company or its Affiliates who are working or residing
      outside of the United States and are not Officers or Directors may be
      given an opportunity to purchase stock of the Company.

      (b) The Company, by means of the Plan, seeks to retain the services of
      persons who are eligible to receive Options, to secure and retain the
      services of new members of this group and to provide incentives for such
      persons to exert maximum efforts for the success of the Company and its
      Affiliates.

2.    DEFINITIONS.

      (a) "Affiliate" means any "parent" or "subsidiary", whether now or
      hereafter existing, as those terms are defined in Rule 405 promulgated
      under the Securities Act of 1933, as amended of the United States of
      America.

      (b) "Board" means the Board of Directors of the Company.

      (c) "Code" means the Internal Revenue Code of 1986, as amended.

      (d) "Committee" means a Committee appointed by the Board in accordance
      with subsection 3(c) of the Plan.

      (e) "Company" means Molecular Devices Corporation.

      (f) "Consultant" means any person, including an advisor, engaged by the
      Company or an Affiliate to render consulting services and who is
      compensated for such services, provided that the term "Consultant" shall
      not include Directors who are paid only a director's fee by the Company or
      who are not compensated by the Company for their services as Directors.

      (g) "Continuous Status as an Employee, Director or Consultant" means the
      employment or relationship as a Director or Consultant with the Company or
      an Affiliate of the Company is not interrupted or terminated. The Board,
      in its sole discretion, may determine whether Continuous Status as an
      Employee, Director or Consultant shall be considered interrupted in the
      case of any leave of absence approved by the Board, including sick leave,
      military leave, or any other personal leave.

      (i) "Director" means a member of the Board.



      (j) "Employee" means any person, including an Officer, classified for tax
      purposes as an "employee" by the Company or any Affiliate of the Company.
      Neither service as a Director nor payment of a director's fee by the
      Company shall be sufficient to constitute status as an "employee."

      (k) "Exchange Act" means the Securities Exchange Act of 1934, as amended.

      (l) "Fair Market Value" means as of any date, the value of the Common
      Stock of the Company determined as follows:

            (1) If the common stock is listed on any established stock exchange
            or a national market system, including without limitation the
            National Market System of the National Association of Securities
            Dealers, Inc. Automated Quotation ("NASDAQ") System, the Fair Market
            Value of a share of common stock shall be the closing sales price
            for such stock (or the closing bid, if no sales were reported) as
            quoted on such system or exchange (or the exchange with the greatest
            volume of trading in common stock) on the last market trading day
            prior to the day of determination, as reported in the Wall Street
            Journal or such other source as the Board deems reliable;

            (2) If the common stock is quoted on the NASDAQ System (but not on
            the National Market System thereof) or is regularly quoted by a
            recognized securities dealer but selling prices are not reported,
            the Fair Market Value of a share of common stock shall be the mean
            between the bid and asked prices for the common stock on the last
            market trading day prior to the day of determination, as reported in
            the Wall Street Journal or such other source as the Board deems
            reliable;

            (3) In the absence of an established market for the common stock,
            the Fair Market Value shall be determined in good faith by the
            Board.

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

      (o) "Nonstatutory Stock Option" means an Option not intended to qualify as
      an "incentive stock option" under Section 422 of the Code.



      (p) "Officer" means a person who is an officer of the Company within the
      meaning of that term in Rule 4350(i)(1)(A) of the Rules of the National
      Association of Securities Dealers, Inc. (or any successor to that rule).

      (q) "Option" means a Nonstatutory Stock Option granted pursuant to the
      Plan.

      (r) "Option Agreement" means a written agreement between the Company and
      an Optionee evidencing the terms and conditions of an individual Option
      grant. Each Option Agreement shall be subject to the terms and conditions
      of the Plan.

      (s) "Optionee" means an Employee, Director or Consultant who holds an
      outstanding Option.

      (u) "Plan" means this Molecular Devices Corporation 2001 Stock Option
      Plan.

      (v) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
      Rule 16b-3, as in effect when discretion is being exercised with respect
      to the Plan.

3.    ADMINISTRATION.

      (a) The Plan shall be administered by the Board unless and until the Board
      delegates administration to a Committee, as provided in subsection 3(c).

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

            (1) To determine from time to time which of the persons eligible
            under the Plan shall be granted Options; when and how each Option
            shall be granted; the provisions of each Option granted (which need
            not be identical), including the time or times such Option may be
            exercised in whole or in part; and the number of shares for which an
            Option shall be granted to each such person.

            (2) To construe and interpret the Plan and Options granted under it,
            and to establish, amend and revoke rules and regulations for its
            administration. The Board, in the exercise of this power, may
            correct any defect, omission or inconsistency in the Plan or in any
            Option Agreement, in a manner and to the extent it shall deem
            necessary or expedient to make the Plan fully effective.

            (3) To amend the Plan or an Option as provided in Section 11.

            (4) To effect, at any time and from time to time, with the consent
            of any adversely affected Optionee, (1) the cancellation of any
            outstanding Option under the Plan and the grant in substitution
            therefor, more than 6 months after the date of cancellation, of a
            new Option under the Plan covering the same or a different number of
            shares or (2) any other similar action that is not treated as a
            "repricing" under generally accepted accounting principles.



            (5) Generally, to exercise such powers and to perform such acts as
            the Board deems necessary or expedient to promote the best interests
            of the Company.

      (c) The Board may delegate administration of the Plan to a committee
      composed of not fewer than two (2) members (the "Committee"), all of the
      members of which Committee may be Non-Employee Directors if exemption of
      an Option or Options from the restrictions of Section 16(b) of the
      Exchange Act is deemed necessary or desirable. If administration is
      delegated to a Committee, the Committee shall have, in connection with the
      administration of the Plan, the powers theretofore possessed by the Board
      (and references in this Plan to the Board shall thereafter be to the
      Committee), subject, however, to such resolutions, not inconsistent with
      the provisions of the Plan, as may be adopted from time to time by the
      Board. The Board may abolish the Committee at any time and revest in the
      Board the administration of the Plan. Notwithstanding anything in this
      Section 3 to the contrary, the Board or the Committee may delegate to a
      committee of one or more members of the Board the authority to grant
      Options to eligible persons who are not then subject to Section 16 of the
      Exchange Act.

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

4.    SHARES SUBJECT TO THE PLAN.

      (a) Subject to the provisions of Section 10 relating to adjustments upon
      changes in stock, the stock that may be sold pursuant to Options shall not
      exceed in the aggregate one hundred thousand (100,000) shares of Company
      common stock. If any Option granted under the Plan shall for any reason
      expire or otherwise terminate, in whole or in part, without having been
      exercised in full, the stock not acquired shall revert to and again become
      available for issuance under this Plan.

      (b) The stock subject to the Plan may be unissued shares or reacquired
      shares, bought on the market or otherwise.

5.    ELIGIBILITY.

Options may be granted only to Employees who, at the time of grant, are working
or residing outside of the United States and are not Officers or Directors.

6.    OPTION PROVISIONS.

Each Option shall be in such form and shall contain such terms and conditions as
the Board shall deem appropriate. The provisions of separate Options need not be
identical, but each Option shall include (through incorporation of provisions
hereof by reference in the Option or otherwise) the substance of each of the
following provisions:

      (a) Term. No Option shall be exercisable after the expiration of twelve
      (12) years from the date it was granted.



      (b) Price. Unless otherwise provided expressly by the Board or Committee,
      the per share exercise price of each Option shall not be less than
      eighty-five percent (85%) of the Fair Market Value of a share of the
      Company's Common Stock on the date of grant.

      (c) Consideration. The purchase price of stock acquired pursuant to
      exercise of an Option shall be paid, to the extent permitted by applicable
      statutes and regulations, either (i) in cash at the time the Option is
      exercised, or (ii) at the discretion of the Board or the Committee, at the
      time of the grant of the Option, (A) by delivery to the Company of other
      common stock of the Company, (B) according to a deferred payment or other
      arrangement (which may include, without limiting the generality of the
      foregoing, the use of other common stock of the Company) with the person
      to whom the Option is granted or to whom the Option is transferred
      pursuant to subsection 6(d), or (C) in any other form of legal
      consideration that may be acceptable to the Board.

      In the case of any deferred payment arrangement, interest shall be
      compounded at least annually and shall be charged at the minimum rate of
      interest necessary to avoid (1) the treatment as interest, under any
      applicable provisions of the Code, of any amounts other than amounts
      stated to be interest under the deferred payment arrangement and (2) the
      treatment of the Option as a variable award for financial accounting
      purposes.

      (d) Transferability. In the absence of a provision on transferability in
      an Option Agreement, a Nonstatutory Stock Option shall not be transferable
      except by will or by the laws of descent and distribution or pursuant to a
      domestic relations order satisfying the requirements of Rule 16b-3 and the
      rules thereunder (a "DRO"), and shall be exercisable during the lifetime
      of the person to whom the Option is granted only by such person or any
      transferee pursuant to a DRO. The person to whom a Nonstatutory Stock
      Option is granted may, by delivering written notice to the Company, in a
      form satisfactory to the Company, designate a third party who, in the
      event of the death of the Optionee, shall thereafter be entitled to
      exercise the Nonstatutory Stock Option.

      (e) Vesting. The total number of shares of stock subject to an Option may,
      but need not, be allotted in periodic installments (which may, but need
      not, be equal). The Option Agreement may provide that from time to time
      during each of such installment periods, the Option may become exercisable
      ("vest") with respect to some or all of the shares allotted to that
      period, and may be exercised with respect to some or all of the shares
      allotted to such period and/or any prior period as to which the Option
      became vested but was not fully exercised. The Option may be subject to
      such other terms and conditions on the time or times when it may be
      exercised (which may be based on performance or other criteria) as the
      Board may deem appropriate. The provisions of this subsection 6(e) are
      subject to any Option provisions governing the minimum number of shares as
      to which an Option may be exercised.

      (f) Investment Assurances. The Company may require any Optionee, or any
      person to whom an Option is transferred under subsection 6(d), as a
      condition of exercising any such Option, (1) to give written assurances
      satisfactory to the Company as to the Optionee's knowledge and experience
      in financial and business matters and/or to employ a purchaser
      representative reasonably satisfactory to the Company



      who is knowledgeable and experienced in financial and business matters,
      and that he or she is capable of evaluating, alone or together with the
      purchaser representative, the merits and risks of exercising the Option;
      and (2) to give written assurances satisfactory to the Company stating
      that such person is acquiring the stock subject to the Option for such
      person's own account and not with any present intention of selling or
      otherwise distributing the stock. The foregoing requirements, and any
      assurances given pursuant to such requirements, shall be inoperative if
      (i) the issuance of the shares upon the exercise of the Option has been
      registered under a then currently effective registration statement under
      the Securities Act of 1933, as amended (the "Securities Act"), or (ii) as
      to any particular requirement, a determination is made by counsel for the
      Company that such requirement need not be met in the circumstances under
      the then applicable securities laws. The Company may, upon advice of
      counsel to the Company, place legends on stock certificates issued under
      the Plan as such counsel deems necessary or appropriate in order to comply
      with applicable securities laws, including, but not limited to, legends
      restricting the transfer of the stock.

      (g) Termination of Employment or Relationship as a Director or Consultant.
      In the event an Optionee's Continuous Status as an Employee, Director or
      Consultant terminates (other than upon the Optionee's death or
      disability), the Optionee may exercise his or her Option (to the extent
      that the Optionee was entitled to exercise it at the date of termination)
      but only within such period of time ending on the earlier of (i) the date
      three (3) months after the termination of the Optionee's Continuous Status
      as an Employee, Director or Consultant, or such longer or shorter period
      specified in the Option Agreement, or (ii) the expiration of the term of
      the Option as set forth in the Option Agreement. If, after termination,
      the Optionee does not exercise his or her Option within the time specified
      in the Option Agreement, the Option shall terminate, and the shares
      covered by such Option shall revert to and again become available for
      issuance under the Plan.

      (h) Disability of Optionee. In the event an Optionee's Continuous Status
      as an Employee, Director or Consultant terminates as a result of the
      Optionee's disability, the Optionee may exercise his or her Option (to the
      extent that the Optionee was entitled to exercise it at the date of
      termination), but only within such period of time ending on the earlier of
      (i) the date twelve (12) months following such termination (or such longer
      or shorter period specified in the Option Agreement), or (ii) the
      expiration of the term of the Option as set forth in the Option Agreement.
      If, at the date of termination, the Optionee is not entitled to exercise
      his or her entire Option, the shares covered by the unexercisable portion
      of the Option shall revert to and again become available for issuance
      under the Plan. If, after termination, the Optionee does not exercise his
      or her Option within the time specified herein, the Option shall
      terminate, and the shares covered by such Option shall revert to and again
      become available for issuance under the Plan.

      (i) Death of Optionee. In the event of the death of an Optionee during, or
      within a period specified in the Option after the termination of, the
      Optionee's Continuous Status as an Employee, Director or Consultant, the
      Option may be exercised (to the extent the Optionee was entitled to
      exercise the Option at the date of death) by the



      Optionee's estate, by a person who acquired the right to exercise the
      Option by bequest or inheritance or by a person designated to exercise the
      option upon the Optionee's death pursuant to subsection 6(d), but only
      within the period ending on the earlier of (i) the date eighteen (18)
      months following the date of death (or such longer or shorter period
      specified in the Option Agreement), or (ii) the expiration of the term of
      such Option as set forth in the Option Agreement. If, at the time of
      death, the Optionee was not entitled to exercise his or her entire Option,
      the shares covered by the unexercisable portion of the Option shall revert
      to and again become available for issuance under the Plan. If, after
      death, the Option is not exercised within the time specified herein, the
      Option shall terminate, and the shares covered by such Option shall revert
      to and again become available for issuance under the Plan.

      (j) Early Exercise. The Option may, but need not, include a provision
      whereby the Optionee may elect at any time while an Employee, Director or
      Consultant to exercise the Option as to any part or all of the shares
      subject to the Option prior to the full vesting of the Option. Any
      unvested shares so purchased may be subject to a repurchase right in favor
      of the Company or to any other restriction the Board determines to be
      appropriate.

      (k) Withholding. To the extent provided by the terms of an Option
      Agreement for an Option, the Participant may satisfy any federal, state,
      local, or other tax withholding obligation relating to the exercise of
      such Option by any of the following means (in addition to the Company's
      right to withhold from any compensation paid to the Optionee by the
      Company) or by a combination of such means: (i) tendering a cash payment;
      (ii) authorizing the Company to withhold shares of common stock from the
      shares of common stock otherwise issuable to the Optionee as a result of
      the exercise of the Option; provided, however, that no shares of common
      stock are withheld with a value exceeding the minimum amount of tax
      required to be withheld by law (or such lesser amount as may be necessary
      to avoid variable award accounting); or (iii) delivering to the Company
      owned and unencumbered shares of common stock.

7.    COVENANTS OF THE COMPANY.

      (a) During the terms of the Options, the Company shall keep available at
      all times the number of shares of stock required to satisfy such Options.

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



8.    USE OF PROCEEDS FROM STOCK.

Proceeds from the sale of stock pursuant to Options shall constitute general
funds of the Company.

9.    MISCELLANEOUS.

      (a) The Board shall have the power to accelerate the time at which an
      Option may first be exercised or the time during which an Option or any
      part thereof will vest pursuant to subsection 6(e), notwithstanding the
      provisions in the Option stating the time at which it may first be
      exercised or the time during which it will vest.

      (b) Neither an Optionee nor any person to whom an Option is transferred
      under subsection 6(d) shall be deemed to be the holder of, or to have any
      of the rights of a holder with respect to, any shares subject to such
      Option unless and until such person has satisfied all requirements for
      exercise of the Option pursuant to its terms.

      (c) Nothing in the Plan or any instrument executed or Option granted
      pursuant thereto shall confer upon any Employee, Director, Consultant or
      Optionee any right to continue in the employ of the Company or any
      Affiliate (or to continue acting as a Director or Consultant) or shall
      affect the right of the Company or any Affiliate to terminate the
      employment or relationship as a Director or Consultant of any Employee,
      Director, or Consultant for any reason, with or without cause.

10.   ADJUSTMENTS UPON CHANGES IN STOCK.

      (a) If any change is made in the stock subject to the Plan, or subject to
      any Option (through merger, consolidation, reorganization,
      recapitalization, stock dividend, dividend in property other than cash,
      stock split, liquidating dividend, combination of shares, exchange of
      shares, change in corporate structure or other transaction not involving
      the receipt of consideration), the Plan will be appropriately adjusted in
      the types of securities and maximum number of shares subject to the Plan
      pursuant to subsection 4(a), and the outstanding Options will be
      appropriately adjusted in the types of securities and number of shares and
      price per share of stock subject to such outstanding Options.

      (b) In the event of: (1) a dissolution, liquidation or sale of
      substantially all of the assets of the Company; (2) a merger or
      consolidation in which the Company is not the surviving corporation; or
      (3) a reverse merger in which the Company is the surviving corporation but
      the shares of the Company's common stock outstanding immediately preceding
      the merger are converted by virtue of the merger into other property,
      whether in the form of securities, cash or otherwise, then to the extent
      permitted by applicable law: (i) any surviving corporation shall either
      assume any Options outstanding under the Plan or shall substitute similar
      Options for those outstanding under the Plan, or (ii) such Options shall
      terminate to the extent not exercised prior to such event; provided,
      however, that the time during which some or all of such Options may be
      exercised may, at the discretion of the Board, be accelerated to prior to
      such event.



11.   AMENDMENT OF THE PLAN AND OPTIONS.

      (a) The Board at any time, and from time to time, may amend the Plan.
      However, except as provided in Section 10 relating to adjustments upon
      changes in stock, no amendment shall be effective unless approved by the
      stockholders of the Company within twelve (12) months before or after the
      adoption of the amendment, where the amendment will modify the Plan in any
      way (including, but not limited to, the modification of the eligibility
      requirements for participation in the Plan) if such modification requires
      stockholder approval in order for the Plan to comply with any NASDAQ or
      securities exchange listing requirements.

      (b) The Board may in its sole discretion submit any other amendment to the
      Plan for stockholder approval.

      (c) It is expressly contemplated that the Board may amend the Plan in any
      respect the Board deems necessary or advisable to provide Optionees with
      the maximum benefits provided or to be provided under the provisions of
      the Code and the regulations promulgated thereunder relating to Options
      and/or to bring the Plan and/or Options granted under it into compliance
      therewith.

      (d) Rights and obligations under any Option granted before amendment of
      the Plan shall not be impaired by any amendment of the Plan unless (i) the
      Company requests the consent of the person to whom the Option was granted
      and (ii) such person consents in writing.

      (e) The Board at any time, and from time to time, may amend the terms of
      any one or more Options; provided, however, that the rights and
      obligations under any Option shall not be impaired by any such amendment
      unless (i) the Company requests the consent of the person to whom the
      Option was granted and (ii) such person consents in writing.

12.   TERMINATION OR SUSPENSION OF THE PLAN.

      (a) The Board may suspend or terminate the Plan at any time. No Options
      may be granted under the Plan while the Plan is suspended or after it is
      terminated.

      (b) Rights and obligations under any Option granted while the Plan is in
      effect shall not be impaired by suspension or termination of the Plan,
      except with the consent of the person to whom the Option was granted.

13.   EFFECTIVE DATE OF PLAN.

The Plan shall become effective upon adoption by the Board.

EX-10.39

                                                                   EXHIBIT 10.39

                                      LEASE
                   (SINGLE TENANT; STAND-ALONE; NET - "AS-IS")

                                     BETWEEN

                               THE IRVINE COMPANY

                                       AND

                          MOLECULAR DEVICES CORPORATION





                                      LEASE

                   (SINGLE TENANT; STAND-ALONE; NET - "AS-IS")

      THIS LEASE is made as of the 28th day of May, 2002, by and between THE
IRVINE COMPANY, a Delaware corporation hereafter called "LANDLORD," and
MOLECULAR DEVICES CORPORATION, a Delaware corporation hereinafter called
"TENANT."

                       ARTICLE I. BASIC LEASE PROVISIONS

      Each reference in this Lease to the "BASIC LEASE PROVISIONS" shall mean
and refer to the following collective terms, the application of which shall be
governed by the provisions in the remaining Articles of this Lease.

1.    Premises: The Premises are more particularly described in Section 2.1.

2.    Address of Building: 1312 Crossman Avenue, Sunnyvale, CA 94089

3.    Use of Premises: General office or laboratory research and development
      facility, including wet chemistry, manufacturing and biology labs, clean
      rooms and instrument assembly, and other legal uses.

4.    Commencement Date: May 1,2003

5.    Term: The Term of this Lease shall expire at midnight on October 31, 2007.

6.    Basic Rent: Ninety-Two Thousand Seven Hundred Eighteen Dollars
      ($92,718.00) per month.

      Basic Rent is subject to adjustment as follows:

      Commencing May 1, 2004, the Basic Rent shall be Ninety-Five Thousand Five
      Hundred Dollars ($95,500.00) per month.

      Commencing May 1, 2005, the Basic Rent shall be Ninety-Eight Thousand
      Three Hundred Sixty-Five Dollars ($98,365.00) per month.

      Commencing May 1, 2006, the Basic Rent shall be One Hundred One Thousand
      Three Hundred Fifteen Dollars ($101,315.00) per month.

      Commencing May 1, 2007, the Basic rent shall be One Hundred Four Thousand
      Three Hundred Fifty-Five Dollars ($104,355.00) per month.

7.    Guarantor(s): N/A

8.    Floor Area: Approximately 54,540 rentable square feet

9.    Security Deposit: $114,791.00

10    Broker(s): CRESA Partners

11.   Additional Insureds: Insignia/ESG, Inc.

12.   Address for Payments and Notices:

      LANDLORD                                     TENANT

      THE IRVINE COMPANY                           MOLECULAR DEVICES CORPORATION
      c/o Insignia/ESG, Inc.                       1312 Crossman Avenue
      160 West Santa Clara Street                  Sunnyvale, CA 94089
      Suite 1350
      San Jose, CA 95113

      with a copy of notices to:

      THE IRVINE COMPANY
      dba Office Properties
      8105 Irvine Center Drive, Suite 300
      Irvine, CA 92618
      Attn: Senior Vice President, Operations
      Office Properties

13.   Tenant's Liability Insurance Requirement $2,000,000.00


                                       1



                              ARTICLE II. PREMISES

      SECTION 2.1. LEASED PREMISES. Landlord leases to Tenant and Tenant leases
from Landlord the premises shown in Exhibit A (the "PREMISES"), containing
approximately the rentable square footage set forth as the "FLOOR AREA" in Item
8 of the Basic Lease Provisions. The Premises consist of all of the rentable
square footage within the building identified in Item 2 of the Basic Lease
Provisions (the "BUILDING"). The Building and all attendant Common Areas shall
hereinafter be referred to as the "SITE"). All references to "FLOOR AREA" in
this Lease shall mean the rentable square footage set forth in Item 8 of the
Basic Lease Provisions. The rentable square footage set forth in Item 8 may
include or have been adjusted by various factors, including, without limitation,
a load factor for any vertical penetrations, stairwells or similar features or
areas of the Building. Tenant agrees that the Floor Area set forth in Item 8
shall be binding on Landlord and Tenant for purposes of this Lease regardless of
whether any future or differing measurements of the Premises or the Building are
consistent or inconsistent with the Floor, Area set forth in Item 8.

      SECTION 2.2. ACCEPTANCE OF PREMISES. Tenant acknowledges that neither
Landlord nor any representative of Landlord has made any representation or
warranty with respect to the Premises, the Building or the Site or their
respective suitability or fitness for any purpose, including without limitation
any representations or warranties regarding zoning or other land use matters,
and that neither Landlord nor any representative of Landlord has made any
representations or warranties regarding (i) what other tenants or uses may be
permitted or intended in the Building or the Site, or (ii) any exclusivity of
use by Tenant with respect to its permitted use of the Premises as set forth in
Item 3 of the Basic Lease Provisions. Tenant further acknowledges that neither
Landlord nor any representative of Landlord has agreed to undertake any
alterations or additions or construct any improvements to the Premises and that
Tenant's lease of the Premises shall be on an "as is" basis. As of the
Commencement Date, Tenant shall be conclusively deemed to have accepted the
Premises and those portions of the Building and Site in which Tenant has any
rights under this Lease, which acceptance shall mean that it is conclusively
established that the Premises and those portions of the Building and Site in
which Tenant has any rights under this Lease were in satisfactory condition and
in conformity with the provisions of this Lease. Nothing contained in this
Section shall affect the commencement of the Term or the obligation of Tenant to
pay rent.

      SECTION 2.3. BUILDING NAME AND ADDRESS. Tenant shall not utilize any name
selected by Landlord from time to time for the Building and/or the Site as any
part of Tenant's corporate or trade name. Landlord shall have the right to
change the name, address, number or designation of the Building or Site,
provided that Landlord shall reimburse Tenant for any actual costs incurred (but
not to exceed $1,500.00) as a result of such change.

                               ARTICLE III. TERM

      SECTION 3.1. GENERAL. Subject to the provisions of Section 3.2 below, the
term of this Lease ("TERM") shall commence on the date set forth in Item 4 of
the Basic Lease Provisions (the "COMMENCEMENT DATE"), and shall expire on the
date set forth in Item 5 of the Basic Lease Provisions (the "EXPIRATION DATE").

      SECTION 3.2. RIGHT TO EXTEND THIS LEASE. Provided that Tenant is not in
default under any provision of this Lease at the time of exercise of the
extension right granted herein, and provided further that Tenant will be
occupying the entire Premises at the commencement of the extension term, Tenant
may extend the Term of this Lease for one (1) period of sixty (60) months.
Tenant shall exercise its right to extend the Term by and only by delivering to
Landlord, not less than six (6) months or more than nine (9) months prior to the
expiration date of the Term, Tenant's written notice of its irrevocable
commitment to extend (the "Commitment Notice"). Should Tenant fail timely to
deliver the Commitment Notice, then this extension right shall thereupon lapse
and be of no further force or effect. The Basic Rent payable under the Lease
during the extension of the Term shall be at the prevailing "Fair Market Rent"
(including periodic adjustments) for comparable space as of the commencement of
the extension period. In no event shall the monthly Basic Rent payable for the
extension period be less than the Basic Rent payable during the month
immediately preceding the commencement of such extension period. For purposes
hereof, "Fair Market Rent" shall mean the effective base rental rates (including
periodic adjustments to such base rental rates) then being received for premises
of similar size and quality to the Premises, located in industrial parks in the
Sunnyvale area which are similar in size and quality to the Property, leased for
terms of approximately five years, and otherwise subject to leases containing
substantially similar terms as those contained in this Lease. Notwithstanding
the foregoing, "Fair Market Rent" shall not include any rental value
attributable to improvements, alterations, fixtures, equipment, and personal
property installed in the Premises at Tenant's expense.

      Not more than six months nor less than four months prior to the
commencement of the extension term, Landlord and Tenant shall meet and attempt
in good faith to determine and mutually agree upon the Basic Rent to be paid
during the extension term pursuant to the provisions above. If, 90 days prior to
the commencement of the extension term, the parties have not reached agreement,
each party shall appoint an Appraiser (hereinafter defined) and shall give
notice to the other party of the identity of the Appraiser no later than 75 days
prior to the commencement of the extension term. For purposes hereof,
"Appraiser" means a real estate broker or MAI designated appraiser, in either
case with not less than 5 years of full time commercial appraisal or commercial
brokerage experience in the Sunnyvale area.

      If either party fails to timely appoint an Appraiser, the sole Appraiser
appointed shall determine the Basic Rent to be charged during the extension
term, based on the criteria described above. If two Appraisers are appointed,
they shall immediately meet and attempt to agree upon such Basic Rent. If they
are unable to do so within 20 days after their first meeting, they shall jointly
appoint a third Appraiser and the third Appraiser shall make such determination
within 20 days of his/her appointment. The determination of Basic Rent as
provided herein shall be binding upon the parties hereto.


                                       2



      Promptly following determination of the Basic Rent as set forth herein,
Landlord shall prepare an appropriate amendment to the Lease memorializing the
extension of the Term in accordance with the foregoing, and Tenant shall duly
execute and return same to Landlord within fifteen (15) days. Any attempt to
assign or transfer any right or interest created by this paragraph, except in
connection with an authorized assignment of this Lease, shall be void from its
inception. Tenant shall have no other right to extend the Term beyond the single
sixty (60) month extension created by this paragraph. Unless agreed to in a
writing signed by Landlord and Tenant, any extension of the Term, whether
created by an amendment to this Lease or by a holdover of the Premises by
Tenant, or otherwise, shall be deemed a part of, and not in addition to, any
duly exercised extension period permitted by this paragraph. Time is
specifically made of the essence of this paragraph.

                    ARTICLE IV. RENT AND OPERATING EXPENSES

      SECTION 4.1. BASIC RENT. From and after the Commencement Date, Tenant
shall pay to Landlord without deduction or offset, the rental amount for the
Premises shown in Item 6 of the Basic Lease Provisions (the "BASIC RENT"),
including subsequent adjustments, if any. Any rental adjustment to Basic Rent
shown in Item 6 shall be deemed to occur on the specified monthly anniversary of
the Commencement Date, whether or not the Commencement Date occurs at the end
of a calendar month. The rent shall be due and payable in advance commencing on
the Commencement Date (as prorated for any partial month) and continuing
thereafter on the first day of each successive calendar month of the Term. No
demand, notice or invoice shall be required for the payment of Basic Rent. An
installment of rent in the amount of one (1) full month's Basic Rent at the
initial rate specified in Item 6 of the Basic Lease Provisions and one (1)
month's estimated Tenant's Share of Operating Expenses (as defined in Section
4.2) shall be delivered to Landlord concurrently with Tenant's execution of this
Lease and shall be applied against the Basic Rent and Operating Expenses first
due hereunder.

      SECTION 4.2. OPERATING EXPENSES.

      (a) Tenant shall pay to Landlord, as additional rent, Tenant's Share of
all Operating Expenses, as defined in Section 4.2(f), incurred by Landlord in
the operation of the Building and the Site. The term "TENANT'S SHARE" means one
hundred percent (100%) of any Operating Expenses determined by Landlord to
benefit or relate substantially to the Building and/or the Site. The full amount
of any management fee payable by Landlord for the management of Tenant's
Premises that is calculated as a percentage of the rent payable by Tenant shall
be paid in full by Tenant as additional rent.

      (b) Prior to the start of each full Expense Recovery Period (as defined in
this Section 4.2), Landlord shall give Tenant a written estimate of the amount
of Tenant's Share of Operating Expanses for the applicable Expense Recovery
Period. Failure to provide such estimate shall not relieve Tenant from its
obligation to pay Tenant's Share of Operating Expenses or estimated amounts
thereof, if and when Landlord provides such estimate or final payment amount.
Tenant shall pay the estimated amounts to Landlord in equal monthly
installments, in advance concurrently with payments of Basic Rent. If Landlord
has not furnished its written estimate for any Expense Recovery Period by the
time set forth above, Tenant shall continue to pay monthly the estimated
Tenant's Share of Operating Expenses in effect during the prior Expense Recovery
Period; provided that when the new estimate is delivered to Tenant, Tenant
shall, at the next monthly payment date which is at least thirty (30) days
following Landlord's written estimate, pay any accrued estimated Tenant's Share
of Operating Expenses based upon the new estimate. For purposes hereof, "EXPENSE
RECOVERY PERIOD" shall mean every twelve month period during the Term (or
portion thereof for the first and last lease years) commencing July 1 and ending
June 30, provided that Landlord shall have the right to change the date on which
an Expense Recovery Period commences in which event appropriate reasonable
adjustments shall be made to Tenant's Share of Operating Expenses so that the
amount payable by Tenant shall not materially vary as a result of such change.

      (c) Within one hundred twenty (120) days after the end of each Expense
Recovery Period, Landlord shall furnish to Tenant a statement showing in
reasonable detail the actual or prorated Tenant's Share of Operating Expenses
incurred by Landlord during the period, and the parties shall within thirty (30)
days thereafter make any payment or allowance necessary to adjust Tenant's
estimated payments of Tenant's Share of Operating Expenses, if any, to the
actual Tenant's Share of Operating Expenses as shown by the annual statement.
Any delay or failure by Landlord in delivering any statement hereunder shall not
constitute a waiver of Landlords right to require Tenant to pay Tenant's Share
of Operating Expenses pursuant hereto. Any amount due Tenant shall be credited
against installments next coming due under this Section 4.2, and any deficiency
shall be paid by Tenant together with the next installment. Should tenant fail
to object in writing to Landlord's determination of Tenant's Share of Operating
Expenses within ninety (90) days following delivery of Landlord's expense
statement, Landlord's determination of Tenant's Share of Operating Expenses for
the applicable Expense Recovery Period shall be conclusive and binding on the
parties for all purposes and any future claims to the contrary shall be barred.

      (d) Even though this Lease has terminated and the Tenant has vacated the
Premises, when the final determination is made of Tenant's Share of Operating
Expenses for the Expense Recovery Period in which this Lease terminates, Tenant
shall within thirty (30) days of written notice pay the entire increase over the
estimated Tenant's Share of Operating Expenses already paid. Conversely, any
overpayment by Tenant shall be rebated by Landlord to Tenant not later than
thirty (30) days after such final determination.

      (e) If at any time during any Expense Recovery Period, any one or more of
the Operating Expenses are increased to a rate(s) or amount(s) in excess of the
rate(s) or amount(s) used in calculating the estimated Tenant's Share of
Operating Expenses for the year, then the estimate of Tenant's Share of
Operating Expenses may be increased by written notice from Landlord for the
month in which such rate(s) or amount(s) becomes effective and for all
succeeding months by an amount equal to Tenant's Share of the increase. If
Landlord gives Tenant written notice of the amount or estimated amount of the
increase, the month in which the increase will or has become effective, then
Tenant shall pay the increase to Landlord as a part of Tenant's monthly payments
of the estimated


                                       3



Tenant's Share of Operating Expenses as provided in Section 4.2(b), commencing
with the month which is at least thirty (30) days following Tenant's receipt of
Landlord's notice. In addition, Tenant shall pay upon written request any such
increases which were incurred prior to the Tenant commencing to pay such monthly
increase.

      (f) The term "OPERATING EXPENSES" shall mean and include all Site Costs,
as defined in subsection (g), and Property Taxes, as defined in subsection (h).

      (g) The term "SITE COSTS" shall include all expenses of operation, repair
and maintenance of the Building and the Site, including without limitation all
appurtenant Common Areas (as defined in Section 6.2), and shall include the
following charges by way of illustration but not limitation: water and sewer
charges; insurance premiums and deductibles and/or reasonable premium and
deductible equivalents should Landlord elect to self-insure all or any portion
of any risk that Landlord is authorized to insure hereunder; license, permit,
and inspection fees; heat; light; power; air conditioning; supplies; materials;
equipment; tools; the cost of any environmental, insurance, tax or other
consultant utilized by Landlord in connection with the Building and/or Site;
establishment of reasonable reserves for replacements and/or repairs; costs
incurred in connection with compliance with any laws or changes in laws
applicable to the Building or the Site and not required due to the particular
use of any other tenant the cost of any capital investments or replacements
(other than tenant improvements for specific tenants) to the extent of the
amortized amount thereof over the useful life of such capital investments or
replacements calculated at a market cost of funds, all as determined by
Landlord, for each such year or useful life during the Term; costs associated
with the maintenance of an air conditioning, heating and ventilation service
agreement; reasonably allocated wages and salaries, fringe benefits, and payroll
taxes for administrative and other personnel directly applicable to the building
and/or Site, including both Landlord's personnel and outside personnel; any
expense incurred pursuant to Sections 6.1, 6.2, 6.4, 7.2, and 10.2; and a
reasonable overhead/management fee for the professional operation of the
Building and the Site. It is understood and agreed that Site Costs may include
competitive charges for direct services provided by any subsidiary, division or
affiliate of Landlord.

      (h) The term "PROPERTY TAXES" as used herein shall include any form of
federal, state, county or local government or municipal taxes, fees, charges or
other impositions of every kind (whether general, special, ordinary or
extraordinary) related to the ownership, leasing or operation of the Premises,
Building or Site, including without limitation, the following: (i) all real
estate taxes or personal property taxes, as such property taxes may be
reassessed from time to time; and (ii) other taxes, charges and assessments
which are levied with respect to this Lease or to the Building and/or the Site,
and any improvements, fixtures and equipment and other property of Landlord
located in the Building and/or the Site, (iii) all assessments and fees for
public improvements, services, and facilities and impacts thereon, including
without limitation arising out of any Community Facilities Districts, "Mello
Roos" districts, similar assessment districts, and any traffic impact mitigation
assessments or fees; (iv) any tax, surcharge or assessment which shall be levied
in addition to or in lieu of real estate or personal property taxes, other than
taxes covered by Article VIII; and (v) taxes based on the receipt of rent
(including gross receipts or sales taxes applicable to the receipt of rent), and
(vi) costs and expenses incurred in contesting the amount or validity of any
Property Tax by appropriate proceedings. Notwithstanding the foregoing, general
net income or franchise taxes imposed against Landlord shall be excluded.

      (i) Notwithstanding anything to the contrary contained in this Lease, the
following shall not be included within Operating Expenses:

            (i) Leasing commissions, attorneys' fees, costs, disbursements, and
other expenses incurred in connection with negotiations or disputes with
tenants, or in connection with leasing, renovating, or improving space for
tenants or other occupants or prospective tenants or other occupants of the
Project.

            (ii) The cost of any service sold to any tenant (including Tenant)
or other occupant for which Landlord is entitled to be reimbursed as an
additional charge or rental over and above the basic rent and escalations
payable under the lease with that tenant.

            (iii) Any depreciation on the Project.

            (iv) Except as authorized in subsection (g) above, costs of a
capital nature, including but not limited to capital improvements and
alterations, capital repairs, capital equipment, and capital tools as determined
in accordance with generally accepted accounting principles.

            (v) Expenses in connection with services or other benefits of a type
that are not available to Tenant without separate charge but which are provided
another tenant or occupant of the Project.

            (vi) Overhead profit increments paid to Landlord's subsidiaries or
affiliates for management or other services on or to the building or for
supplies or other materials to the extent that the cost of the services,
supplies, or materials exceeds the cost that would have been paid had the
services, supplies, or materials been provided by unaffiliated parties on a
competitive basis.

            (vii) All interest, loan fees, and other carrying costs related to
any mortgage or deed of trust or related to any capital item, and all rental and
other payable due under any ground or underlying lease, or any lease for any
equipment ordinarily considered to be a capital nature (except janitorial
equipment which is not affixed to the Project).

            (viii) Any compensation paid to clerks, attendants, or other persons
in commercial concessions operated by Landlord.


                                       4



            (ix) Advertising and promotional expenditures.

            (x) Costs of repairs and other work occasioned by fire, windstorm,
or other casualty to the extent such costs are either (A) covered by insurance
proceeds or (B) in excess of Fifty Thousand Dollars ($50,000.00) during any
Expense Recovery Period.

            (xi) Any costs, fines, or penalties incurred due to violations by
Landlord of any governmental rule or authority, this Lease or any other lease in
the Project, or due to Landlord's negligence or willful misconduct.

            (xii) The cost of correcting any building code or other violations
which were violations prior to the Commencement Date of this Lease.

            (xiii) The cost of containing, removing, or otherwise remediating
any contamination of the Project (including the underlying land and ground
water) by any toxic or hazardous materials (including, without limitation,
asbestos and "PCB's") where such contamination was not caused by Tenant.

            (xiv) Management costs to the extent they exceed management costs
charged for similar facilities in the area.

            (xv) Costs for sculpture, paintings, or other objects of art (and
insurance thereon or extraordinary security in connection therewith).

            (xvi) Wages, salaries, or other compensation paid to any employees
above the grade of portfolio manager, it being understood that management
personnel costs shall be equitably allocated based on portfolio responsibility.

            (xvii) Any other expense that under generally accepted accounting
principles and practice consistently applied would not be considered a normal
maintenance or operating expense.

      (h) Provided Tenant is not then in default hereunder, Tenant shall have
the right to cause a certified public accountant, engaged on a non-contingency
fee basis, to audit Operating Expenses by inspecting Landlord's general ledger
of expenses not more than once during any Expense Recovery Period. However, to
the extent that insurance premiums or any other component of Operating Expenses
is determined by Landlord on the basis of an internal allocation of costs
utilizing information Landlord in good faith deems proprietary, such expense
component shall not be subject to audit so long as it does not exceed the amount
per square foot typically imposed by landlords of comparable projects in the
Sunnyvale, California area. Tenant shall give notice to Landlord of Tenant's
intent to audit within ninety (90) days after Tenant's receipt of Landlord's
expense statement which sets forth Landlord's actual Operating Expenses. Such
audit shall be conducted at a mutually agreeable time during normal business
hours at the office of Landlord or its management agent where such accounts are
maintained. If Tenant's audit determines that actual Operating Expenses have
been overstated by more than five percent (5%), then subject to Landlord's right
to review and/or contest the audit results, Landlord shall reimburse Tenant for
the reasonable out-of-pocket costs of such audit. Tenant's rent shall be
appropriately adjusted to reflect any overstatement in Operating Expenses. In
addition, if any component of Operating Expenses is determined to be either
inappropriate or excessive during an Expense Recovery Period, and if the
Building Cost Base or Property Tax Base also included such component, then the
appropriate Base shall concurrently be adjusted if and to the extent
appropriate. In the event of a dispute between Landlord and Tenant regarding
such audit, either party may elect to submit the matter for binding arbitration
pursuant to Section 14.7(b) below. All of the information obtained by Tenant
and/or its auditor in connection with such audit, as well as any compromise,
settlement, or adjustment reached between Landlord and Tenant as a result
thereof, shall be held in strict confidence and, except as may be required
pursuant to litigation, shall not be disclosed to any third party, directly or
indirectly, by Tenant or its auditor or any of their officers, agents or
employees. Landlord may require Tenant's auditor to execute a separate
confidentiality agreement affirming the foregoing as a condition precedent to
any audit. In the event of a violation of this confidentiality covenant in
connection with any audit, then in addition to any other legal or equitable
remedy available to Landlord, Tenant shall forfeit its right to any
reconciliation or cost reimbursement payment from Landlord due to said audit
(and any such payment theretofore made by Landlord shall be promptly returned by
Tenant), and Tenant shall have no further audit rights under this Lease.
Notwithstanding the foregoing, Tenant shall have no right of audit with respect
to any Expense Recovery Period unless the total Operating Expenses per square
foot for such Expense Recovery Period, as set forth in Landlords annual expense
reconciliation, exceed the total Operating Expenses per square foot during the
prior Expense Recovery Period, as increased by the percentage change in the
United States Department of Labor, Bureau of Labor Statistics, Consumer Price
Index for all Urban Consumers, San Francisco - Oakland - San Jose Area Average,
all items (1982-84 = 100) (the "Index"), which change in the Index shall be
measured by comparing the Index published for January of the applicable Expense
Recovery Period with the Index published for the prior January.

      SECTION 4.3. SECURITY DEPOSIT. Concurrently with Tenant's delivery of this
Lease, Tenant shall deposit with Landlord the sum, if any, stated in Item 9 of
the Basic Lease Provisions, to be held by Landlord as security for the full and
faithful performance of all of Tenants obligations under this Lease (the
"SECURITY DEPOSIT"). Landlord shall not be required to keep this Security
Deposit separate from its general funds, and Tenant shall not be entitled to
interest on the Security Deposit. Upon any Event of Default by Tenant (as
defined in Section 14.1), Landlord may, in its sole and absolute discretion,
retain, use or apply the whole or any part of the Security Deposit to pay any
sum which Tenant is obligated to pay under this Lease, sums that Landlord may
expend or be required to expend by reason of the Event of Default by Tenant or
any loss or damage that Landlord may suffer by reason of the Event of Default or
costs incurred by Landlord in connection with the repair or restoration of the
Premises pursuant to Section 15.3 of this Lease upon expiration or earlier
termination of this Lease. In no event shall Landlord be obligated to apply the
Security Deposit upon an Event of Default and Landlord's rights and


                                       5



remedies resulting from an Event of Default, including without limitation,
Tenant's failure to pay Basic Rent, Tenant's Share of Operating Expenses or any
other amount due to Landlord pursuant to this Lease, shall not be diminished or
altered in any respect due to the fact that Landlord is holding the Security
Deposit. If any portion of the Security Deposit is applied by Landlord as
permitted by this Section, Tenant shall within fifteen (15) days after written
demand by Landlord deposit cash with Landlord in an amount sufficient to restore
the Security Deposit to its original amount. If Tenant fully performs its
obligations under this Lease, the Security Deposit shall be returned to Tenant
(or, at Landlord's option, to the last assignee of Tenant's interest in this
Lease) within thirty (30) days after the expiration of the Term and Tenants
vacation of the Premises.

                                ARTICLE V. USES

      SECTION 5.1. USE. Tenant shall use the Premises only for the purposes
stated in Item 3 of the Basic Lease Provisions, all in accordance with
applicable laws and restrictions and pursuant to approvals to be obtained by
Tenant from all relevant and required governmental agencies and authorities. The
parties agree that any additional use without the prior written consent of
Landlord shall entitle Landlord to injunctive relief in addition to any other
available remedy. Tenant, at its expense, shall procure, maintain and make
available for Landlord's inspection throughout the Term, all governmental
approvals, licenses and permits required for the proper and lawful conduct of
Tenant's permitted use of the Premises. Tenant shall not use or allow the
Premises to be used for any unlawful purpose, nor shall Tenant permit any
nuisance or commit any waste in the Premises or the Site. Tenant shall not
perform any work or conduct any business whatsoever in the Site other than
inside the Premises. Tenant shall not do or permit to be done anything which
will invalidate or increase all applicable insurance policy(ies) covering the
Building, the Site and/or their contents, and shall comply with all applicable
insurance underwriters rules. Tenant shall comply at its expense with all
present and future laws, ordinances, restrictions, regulations, orders, rules
and requirements of all governmental authorities that pertain to Tenant or its
use of the Premises, including without limitation all federal and state
occupational health and safety requirements, whether or not Tenant's compliance
will necessitate expenditures or interfere with its use and enjoyment of the
Premises. Notwithstanding the foregoing or anything to the contrary contained in
this Lease, Tenant shall not be responsible for compliance with any applicable
requirements where such compliance is not related specifically to Tenant's use
and occupancy of the Premises. For example, if any governmental authority should
require the Building or the Premises to be structurally strengthened against
earthquake, or should require the removal of asbestos from the Premises, and
such measures are imposed as a general requirement applicable to all tenants
rather than as a condition to Tenant's specific use or occupancy of the
Premises, such work shall be performed by and at the sole cost of Landlord
(subject to inclusion in Site Costs if and to the extent permitted pursuant to
Section 4.2 above). Tenant shall promptly upon demand reimburse Landlord for any
additional insurance premium charged by reason of Tenants failure to comply with
the provisions of this Section, and shall indemnify Landlord from any liability
and/or expense resulting from Tenant's noncompliance.

      SECTION 5.2. SIGNS. Except as approved in writing by Landlord, in its sole
and absolute discretion, Tenant shall have no right to maintain signs in any
location in, on or about the Premises, the Building or the Site and shall not
place or erect any signs that are visible from the exterior of the Building;
provided that Tenant shall have the right to maintain its exterior monument
signage in place as of the date hereof. The size, design, graphics, material,
style, color and other physical aspects of any permitted sign shall be subject
to Landlord's written determination, as determined solely by Landlord, prior to
installation, that signage is in compliance with any covenants, conditions or
restrictions encumbering the Premises and Landlord's signage program for the
Site, as in effect front time to time and approved by the City in which the
Premises are located ("SIGNAGE CRITERIA"). Prior to placing or erecting any
such signs, Tenant shall obtain and deliver to Landlord a copy of any applicable
municipal or other governmental permits and approvals and comply with any
applicable insurance requirements for such signage. Tenant shall be responsible
for the cost of any permitted sign, including the fabrication, installation,
maintenance and removal thereof and the cost of any permits therefor. If Tenant
fails to maintain its sign in good condition after thirty (30) days written
notice from Landlord, or if Tenant fails to remove same upon termination of this
Lease and repair and restore any damage caused by the sign or its removal,
Landlord may do so at Tenant's expense. Landlord shall have the right to
temporarily remove any signs where necessitated by any repairs or maintenance in
or upon the Building. The term "sign" as used in this Section shall include all
signs, designs, monuments, displays, advertising materials, logos, banners,
projected images, pennants, decals, pictures, notices, lettering, numerals or
graphics.

      SECTION 5.3. HAZARDOUS MATERIALS.

      (a) For purposes of this Lease, the term "HAZARDOUS MATERIALS" includes
(i) any "hazardous material" as defined in Section 25501(o) of the California
Health and Safety Code, (ii) hydrocarbons, polychlorinated biphenyls or
asbestos, (iii) any toxic or hazardous materials, substances, wastes or
materials as defined pursuant to any other applicable state, federal or local
law or regulation, and (iv) any other substance or matter which may result in
liability to any person or entity as result of such person's possession, use,
release or distribution of such substance or matter under any statutory or
common law theory.

      (b) Tenant shall not cause or permit any Hazardous Materials to be brought
upon, stored, used, generated, released or disposed of on, under, from or about
the Premises (including without limitation the soil and groundwater thereunder)
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld so long as Tenant complies with the requirements of this
Section 5.3. Notwithstanding the foregoing, Tenant shall have the right, without
obtaining prior written consent of Landlord, to utilize within the Premises a
reasonable quantity of standard office products that may contain Hazardous
Materials (such as photocopy toner, "White Out", and the like), as well as such
other substances as are disclosed in the "Environmental Questionnaire" defined
below, provided, however, that (i) Tenant shall maintain such products in their
original retail packaging, shall follow all instructions on such packaging with
respect to the storage, use and disposal of such products, and shall otherwise
comply with all applicable laws with respect to such products, and (ii) all of
the other terms and provisions of this Section 5.3 shall apply with respect to
Tenant's storage, use and disposal of all such products. Landlord may require
that Tenant demonstrate that any such Hazardous Materials will be generated,
stored, used


                                       6



and disposed of in a manner that complies with all applicable laws and
regulations pertaining thereto and with good business practices. Tenant
understands that Landlord may utilize an environmental consultant to assist in
determining conditions of approval in connection with the storage, generation,
release, disposal or use of Hazardous Materials by Tenant on or about the
Premises, and/or to conduct periodic inspections of the storage, generation,
use, release and/or disposal of such Hazardous Materials by Tenant on and from
the Premises, and Tenant agrees that any costs incurred by Landlord in
connection therewith shall be reimbursed by Tenant to Landlord in the event of a
violation by Tenant of its obligations under this Section.

      (c) Prior to the execution of this Lease, Tenant shall complete, execute
and deliver to Landlord an Environmental Questionnaire and Disclosure Statement
(the "ENVIRONMENTAL QUESTIONNAIRE") in the form of Exhibit B, attached hereto.
The completed Environmental Questionnaire shall be deemed incorporated into this
Lease for all purposes, and Landlord shall be entitled to rely fully on the
information contained therein. On each anniversary of the Commencement Date
until the expiration or sooner termination of this Lease, Tenant shall disclose
to Landlord in writing the names and amounts of all Hazardous Materials which
were stored, generated, used, released and/or disposed of on, under or about the
Premises for the twelve-month period prior thereto, and which Tenant desires to
store, generate, use, release and/or dispose of on, under or about the Premises
for the succeeding twelve-month period. In addition, to the extent Tenant is
permitted to utilize Hazardous Materials upon the Premises, Tenant shall
promptly provide Landlord with complete and legible copies of all the following
environmental documents relating thereto that are filed with any governmental
agency, which may include without limitation the following: reports filed
pursuant to any self-reporting requirements; permit applications, permits,
monitoring reports, emergency response or action plans, workplace exposure and
community exposure warnings or notices and all other report, disclosures, plans
or documents (even those which may be characterized as confidential) relating to
water discharges, air pollution, waste generation or disposal, and underground
storage tanks for Hazardous Materials; orders, report, notices, listings and
correspondence (even those which may be considered confidential) of or
concerning the release, investigation of, compliance, cleanup, remedial and
corrective actions, and abatement of Hazardous Materials. Tenant shall also
properly deliver to Landlord all complaints, pleadings and other legal documents
filed by or against Tenant related to Tenant's use, handling, storage, release
and/or disposal of Hazardous Materials.

      (d) If Landlord has a reasonable basis to believe Tenant has not complied
with its obligations under this Section 5.3, then Landlord and its agents shall
have the right, but not the obligation, to inspect, sample and/or monitor the
Premises and/or the soil or groundwater thereunder to determine whether Tenant
is complying with the terms of this Section 5.3, and in connection therewith
Tenant shall provide Landlord with full access to all facilities, records and
personnel related thereto, subject to the requirements of Section 7.5. Landlord,
at Tenant's expense, shall have the right, but not the obligation, to join and
participate in any legal proceedings or actions initiated in connection with
any claims arising out of the storage, generation, use, release and/or disposal
by Tenant or its agents, employees, contractors, licensees or invitees of
Hazardous Materials on, under, from or about the Premises.

      (e) If the presence of any Hazardous Materials on, under, from or about
the Premises or the Site caused or permitted by Tenant or its agents, employees,
contractors, licensees or invitees results in (i) injury to any person, (ii)
injury to or any contamination of the Premises or the Site, or (iii) injury to
or contamination of any real or personal property wherever situated, Tenant, at
its expense, shall promptly take all actions necessary to return the Premises
and the Site and any other affected real or personal property owned by Landlord
to the condition existing prior to the introduction of such Hazardous Materials
and to remedy or repair any such injury or contamination, including without
limitation, any cleanup, remediation, removal, disposal, neutralization or other
treatment of any such Hazardous Materials. Notwithstanding the foregoing, Tenant
shall not, without Landlord's prior written consent, which consent shall not be
unreasonably withheld, take any remedial action in response to the presence of
any Hazardous Materials on, from, under or about the Premises or the Site or
any other affected real or personal property owned by Landlord or enter into any
similar agreement, consent, decree or other compromise with any governmental
agency with respect to any Hazardous Materials claims; provided however,
Landlord's prior written consent shall not be necessary in the event that the
presence of Hazardous Materials on, under or about the Premises or the Site or
any other affected real or personal properly owned by Landlord (i) imposes an
immediate threat to the health, safety or welfare of any individual and (ii) is
of such a nature that an immediate remedial response is necessary and it is not
possible to obtain Landlord's consent before taking such action. To the fullest
extent permitted by law, Tenant shall indemnify, hold harmless, protect and
defend (with attorneys acceptable to Landlord) Landlord and any successors to
all or any portion of Landlord's interest in the Premises and the Site from and
against any and all liabilities, losses, damages, diminution in value,
judgments, fines, demands, claims, recoveries, deficiencies, costs and expenses
(including without limitation reasonable attorneys' fees, court costs and other
professional expenses), whether foreseeable or unforeseeable, arising directly
or indirectly out of the use, generation, storage, treatment, release, on- or
off-site disposal or transportation of Hazardous Materials (A) on, into, from,
under or about the Premises by Tenant, its agents, employees, contractors,
licensees or subtenants during the Term unless caused by Landlord. Such
indemnity obligation shall specifically include, without limitation, the cost of
any required or necessary repair, restoration, cleanup or detoxification of the
Premises, the Building and the Site, the preparation of any closure or other
required plans, whether or not such action is required or necessary during the
Term or after the expiration of this Lease and any Loss of rental due to the
inability to lease the Premises or any portion of the Building or Site as a
result of such Hazardous Material or remediation thereof. If it is at any time
discovered that Tenant or its agents, employees, contractors, licensees or
subtenants may have caused or permitted the release of a Hazardous Material on,
under, from or about the Premises, the Building or the Site, Tenant shall, at
Landlord's request, immediately prepare and submit to Landlord a comprehensive
plan, consistent with the requirements of applicable laws and subject to
Landlord's approval, specifying the actions to be taken, by Tenant to return the
Premises, the Building or the Site or any other real or personal property owned
by Landlord to the condition existing prior to the introduction of such
Hazardous Materials. Upon Landlord's approval of such cleanup plan, Tenant
shall, at its expense, and without limitation of any rights and remedies of
Landlord under this Lease or at law or in equity, immediately implement such
plan and proceed to cleanup such Hazardous Materials in


                                       7



accordance with applicable laws and as required by such plan and this Lease. The
provisions of this Section 5.3(e) shall expressly survive the expiration or
sooner termination of this Lease.

      (f) Landlord hereby discloses to Tenant, and Tenant hereby acknowledges,
certain facts relating to Hazardous Materials at the Site known by Landlord to
exist as of the date of this Lease, as more particularly described in Exhibit C
attached hereto. Tenant shall have no liability or responsibility with respect
to the Hazardous Materials facts described in Exhibit C nor with respect to any
Hazardous Materials which Tenant proves were neither released on the Premises
during the Term nor caused or permitted by Tenant, its agents, employees,
contractors, licensees or invitees. Notwithstanding the preceding two sentences,
Tenant agrees to notify its agents, employees, contractors, licensees, and
Invitees of any exposure or potential exposure to Hazardous Materials at the
Premises that Landlord brings to Tenant's attention. Tenant hereby acknowledges
that this disclosure satisfies any obligation of Landlord to Tenant pursuant to
California Health & Safely Code Section 25359.7, or any amendment or substitute
thereto or any other disclosure obligations of Landlord.

                       ARTICLE VI. COMMON AREAS; SERVICES

      SECTION 6.1. UTILITIES AND SERVICES. Tenant shall be responsible for and
shall pay promptly, directly to the appropriate supplier, all charges for water,
gas, electricity, sewer, heat, light, power, telephone, telecommunications
service, refuse pickup, janitorial service, interior landscape maintenance and
all other utilities, materials and services furnished directly to Tenant or the
Premises, or used by Tenant in, on or about the Premises during the Term,
together with any taxes thereon. If any utilities or services are not separately
metered or assessed to Tenant, Landlord shall make a reasonable determination of
Tenant's proportionate share of the cost of such utilities and services,
including without limitation, after-hours HVAC usage, and Tenant shall pay such
amount to Landlord, as an item of additional rent, within thirty (30) days after
receipt of Landlord's statement or invoice therefor. Alternatively, Landlord may
elect to include such cost in the definition of Site Costs in which event Tenant
shall pay Tenant's proportionate share of such costs in the manner set forth in
Section 4.2. Landlord shall not be liable for damages or otherwise for any
failure or interruption of any utility or other service furnished to the
Premises, and no such failure or interruption shall be deemed an eviction or
entitle Tenant to terminate this Lease or withhold or abate any rent due
hereunder. Landlord shall at all reasonable times have free access to the
Building and Premises to install, maintain, repair, replace or remove all
electrical and mechanical installations of Landlord. Tenant acknowledges that
the costs incurred by Landlord related to providing above-standard utilities to
Tenant, including, without limitation, telephone lines, may be charged to
Tenant.

      SECTION 6.2. OPERATION AND MAINTENANCE OF COMMON AREAS. During the Term,
Landlord shall operate and maintain all Common Areas within the Site in a first
class manner. The term "COMMON AREAS" shall mean all areas of the Site which are
not held for exclusive use by persons entitled to occupy space including Tenant,
and their respective employees and invitees, including without limitation
parking areas and structures, driveways, sidewalks, landscaped and planted
areas, and electrical and utility rooms and roof access entries, if any, in the
Building.

      SECTION 6.3. USE OF COMMON AREAS. The occupancy by Tenant of the Premises
shall include the use of the Common Areas as provided in this Article VI,
subject, however, to compliance with all rules and regulations as are prescribed
from time to time by Landlord. Landlord shall operate and maintain the Common
Areas in a good and first-class manner. All costs incurred by Landlord for the
maintenance and operation of the Common Areas shall be included in Site Costs
except as set forth in Section 4.2. Landlord shall at all times during the Term
have exclusive control of the Common Areas, and may restrain or permit any use
or occupancy, except as authorized by Landlord's rules and regulations. Tenant
shall keep the Common Areas clear of any obstruction or unauthorized use related
to Tenants operations or use of Premises, including without limitation, planters
and furniture. Nothing in this Lease shall be deemed to impose liability upon
Landlord for any damage to or loss of the property of, or for any injury to,
Tenant, its invitees or employees. Landlord may temporarily close any portion of
the Common Areas for repairs, remodeling and/or alterations to prevent a public
dedication or the accrual of prescriptive rights, or for any other reason deemed
sufficient by Landlord, without liability to Landlord.

      SECTION 6.4. PARKING. Tenant shall be entitled to use its allocated share
of the vehicle parking spaces on those portions of the Common Areas designated
by Landlord for parking on an unreserved and unassigned basis. For purposes of
this Section 6.4 Tenant's allocated share shall mean vehicle parking spaces
equal to the same portion of all vehicle parking spaces available for the Site
as the ratio of Floor Area to the total rentable square footage of the Site.
Tenant shall not use more than its allocated share of vehicle parking spaces.
All parking spaces shall be used only for parking of vehicles no larger than
full size passenger automobiles, sports utility vehicles or pickup trucks.
Tenant shall not permit or allow any vehicles that belong to or are controlled
by Tenant or Tenant's employees, suppliers, shippers, customers or invitees to
be loaded, unloaded or parked in areas other than those designated by Landlord
for such activities. If Tenant permits or allows any of the prohibited
activities described above, then Landlord shall have the right, with reasonable
telephonic notice, in addition to such other rights and remedies that Landlord
may have, to remove or tow away the vehicle involved and charge the costs to
Tenant. Parking within the Common Areas shall be limited to striped parking
stalls, and no parking shall be permitted in any driveways, access ways or in
any area which would prohibit or impede the free flow of traffic within the
Common Areas. There shall be no parking of any vehicles for longer than a five
(5) day period unless otherwise authorized by Landlord, and vehicles which have
been abandoned or parked in violation of the terms hereof may be towed away at
the owner's expense. Nothing contained in this Lease shall be deemed to create
liability upon Landlord for any damage to motor vehicles of visitors or
employees, for any loss of property from within those motor vehicles, or for any
injury to Tenant, its visitors or employees, unless ultimately determined to be
caused by the sole active negligence or willful misconduct of Landlord. Landlord
shall have the right to establish and from time to time amend, and to enforce
against all users all reasonable rules and regulations (including the
designation of areas for employee parking) that Landlord may deem necessary and
advisable for the proper and efficient operation and maintenance of parking
within the Common Areas. Landlord shall have the right to construct, maintain
and operate


                                       8



lighting facilities within the parking areas; to change the area, level,
location and arrangement of the parking areas and improvements therein; to
restrict parking by tenants, their officers, agents and employees to employee
parking areas; to enforce parking charges (by operation of meters or otherwise);
and to do and perform such other acts in and to the parking areas and
improvements therein as, in the use of good business judgment, Landlord shall
determine to be advisable so long as the number of parking stalls is not
materially diminished thereby. Any person using the parking area shall observe
all directional signs and arrows and any posted speed limits. Parking areas hall
be used only for parking vehicles. Washing, waxing, cleaning or servicing of
vehicles, or the storage of vehicles for longer than five days, is prohibited
unless otherwise authorized by Landlord. Tenant shall be liable for any damage
to the parking areas caused by Tenant or Tenant's employees, suppliers,
shippers, customers or invitees, including without limitation damage from excess
oil leakage. Tenant shall have no right to install any fixtures, equipment or
personal property in the parking areas.

      SECTION 6.5. CHANGES AND ADDITIONS BY LANDLORD. Landlord reserves the
right to make alterations or additions to the Building or the Site, or to the
attendant fixtures, equipment and Common Areas. Landlord may at any time
relocate or remove any of the driveways, sidewalks, landscaped and planted areas
and parking areas of the Common Areas from time to time. No change shall
entitle Tenant to any abatement of rent or other claim against Landlord,
provided that the change does not deprive Tenant of reasonable access to or use
of the Premises.

                     ARTICLE VII. MAINTAINING THE PREMISES

      SECTION 7.1. TENANT'S MAINTENANCE AND REPAIR. Tenant at its sole expense
shall maintain and make all repairs and replacements necessary to keep the
Premises and the Building in the condition as existed on the Commencement Date
(or on any later date that the improvements may have been installed), excepting
ordinary wear and tear, including without limitation all interior and exterior
glass, windows, doors, door closures, hardware, fixtures, electrical, plumbing,
fire extinguisher equipment and other equipment. Any damage or deterioration of
the Premises shall not be deemed ordinary wear and tear if the same could have
been prevented by good maintenance practices by Tenant. As part of its
maintenance obligations hereunder, Tenant shall, at Landlord's request, provide
Landlord with copies of all maintenance schedules, reports and notices prepared
by, for or on behalf of Tenant. All repairs and replacements shall be at least
equal in quality to the original work, shall be made only by a licensed
contractor approved in writing in advance by Landlord and shall be made only at
the time or times approved by Landlord. Any contractor utilized by Tenant shall
be subject to Landlord's standard requirements for contractors, as modified from
time to time. Landlord may impose reasonable restrictions and requirements with
respect to repairs, as provided in Section 7.3, and the provisions of Section
7.4 shall apply to all repairs. Alternatively, unless Tenant has a service
contract with a Landlord-approved vendor, Landlord may elect to perform any
repair and maintenance of the electrical and mechanical systems and any air
conditioning, ventilating or heating equipment serving the Premises and include
the cost thereof as part of Tenants Share of Operating Expenses. If Tenant fails
to properly maintain and/or repair the Premises or the Building as herein
provided following Landlord's notice and the expiration of the applicable cure
period (or earlier if Landlord determines that such work must be performed prior
to such time in order to avoid damage to the Premises or Building or other
detriment), then Landlord may elect, but shall have no obligation, to perform
any repair or maintenance required hereunder on behalf of Tenant and at
Tenant's expense, and Tenant shall reimburse Landlord upon demand for all costs
incurred upon submission of an invoice.

      SECTION 7.2. LANDLORD'S MAINTENANCE AND REPAIR. Subject to Section 7.1 and
Article XI, Landlord shall provide service, maintenance and repair with respect
to any air conditioning, ventilating or heating equipment which serves the
Premises and shall maintain in good repair the roof, foundations, footings, the
exterior surfaces of the exterior walls of the Building (excluding exterior
glass), and the structural, electrical and mechanical systems, except that
Tenant at its expense shall make all repairs reasonably necessary as a result of
the act or negligence of Tenant, its agents, employees, invitees, subtenants or
contractors. Landlord shall have the right to employ or designate any reputable
person or firm, including any employee or agent of Landlord or any of Landlord's
affiliates or divisions, to perform any service, repair or maintenance function.
Landlord need not make any other improvements or repairs except as specifically
required under this Lease, and nothing contained in this Section shall limit
Landlord's right to reimbursement from Tenant for maintenance, repair costs and
replacement costs as provided elsewhere in this Lease. Tenant understands that
it shall not make repairs at Landlord's expense or by rental offset. Tenant
further understands that Landlord shall not be required to make any repairs to
the roof, foundations, footings, the exterior surfaces of the exterior walls of
the Building (excluding exterior glass), or structural, electrical or mechanical
systems unless and until Tenant has notified Landlord in writing of the need for
such repair and Landlord shall have a reasonable period of time thereafter to
commence and complete said repair, if warranted. All costs of any maintenance,
repairs and replacement on the part of Landlord provided hereunder shall be
considered part of Site Costs. Tenant further agrees that if Tenant fails to
report any such need for repair in writing within sixty (60) days of its
discovery by Tenant, Tenant shall be responsible for any costs and expenses and
other damages related to such repair which are in excess of those which would
have resulted had such need for repair been reported to Landlord within such
sixty (60) day period.

      SECTION 7.3. ALTERATIONS. Except as otherwise provided in this Section,
Tenant shall make no alterations, additions, fixtures or improvements
("ALTERATIONS") to the Premises or the Building without the prior written
consent of Landlord, which consent shall not be unreasonably withheld, delayed
or conditioned. In the event that any requested Alteration would result in a
change from Landlord's building standard materials and specifications ("STANDARD
IMPROVEMENTS"), Landlord may withhold consent to such Alteration in its sole
and absolute discretion. In the event landlord so consents to a change from the
Standard Improvements (such change being referred to as a "NON-STANDARD
IMPROVEMENT"), Tenant shall be responsible for the cost of replacing such
Non-Standard Improvement with the applicable Standard Improvement
("REPLACEMENTS") which Replacements shall be completed prior to the Expiration
Date or earlier termination of this Lease. Landlord's consent shall not be
required for any Alterations which cost less than One Dollar ($1.00) per square
foot of the improved portions of the


                                       9



Premises (excluding warehouse square footage) and do not (i) affect the exterior
of the Building or outside areas (or be visible from adjoining sites), or (ii)
affect or penetrate any of the structural portions of the Building, including
but not limited to the roof, or (iii) require any change to the basic floor plan
of the Premises or any change to any structural or mechanical systems of the
Premises, or (iv) fail to comply with any applicable governmental requirements
or require any governmental permit as a prerequisite to the construction
thereof, or (v) result in the Premises requiring building services beyond the
level normally provided to other tenants, or (vi) interfere in any manner with
the proper functioning of, or Landlord's access to, any mechanical, electrical,
plumbing or HVAC systems, facilities or equipment located in or serving the
Building, or (vii) diminish the value of the Premises including, without
limitation, using lesser quality materials than those existing in the Premises,
or (viii) alter or replace Standard Improvements. Landlord may impose any
reasonable condition to its consent, including but not limited to a requirement
that the installation and/or removal of all Alterations and Replacements be
covered by a lien and completion bond satisfactory to Landlord in its sole and
absolute discretion and requirements as to the manner and time of performance of
such work. Landlord shall in all events, whether or not Landlord's consent is
required, have the right to approve the contractor performing the installation
and removal of Alterations and Replacements and Tenant shall not permit any
contractor not approved by Landlord to perform any work on the Premises or on
the Building. Tenant shall obtain all required permits for the installation and
removal of Alterations and Replacements and shall perform the installation and
removal of Alterations and Replacements in compliance with all applicable laws,
regulations and ordinances, including without limitation the Americans with
Disabilities Act, all covenants, conditions and restrictions affecting the Site,
and the Rules and Regulations as described in Article XVII. Tenant understands
and agrees that Landlord shall be entitled to a supervision fee in the amount of
five percent (5%) of the cost of the Alterations, provided that the supervision
fee shall not exceed either (i) Five Thousand Dollars ($5,000.00) if the
proposed Alterations would affect the structural components or exiting of the
Building or (ii) One Thousand Dollars ($1,000.00) otherwise. Notwithstanding the
foregoing, however, Landlord shall not charge a supervision fee for Alteration
projects costing less than Ten Thousand Dollars ($10,000.00) and not affecting
the structural components or exiting of the Building. Under no circumstances
shall Tenant make any Alterations or Replacements which incorporate any
Hazardous Materials, including without limitation asbestos-containing
construction materials into the Premises, the Building or the Common Area. If
any governmental entity requires, as a condition to any proposed Alterations by
Tenant, that improvements be made to the Common Areas, and if Landlord consents
to such improvements to the Common Areas (which consent may be withheld in the
sole and absolute discretion of Landlord), then Tenant shall, at Tenant's sole
expense, make such required improvements to the Common Areas in such manner,
utilizing such materials, and with such contractors, architects and engineers as
Landlord may require in its sole and absolute discretion. Any request for
Landlord's consent to any proposed Alterations shall be made in writing and
shall contain architectural plans describing the work in detail reasonably
satisfactory to Landlord. Unless Landlord otherwise agrees in writing, all
Alterations made or affixed to the Premises, the Building or to the Common Area
(excluding movable trade fixtures and furniture), including without limitation
all Tenant Improvements constructed pursuant to the Work Letter (except as
otherwise provided in the Work Letter), shall become the property of Landlord
and shall be surrendered with the Premises at the end of the Term; except that
Landlord may, by notice to Tenant given at the time of granting its consent to
the proposed Alteration, require Tenant to remove by the Expiration Date, or
sooner termination date of this Lease all or any of the Alterations installed
either by Tenant or by Landlord at Tenant's request, including without
limitation all Tenant Improvements constructed pursuant to the Work Letter
(except as otherwise provided in the Work Letter), and to repair any damage to
the Premises, the Building or the Common Area arising from that removal and
restore the Premises to their condition prior to making such Alterations.

      SECTION 7.4. MECHANIC'S LIENS. Tenant shall keep the Premises and the Site
free from any liens arising out of any work performed, materials furnished, or
obligations incurred by or for Tenant. Upon request by Landlord, Tenant shall
promptly (but in no event later than fifteen (15) business days following such
request) cause any such lien to be released by posting a bond in accordance with
California Civil Code Section 3143 or any successor statute. In the event that
Tenant shall not, within thirty (30) days following the imposition of any lien,
cause the lien to be released of record by payment or posting of a proper bond,
Landlord shall have, in addition to all other available remedies, the right to
cause the lien to be released by any means it deems proper, including payment of
or defense against the claim giving rise to the lien. All expenses so incurred
by Landlord, including Landlord's attorneys' fees, and any consequential or
other damages incurred by Landlord arising out of such lien, shall be reimbursed
by tenant upon demand, together with interest from the date of payment by
Landlord at the maximum rate permitted by law until paid. Tenant shall give
Landlord no less than ten (10) days' prior notice in writing before commencing
construction of any kind on the Premises or Common Area and shall again notify
Landlord that construction has commenced, such notice to be given on the actual
date on which construction commences, so that Landlord may post and maintain
notices of nonresponsibility on the Premises or Common Area, as applicable,
which notices Landlord shall have the right to post and which Tenant agrees it
shall not disturb. Tenant shall also provide Landlord notice in writing within
ten (10) days following the date on which such work is substantially completed.

      SECTION 7.5. ENTRY AND INSPECTION. Landlord shall at all reasonable times,
upon written or oral notice (except in emergencies, when no notice shall be
required) have the right to enter the Premises to inspect them, to supply
services in accordance with this Lease, to have access to install, repair,
maintain, replace or remove all electrical and mechanical installations of
Landlord and to protect the interests of Landlord in the Premises, and to submit
the Premises to prospective or actual purchasers or encumbrance holders (or,
during the last one hundred and eighty (180) days of the Term or when an uncured
Tenant Event of Default exists, to prospective tenants), all without being
deemed to have caused an eviction of Tenant and without abatement of rent except
as provided elsewhere in this Lease. Landlord shall have the tight, if desired,
to retain a key which unlocks all of the doors in the Premises, excluding
Tenant's vaults and safes, and Landlord shall have the right to use any and all
means which Landlord may deem proper to open the doors in an emergency in order
to obtain entry to the Premises, and any entry to the Premises obtained by
Landlord shall not under any circumstances be deemed to be a forcible or
unlawful entry into, or a detainer of, the Premises, or any eviction of Tenant
from the Premises. Tenant shall have the right to have


                                       10



a representative present during any entry by Landlord. Any entries by Landlord
shall be subject to the reasonable security measures of Tenant.

            ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PROPERTY

      Tenant shall be liable for and shall pay, at least ten (10) days before
delinquency, all taxes and assessments levied against all personal property of
Tenant located in the Premises, and, if required by Landlord, against all Non
Standard Improvements to the Premises (as defined in Section 7.3) made by
Landlord or Tenant, and against any Alterations (as defined in Section 7.3) made
to the Premises or the Building by or on behalf of Tenant. If requested by
Landlord, Tenant shall cause its personal property, Non-Standard Improvements
and Alterations to be assessed and billed separately from the real property of
which the Premises form a part. If any taxes required to be paid by Tenant on
Tenant's personal property, Non-Standard Improvements and/or Alterations are
levied against Landlord or Landlord's property and if Landlord pays the same, or
if the assessed value of Landlord's property is increased by the inclusion of a
value placed upon the personal property, Non-Standard Improvements and/or
Alterations and if Landlord pays the taxes based upon the increased assessment,
Landlord shall have the right to require that Tenant pay to Landlord the taxes
so levied against Landlord or the proportion of the taxes resulting from the
increase in the assessment. In calculating what portion of any tax bill which is
assessed against Landlord separately, or Landlord and Tenant jointly, is
attributable to Tenant's Non-Standard Improvements, Alterations and personal
property, Landlords reasonable determination shall be conclusive.

                     ARTICLE IX. ASSIGNMENT AND SUBLETTING

      SECTION 9.1. RIGHTS OF PARTIES.

      (a) Notwithstanding any provision of this Lease to the contrary, and
except as to transfers expressly permitted without Landlord's consent pursuant
to Section 9.4, Tenant will not, either voluntarily or by operation of law,
assign, sublet, encumber, or otherwise transfer all or any part of Tenant's
interest in this Lease or the Premises, or permit the Premises to be occupied by
anyone other than Tenant, without Landlord's prior written consent, which
consent shall not unreasonably be withheld in accordance with the provisions of
Section 9.1(b). No assignment (whether voluntary, involuntary or by operation of
law) and no subletting shall be valid or effective without Landlord's prior
written consent and, at Landlord's election, any such assignment or subletting
shall be void and of no force and effect and any such attempted assignment or
subletting shall constitute an Event of Default of this Lease. Landlord shall
not be deemed to have given its consent to any assignment or subletting by any
course of action other than written consent. To the extent not prohibited by
provisions of the Bankruptcy Code, 11 U.S.C. Section 101 et seq. (the
"BANKRUPTCY CODE"), including Section 365(f)(1), Tenant on behalf of itself and
its creditors, administrators and assigns waives the applicability of Section
365(e) of the Bankruptcy Code unless the proposed assignee of the Trustee for
the estate of the bankrupt meets Landlord's standard for consent as set forth in
Section 9.1(b) of this Lease. If this Lease is assigned to any person or entity
pursuant to the provisions of the Bankruptcy Code, any and all monies or other
considerations to be delivered in connection with the assignment shall be
delivered to Landlord, shall be and remain the exclusive property of Landlord
and shall not constitute property of Tenant or of the estate of Tenant within
the meaning of the Bankruptcy Code. Any person or entity to which this Lease is
assigned pursuant to the provisions of the Bankruptcy Code shall be deemed to
have assumed all of the obligations arising under this Lease on and after the
date of the assignment, and shall upon demand execute and deliver to Landlord an
instrument confirming that assumption.

      (b) If Tenant desires to transfer an interest in this Lease or the
Premises, it shall first notify Landlord of its desire and shall submit in
writing to Landlord: (i) the name and address of the proposed transferee; (ii)
the nature of any proposed transferee's business to be carried on in the
Premises; (iii) the terms and provisions of any proposed sublease, assignment or
other transfer, including a copy of the proposed assignment, sublease or
transfer form; (iv) evidence that the proposed assignee, subtenant or transferee
will comply with the requirements of Exhibit D hereto; (v) a completed
Environmental Questionnaire from the proposed assignee, subtenant or transferee;
(vi) any other information requested by Landlord and reasonably related to the
transfer and (vii) the fee described in Section 9.1(e). Except as provided in
Section 9.1 (c), Landlord shall not unreasonably withhold its consent, provided
that the parties agree that it shall be reasonable for Landlord to withhold its
consent if (1) the use of the Premises will not be consistent with the
provisions of this Lease; (2) the proposed assignee or subtenant has been
required by any prior landlord, lender or governmental authority to take
remedial action in connection with Hazardous Materials contaminating a property
arising out of the proposed assignee's or subtenant's actions or use of the
property in question or is subject to any enforcement order issued by any
governmental authority in connection with the use, disposal or storage of a
Hazardous Material; (3) insurance requirements of the proposed assignee or
subtenant may not be brought into conformity with Landlord's then current
leasing practice; (4) a proposed subtenant or assignee has not demonstrated to
the reasonable satisfaction of Landlord that it is financially responsible or
has failed to submit to Landlord all reasonable information as requested by
Landlord concerning the proposed subtenant or assignee, including, but not
limited to, a certified balance sheet of the proposed subtenant or assignee as
of a date within ninety (90) days of the request for Landlord's consent,
statements of income or profit and loss of the proposed subtenant or assignee
for the two-year period preceding the request for Landlord's consent and/or a
certification signed by the proposed subtenant or assignee that it has not been
evicted or been in arrears in rent at any other leased premises for the 3-year
period preceding the request for Landlord's consent; (5) the proposed assignee
or subtenant is a prospect with whom Landlord is negotiating to become a tenant
at the Site; or (6) the proposed transfer will impose additional burdens or
adverse tax effects on Landlord. If Tenant has any exterior sign rights under
this Lease, such rights are personal to Tenant and may not be assigned or
transferred to any assignee of this Lease or subtenant of the Premises without
Landlord's prior written consent, which may be withheld in Landlord's sole and
absolute discretion.

      If Landlord consents to the proposed transfer, Tenant may within ninety
(90) days after the date of the consent effect the transfer upon the terms
described in the information furnished to Landlord; provided that any


                                       11



material change in the terms shall be subject to Landlord's consent as set forth
in this Section 9.1. Landlord shall approve or disapprove any requested
transfer within fifteen (15) days following receipt of Tenant's written request,
the information set forth above, and the fee set forth below,

      (c) Notwithstanding the provisions of Section 9.1(b) above, but except for
any Permitted Transfer pursuant to Section 9.4, in lieu of consenting to a
proposed assignment of this Lease or a subletting of the entire Premises with a
sublease term that would extend beyond the date that is six (6) mouths prior to
the expiration date of this Lease, Landlord may elect, within the fifteen (15)
day period permitted for Landlord to approve or disapprove a requested transfer,
to terminate this Lease effective thirty (30) days' following written notice by
Landlord of its election to so terminate. Landlord may thereafter, at its
option, assign, sublet or re-let any space so obtained by termination to any
third party, including without limitation the proposed transferee of Tenant.

      (d) In the event that Landlord approves the requested assignment or
subletting, Tenant agrees that fifty percent (50%) of any amounts paid by the
assignee or subtenant, however described, in excess of (i) the Basic Rent
payable by Tenant hereunder, or in the cast of a sublease of a potion of the
Premises, in excess of the Basic Rent reasonably allocable to such portion, plus
(ii) Tenant's direct and customary out-of-pocket costs which Tenant certifies to
Landlord have been paid to provide occupancy related services to such assignee
or subtenant of a nature commonly provided by landlords of similar space, shall
be the property of Landlord and such amounts shall be payable directly to
Landlord by the assignee or subtenant or, at Landlord's option, by Tenant within
ten (10) days of Tenant's receipt thereof. At Landlord's request, a written
agreement shall be entered into by and among Tenant, Landlord and the proposed
assignee or subtenant confirming the requirements of this Section 9.1(d).

      (e) Tenant shall pay to Landlord a fee equal to the greater of (i)
Landlord's actual costs related to such assignment, subletting or other transfer
or (ii) Five Hundred Dollars ($500.00), to process any request by Tenant for an
assignment, subletting or other transfer under this Lease. Tenant shall pay
Landlord the sum of Five Hundred Dollars ($500.00) concurrently with Tenant's
request for consent to any assignment, subletting or other transfer, and
Landlord shall have no obligation to consider such request unless accompanied by
such payment. Tenant shall pay Landlord upon demand any costs in excess of such
payment to the extent Landlord's actual costs related to such request exceeds
$500.00. Such fee is hereby acknowledged as a reasonable amount to reimburse
Landlord for its costs of review and evaluation of a proposed transfer,

      SECTION 9.2. EFFECT OF TRANSFER. No subletting or assignment, even with
the consent of Landlord, shall relieve Tenant of its obligation to pay rent and
to perform all its other obligations under this Lease. Moreover, Tenant shall
indemnify and hold Landlord harmless, as provided in Section 10.3, for any act
or omission by an assignee or subtenant. Each assignee, other than Landlord,
shall assume all obligations of Tenant under this Lease and shall be liable
jointly and severally with Tenant for the payment of all rent, and for the due
performance of all of Tenant's obligations, under this Lease. No assignment or
subletting shall be effective or binding on Landlord unless documentation in
form and substance satisfactory to Landlord in its reasonable discretion
evidencing the transfer, and in the case of an assignment, the assignee's
assumption of the obligations of Tenant under this Lease, is delivered to
Landlord and both the assignee/subtenant and Tenant deliver to Landlord an
executed consent to transfer instrument prepared by Landlord and consistent with
the requirements of this Article. The acceptance by Landlord of any payment due
under this Lease from any other person shall not be deemed to be a waiver by
Landlord of any provision of this Lease or to be a consent to any transfer.
Consent by Landlord to one or more transfers shall not operate as a waiver or
estoppel to the future enforcement by Landlord of its rights under this Lease
or as a consent to any subsequent transfer.

      SECTION 9.3. SUBLEASE REQUIREMENTS. The following terms and conditions
shall apply to any subletting by Tenant of all or any part of the Premises and
shall be deemed included in each sublease:

      (a) Each and every provision contained in this Lease (other than with
respect to the payment of rent hereunder) is incorporated by reference into and
made a part of such sublease, with "LANDLORD" hereunder meaning the sublandlord
therein and "TENANT" hereunder meaning the subtenant therein, except as
otherwise set forth in the sublease.

      (b) Tenant hereby irrevocably assigns to Landlord all of Tenant's interest
in all rentals and income arising from any sublease of the Premises, and
Landlord may collect such rent and income and apply same toward Tenant's
obligations under this Lease; provided, however, that until there is an Event of
Default by Tenant, Tenant shall have the right to receive and collect the
sublease rentals. Landlord shall not, by reason of this assignment or the
collection of sublease rentals, be deemed liable to the subtenant for the
performance of any of Tenant's obligations under the sublease. Tenant hereby
irrevocably authorizes and directs any subtenant, upon receipt of a written
notice from Landlord stating that an uncured Event of Default exists in the
performance of Tenant's obligations under this Lease, to pay to Landlord all
sums then and thereafter due under the sublease. Tenant agrees that the
subtenant may rely on that notice without any duty of further inquiry and
notwithstanding any notice or claim by Tenant to the contrary. Tenant shall have
no right or claim against the subtenant or Landlord for any rentals so paid to
Landlord.

      (c) In the event of the termination of this Lease for any reason,
including without limitation as the result of an Event of Default by Tenant or
by the mutual agreement of Landlord and Tenant, Landlord may, at its sole
option, take over Tenant's entire interest in any sublease and, upon notice from
Landlord, the subtenant shall attorn to Landlord. In no event, however, shall
Landlord be liable for any previous act or omission by Tenant under the sublease
or for the return of any advance rental payments or deposits under the sublease
that have not been actually delivered to Landlord, nor shall Landlord be bound
by any sublease modification executed without Landlord's consent or for any
advance rental payment by the subtenant in excess of one month's rent. The
general provisions of this Lease, including without limitation those pertaining
to insurance and indemnification, shall be dented incorporated by reference into
the sublease despite the termination of this Lease. In the event Landlord does


                                       12



not elect to take over Tenant's interest in a sublease in the event of any such
termination of this Lease, such sublease shall terminate concurrently with the
termination of this Lease and such subtenant shall have no further rights under
such sublease and Landlord shall have no obligations to such subtenant.

      SECTION 9.4. CERTAIN TRANSFERS. Notwithstanding any provision to the
contrary herein, Tenant may, without Landlord's consent but with prior notice to
Landlord and subject to the requirements of Sections 9.2 and 9.3, assign this
Lease or sublet the Premises to (a) any entity which results from a merger by
Tenant with or into another entity or a reorganization of Tenant, so long as the
net worth of the successor or reorganized entity after such merger is at least
equal to the greater of the net worth of Tenant as of the execution of this
Lease by Landlord or the net worth of Tenant immediately prior to the date of
such merger or reorganization, evidence of which, satisfactory to Landlord,
shall be presented to Landlord prior to such merger or reorganization; (b) any
entity which controls, is controlled by, or is under common control with Tenant;
or (c) any entity which acquires substantially all of the assets of Tenant, as a
going concern, with respect to the business that is being conducted in the
Premises (hereinafter each a "Permitted Transfer"). In addition, a sale or
transfer of the capital stock of Tenant shall be deemed a Permitted Transfer if
(l) such sale or transfer occurs in connection with any bona fide financing or
capitalization for the benefit of Tenant, or (2) Tenant becomes a publicly
traded corporation. Landlord shall have no tight to terminate the Lease in
connection with, and shall have no right to any sums or other economic
consideration resulting from, any Permitted Transfer.

                       ARTICLE X. INSURANCE AND INDEMNITY

      SECTION 10.1. TENANT'S INSURANCE. Tenant, at its sole cost and expense,
shall provide and maintain in effect the insurance described in Exhibit D.
Evidence of that insurance must be delivered to Landlord prior to the
Commencement Date.

      SECTION 10.2. LANDLORD'S INSURANCE. Landlord may, at its election, provide
any or all of the following types of insurance, with or without deductible and
in amounts and coverages as may be determined by Landlord in its sole and
absolute discretion: "all risk" or similar property insurance, subject to
standard exclusions, covering the Building and/or Site, and such other risks as
Landlord or its mortgagees may from time to time deem appropriate, including
Tenant Improvements made by Landlord pursuant to the Work Letter, and commercial
general liability coverage. Landlord shall not be required to carry insurance of
any kind on Tenant's Alterations or on Tenant's other property, including,
leasehold improvements, trade fixtures, furnishings, equipment, plate glass,
signs and all other items of personal property, and shall not be obligated to
repair or replace that property should damage occur. All proceeds of insurance
maintained by Landlord upon the Building and/or Site shall be the property of
Landlord, whether or not Landlord is obligated to or elects to make any repairs.
At Landlord's option, Landlord may self-insure all or any portion of the risks
for which Landlord elects to provide insurance hereunder.

      SECTION 10.3. TENANT'S INDEMNITY. To the fullest extent permitted by law,
Tenant shall defend, indemnify, protect, save and hold harmless Landlord, its
agents, and any and all affiliates of Landlord, including, without limitation,
any corporations or other entities controlling, controlled by or under common
control with Landlord, from and against any and all claims, liabilities, costs
or expenses arising either before or after the Commencement Date from Tenant's
use or occupancy of the Premises, the Building or the Common Areas, including,
without limitation, the use by Tenant, its agents, employees, invitees or
licensees of any recreational facilities within the Common Areas, or from the
conduct of its business, or from any activity, work, or thing done, permitted or
suffered by Tenant or its agents, employees, invitees or licensees in or about
the Premises, the Building or the Common Areas, or from any Event of Default in
the performance of any obligation on Tenant's part to be performed under this
Lease, or from any act or negligence of Tenant or its agents, employees,
visitors, patrons, guests, invitees or licensees. Landlord may, at its option,
require Tenant to assume Landlord's defense in any action covered by this
Section through counsel satisfactory to Landlord. The provisions of this Section
shall expressly survive the expiration or sooner termination of this Lease.
Tenant's obligations under this Section shall not apply in the event that the
claim, liability, cost or expense is caused by the gross negligence or willful
misconduct of Landlord,

      SECTION 10.4. LANDLORD'S NONLIABILITY. Landlord shall not be liable to
Tenant, its employees, agents and invitees, and Tenant hereby waives all claims
against Landlord and knowingly assumes the risk of for loss of or damage to any
property, or loss or interruption of business or income, or any other loss,
cost, damage, injury or liability whatsoever (including without limitation any
consequential damages and lost profit or opportunity costs) resulting from, but
not limited to, Acts of God, acts of civil disobedience or insurrection, acts or
omissions of third parties and/or of other tenants within the Site or their
agents, employees, contractors, guests or invitees, fire, explosion, falling
plaster, steam, gas, electricity, water or rain which may leak or flow from or
into any pan of the Premises or from the breakage, leakage, obstruction or other
defects of the pipes, sprinklers, wires, appliances, plumbing, air conditioning,
electrical works, roof, windows or other fixtures in the Building, whether the
damage or injury results from conditions arising in the Premises or in the
Building, except to the extent the injury or damage is caused by Landlord's
gross negligence and is not covered by the insurance carried (or otherwise
required herein to be carried) by Tenant. It is understood that any such
condition may require the temporary evacuation or closure of all or a portion of
the Building. Landlord shall have no liability (including without limitation
consequential damages and lost profit or opportunity costs) and, except as
provided in Sections 11.1 and 12.1 below, there shall be no abatement of rent,
by reason of any injury to or interference with Tenant's business arising from
the making of any repairs, alterations or improvements to any portion of the
Building, including repairs to the Premises, nor shall any related activity by
Landlord constitute an actual or constructive eviction; provided, however, that
in making repairs, alteration or improvements, Landlord shall interfere as
little as reasonably practicable with the conduct of Tenant's business in the
Premises. Neither Landlord nor its agents shall be liable for interference with
light or other similar intangible interests, Tenant shall immediately notify
Landlord in case of fire or accident in the Premises, the Building or the Site
and of defects in any improvements or equipment.


                                       13



      SECTION 10.5. WAIVER OF SUBROGATION. Landlord and Tenant each hereby
waives all rights of recovery against the other and the other's agents on
account of loss and damage occasioned to the property of such waiving party to
the extent only that such loss or damage is required to be insured against, or,
if not required, is actually insured against, under any property insurance
policies contemplated by this Article X; provided however, that (i) the
foregoing waiver shall not apply to the extent of Tenant's obligations to pay
deductibles under any such policies and this Lease and (ii) to the extent Tenant
fails to maintain the insurance required to be maintained by Tenant pursuant to
this Lease, Landlord shall not be deemed to have waived any right of recovery
against Tenant. By this waiver it is the intent of the parties that neither
Landlord nor Tenant shall be liable to any insurance company (by way of
subrogation or otherwise) insuring the other party for any loss or damage
insured against under any property insurance policies contemplated by this
Lease, even though such loss or damage might be occasioned by the negligence of
such party, its agents, employees, contractors, guests or invitees.

                       ARTICLE XI. DAMAGE OR DESTRUCTION

      SECTION 11.1. RESTORATION.

      (a) If the Premises or the Building or a part thereof are materially
damaged by any fire, flood, earthquake or other casualty, Landlord shall have
the right to terminate this Lease upon written notice to Tenant if: (i) Landlord
reasonably determines either (A) that the cost of repair would exceed ten
percent (10%) of the replacement cost of the Building and the damage is not
covered by Landlord's insurance or (B) that the cost of repair would exceed
twenty-five percent (25%) of the Building's replacement cost; (ii) Landlord
reasonably determines that the Premises cannot, with reasonable diligence, be
fully repaired by Landlord (or cannot be safely repaired because of the presence
of hazardous factors, including without limitation Hazardous Materials,
earthquake faults and other similar dangers) within two hundred (200) days after
the date of the damage; (iii) an uncured Event of Default by Tenant has
occurred; or (iv) the material damage occurs during the final twelve (12) months
of the Term. Landlord shall notify Tenant in writing ("Landlord's Notice")
within thirty (30) days after the damage occurs as to (A) whether Landlord is
terminating this Lease as a result of such material damage and (B) if Landlord
is not terminating this Lease, the number of days within which Landlord has
estimated that the Premises, with reasonable diligence, are likely to be fully
repaired (the "Designated Repair Period"). In the event Landlord elects to
terminate this Lease, this Lease shall terminate as of the date specified for
termination by Landlord's Notice (which termination date shall in no event be
later than thirty (30) days following the date of the damage, or, if no such
date is specified, such termination shall be the date of Landlord's Notice).

      (b) If Landlord has the right to terminate this Lease pursuant to Section
11.1(a) and does not elect to so terminate this Lease, and provided that at the
time of Landlord's Notice neither an Event of Default exists nor has Landlord
delivered Tenant a notice of any failure by Tenant to fulfill an obligation
under this Lease which, unless cured by Tenant within the applicable grace
period, would constitute an Event of Default, then within twenty (20) days
following delivery of Landlord's Notice pursuant to Section 11.1(a), Tenant may
elect to terminate this Lease by written notice to Landlord, but only if (i)
Landlord's notice specifies that Landlord has determined that the Premises
cannot be repaired, with reasonable diligence, within two hundred (200) days
after the date of damage or (ii) the casualty has occurred within the final
twelve (12) months of the Term and such material damage has a materially adverse
impact on Tenant's continued use of the Premises. If Tenant fails to provide
such termination notice within such twenty (20) day period, Tenant shall be
deemed to have waived any termination right under this Section 11.1(b) or any
other applicable law.

      (c) In the event that neither Landlord nor Tenant terminates this Lease
pursuant to this Section 11.1 as a result of material damage to the Building or
Premises resulting from a casualty, Landlord shall repair all material damage to
the Premises or the Building as soon as reasonably possible and this Lease shall
continue in effect for the remainder of the Term. Subject to any provision to
the contrary in the Work Letter, such repair by Landlord shall include repair of
material damage to the Tenant Improvements constructed pursuant to the Work
Letter, so long as insurance proceeds from insurance required to be carried by
Tenant are made available to Landlord. Landlord shall, subject to Tenant's
consent, have the right, but not the obligation, to repair or replace any other
leasehold improvements made by Tenant or any Alterations (as defined in Section
7.3) constructed by Tenant. If Landlord elects to repair or replace such
leasehold improvements and/or Attentions, all insurance proceeds available for
such repair or replacement shall be made available to Landlord. Landlord shall
have no liability to Tenant in the event that the Premises or the Building has
not been fully repaired within the Designated Repair Period specified by
Landlord in Landlord's Notice to Tenant as described in Section 11.1(a),
provided that Landlord shall use commercially reasonable efforts to complete
construction by such date. If Landlord determines at any time that the actual
repair period will exceed the Designated Repair Period (or, if later, 200 days
from the date of the damage), then Landlord shall so notify Tenant and Tenant
may, within five (5) business days thereafter, elect to terminate this Lease;
otherwise, the Designated Repair Period shall be deemed extended to the revised
date set forth by Landlord. Should Landlord fail substantially to complete the
repairs within the Designated Repair Period (or, if later, by the date that is
200 days following the casualty event), as the Designated Repair Period may have
been extended as aforesaid, then Tenant may terminate this Lease by written
notice to Landlord within five (5) business days thereafter. Notwithstanding the
foregoing, the repair of damage to the Premises to the extent such damage is not
materiel shall be governed by Sections 7.1 and 7.2.

      (d) Commencing on the sixth business day following the date of such
material damage to the Building, and ending on the sooner of the date the damage
is repaired or the date this Lease is terminated, the rental to be paid under
this Lease shall be abated in the same proportion that the Floor Area of the
Premises that is rendered unusable by the damage from time to time bears to the
total Floor Area of the Premises.

      (e) Landlord shall not be required to repair or replace any improvements
or fixtures that tenant is obligated to repair or replace pursuant to Section
7.1 or any other provision of this Lease and Tenant shall continue to be
obligated to repair or replace any such improvements or fixtures,
notwithstanding any provisions to the


                                       14



contrary in this Article XI. In addition, in the event the damage or destruction
to the Premises or Building are due in substantial part to the fault or neglect
of Tenant or its employees, subtenants, invitees or representatives,
notwithstanding the provisions of Section 10.5, the costs of such repairs or
replacement to the Premises or Building shall be borne by Tenant to the extent
that insurance proceeds sufficient to complete such repair or replacement are
not made available to Landlord and in addition, Tenant shall not be entitled to
terminate this Lease as a result, notwithstanding the provisions of Section
11.1(b).

      (f) Tenant shall fully cooperate with Landlord in removing Tenant's
personal property and any debris from the Premises to facilitate all inspections
of the Premises and the making of any repairs. Notwithstanding anything to the
contrary contained in this Lease, if Landlord in good faith believes there is a
risk of injury to persons or damage to property from entry into the Building or
Premises following any damage or destruction thereto, Landlord may restrict
entry into the Building or the Premises by Tenant, its employees, agents and
contractors in a non-discriminatory manner, without being deemed to have
violated Tenant's rights of quiet enjoyment to, or made an unlawful detainer of,
or evicted Tenant from, the Premises. Upon request, Landlord shall consult with
Tenant to determine if there are safe methods of entry into the Building or the
Premises solely in order to allow Tenant to retrieve files, data in computers,
and necessary inventory, subject however to all indemnities and waivers of
liability from Tenant to Landlord contained in this Lease and any additional
indemnities and waivers of liability which Landlord may require.

      SECTION 11.2. LEASE GOVERNS. Tenant agrees that the provisions of this
Lease, including without limitation Section 11.1, shall govern any damage or
destruction and shall accordingly supersede any contrary statute or rule of law.

                          ARTICLE XII. EMINENT DOMAIN

      SECTION 12.1. TOTAL OR PARTIAL TAKING. If all or a material portion of the
Premises is taken by any lawful authority by exercise of the right of eminent
domain, or sold to prevent a taking, either Tenant or Landlord may terminate
this Lease effective as of the date possession is required to be surrendered to
the authority. In the event neither party has elected to terminate this Lease as
provided above, then Landlord shall promptly, after receipt of a sufficient
condemnation award, proceed to restore the Premises to substantially their
condition prior to the taking, and a proportionate allowance shall be made to
Tenant for the rent corresponding to the time during which, and to the part of
the Premises of which, Tenant is deprived on account of the taking and
restoration. In the event of a taking, Landlord shall be entitled to the entire
amount of the condemnation award without deduction for any estate or interest of
Tenant provided that nothing in this Section shall be deemed to give Landlord
any interest in, or prevent Tenant from seeking any award against the taking
authority for, the taking of personal property and fixtures belonging to Tenant
or for relocation or business interruption expenses recoverable from the taking
authority.

      SECTION 12.2. TEMPORARY TAKING. No temporary taking of the Premises shall
terminate this Lease or give Tenant any right to abatement of rent, and any
award specifically attributable to a temporary taking of the Premises shall
belong entirely to Tenant. A temporary taking shall be deemed to be a taking of
the use or occupancy of the Premises for a period of not to exceed ninety (90)
days.

      SECTION 12.3. TAKING OF PARKING AREA. In the event there shall be a taking
of the parking area of the Site such that more than ten percent (10%) of the
vehicle parking spaces are taken, Landlord may substitute reasonably equivalent
parking in a location reasonably close to the Building; provided that if
Landlord fails to make that substitution within ninety (90) days following the
taking and if the taking materially impairs Tenant's use and enjoyment of the
Premises, Tenant may, at its option, terminate this Lease by written notice to
Landlord. If this Lease is not so terminated by Tenant, there shall be no
abatement of rent and this Lease shall continue in effect.

         ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE; FINANCIALS

      SECTION 13.1. SUBORDINATION. At the option of Landlord or any lender of
Landlord's that obtains a security interest in the Building, this Lease shall be
either superior or subordinate to all ground or underlying leases, mortgages and
deeds of trust, if any, which may hereafter affect the Building, and to all
renewals, modifications, consolidations, replacements and extensions thereof;
provided, that so long as no Event of Default exists under this Lease, Tenant's
possession and quiet enjoyment of the Premises shall not be disturbed and this
Lease shall not terminate in the event of termination of any such ground or
underlying lease, or the foreclosure of any such mortgage or deed of trust, to
which this Lease has been subordinated pursuant to this Section. Tenant shall
execute and deliver within ten (10) business days of written request therefor
any documents or agreements requested by Landlord or such lessor or lender which
provide Tenant with the non-disturbance protections set forth in this Section.
In the event of a termination or foreclosure, Tenant shall become a tenant of
and attorn to the successor-in-interest to Landlord upon the same terms and
conditions as are contained in this Lease, and shall execute any instrument
reasonably required by Landlord's successor for that purpose. Tenant shall also,
upon written request of Landlord, execute and deliver all instruments as may be
required from time to time to subordinate the rights of Tenant under this Lease
to any ground or underlying lease or to the lien of any mortgage or deed of
trust (provided that such instruments include the nondisturbance and attornment
provisions set forth above), or, if requested by Landlord, to subordinate, in
whole or in part, any ground or underlying lease or the lien of any mortgage or
deed of trust to this Lease. Tenant agrees that any purchaser at a foreclosure
sale or lender taking title under a deed-in-lieu of foreclosure shall not be
responsible for any act or omission of a prior landlord, shall not be subject to
any offsets or defenses Tenant may have against a prior landlord, and shall not
be liable for the return of the security deposit to the extent it is not
actually received by such purchaser or bound by any rent paid for more than the
current month in which the foreclosure occurred.


                                       15



      SECTION 13.2. ESTOPPEL CERTIFICATE. Tenant shall, at any time upon not
less than ten (10) business days prior written notice from Landlord, execute,
acknowledge and deliver to Landlord, in any form that Landlord may reasonably
require, assent in writing (i) certifying that this Lease is unmodified and in
full force and effect (or, if modified, stating the nature of the modification
and certifying that this Lease, as modified, is in full force and effect) and
the dates to which the rental, additional rent and other charges have been paid
in advance, if any, and (ii) acknowledging that, to Tenant's knowledge, there
are no uncured defaults on the part of Landlord, or specifying each default if
any are claimed, and (iii) setting forth all further information that Landlord
or any purchaser or encumbrancer may reasonably require. Tenant's statement may
be relied upon by any prospective purchaser or encumbrancer of all or any
portion of the Building or Site.

      SECTION 13.3. FINANCIALS.

      (a) Tenant shall deliver to Landlord, prior to the execution of this Lease
and thereafter not more than once per year upon Landlord's request, Tenant's
current tax returns and financial statements, certified true, accurate and
complete by the chief financial officer of Tenant, including a balance sheet and
profit and loss statement for the most recent prior year, or, in the event
Tenant is a publicly traded corporation on a nationally recognized stock
exchange, Tenant's current financial reports filed with the Securities and
Exchange Commission (collectively, the "Statements"), which Statements shall
accurately and completely reflect the financial condition of Tenant. Landlord
agrees that it will keep the Statements confidential, except that Landlord shall
have the right to deliver the same to any proposed purchaser of the Building or
Site, and to any encumbrance of all or any portion of the Building or Site.

      (b) Tenant acknowledges that Landlord is relying on the Statements in its
determination to enter into this Lease, and Tenant represents to Landlord, which
representation shall be deemed made on the date of this Lease and again on the
Commencement Date, that no material change in the financial condition of Tenant,
as reflected in the Statements, has occurred since the date Tenant delivered the
Statements to Landlord. The Statements are represented and warranted by Tenant
to be correct and to accurately and fully reflect Tenant's true financial
condition as of the date of submission by any Statements to Landlord.

                  ARTICLE XIV. EVENTS OF DEFAULT AND REMEDIES

      SECTION 14.1. TENANT'S DEFAULTS. In addition to any other breaches of this
Lease which are defined as Events of Default in this Lease, the occurrence of
any one or more of the following events shall constitute an Event of Default by
Tenant:

      (a) The failure by Tenant to make any payment of Basic Rent or additional
rent required to be made by Tenant, as and when due, where the failure continues
for a period of three (3) days after written notice from Landlord to Tenant;
provided, however, that any such notice shall be in lieu of, and not in addition
to, any notice required under California Code of Civil Procedure Section 1161
and 1161(a) as amended. For purposes of these Events of Default and remedies
provisions, the term "additional rent" shall be deemed to include all amounts of
any type whatsoever other than Basic Rent to be paid by Tenant pursuant to the
terms of this Lease,

      (b) The assignment, sublease, encumbrance or other transfer of this Lease
by Tenant, either voluntarily or by operation of law, whether by judgment,
execution, transfer by intestacy or testacy, or other means, without the prior
written consent of Landlord when consent is required by this Lease.

      (c) The discovery by Landlord that any financial statement provided by
Tenant, or by any affiliate, successor or guarantor of Tenant, was materially
false.

      (d) The failure of Tenant to timely and fully provide any subordination
agreement, estoppel certificate or financial statements in accordance with the
requirements of Article XIII.

      (e) The abandonment of the Premises by Tenant.

      (f) The failure or inability by Tenant to observe or perform any of the
express or implied covenants or provisions of this Lease to be observed or
performed by Tenant, other than as specified in this Section 14.1, where the
failure continues for a period of thirty (30) days after written notice from
Landlord to Tenant or such shorter period as is specified in any other provision
of this Lease; provided, however, that any such notice shall be in lieu of, and
not in addition to, any notice required under California Code of Civil Procedure
Section 1161 and 1161(a) as amended. However, if the nature of the failure is
such that more than thirty (30) days are reasonably required for its cure, then
Tenant shall not be deemed to have committed an Event of Default if Tenant
commences the cure within thirty (30) days, and thereafter diligently pursues
the cure to completion.

      (g) (i) The making by Tenant of any general assignment for the benefit of
creditors; (ii) the filing by or against Tenant of a petition to have Tenant
adjudged a Chapter 7 debtor under the Bankruptcy Code or to have debts
discharged or a petition for reorganization or arrangement under any law
relating to bankruptcy (unless, in the case of a petition filed against Tenant,
the same is dismissed within thirty (30) days); (iii) the appointment of a
trustee or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, if possession is
not restored to Tenant within thirty (30) days; (iv) the attachment, execution
or other judicial seizure of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease, where the seizure is not
discharged within thirty (30) days; (v) Tenants convening of a meeting of its
creditors for the purpose of effecting a moratorium upon or composition of its
debts or (vi) the failure of Tenant to


                                       16



pay its material obligations to creditors as and when they become due and
payable, other than as a result of a good faith dispute by Tenant as to the
amount due to such creditors. Landlord shall not be deemed to have knowledge of
any event described in this Section 14.1(g) unless notification in writing is
received by Landlord, nor shall there be any presumption attributable to
Landlord of Tenant's insolvency. In the event that any provision of this Section
l4.1(g) is contrary to applicable law, the provision shall be of no force or
effect.

      SECTION 14.2. LANDLORD'S REMEDIES.

      (a) If an Event of Default by Tenant occurs, then in addition to any other
remedies available to Landlord, Landlord may exercise the following remedies:

            (i) Landlord may terminate Tenant's right to possession of the
Premises by any lawful means, in which case this Lease shall terminate and
Tenant shall immediately surrender possession of the Premises to Landlord. Such
termination shall not affect any accrued obligations of Tenant under this Lease.
Upon termination, Landlord shall have the right to reenter the Premises and
remove all persons and property. Landlord shall also be entitled to recover from
Tenant:

                  (1) The worth at the time of award of the unpaid Basic Rent
and additional rent which had been earned at the time of termination;

                  (2) The worth at the time of award of the amount by which the
unpaid Basic Rent and additional rent which would have been earned after
termination until the time of award exceeds the amount of such loss that Tenant
proves could have been reasonably avoided;

                  (3) The worth at the time of award of the amount by which the
unpaid Basic Rent and additional rent for the balance of the Term after the time
of award exceeds the amount of such loss that Tenant proves could be reasonably
avoided;

                  (4) 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 from Tenant's Event of Default, including, but not limited to, the cost
of recovering possession of the Premises, refurbishment of the Premises,
marketing costs, commissions and other expenses of reletting, including
necessary repair, the unamortized portion of any tenant improvements and
brokerage commissions funded by Landlord in connection with this Lease,
reasonable attorney's fees, and any other reasonable costs; and

                  (5) At Landlord's election, all other amounts in addition to
or in lieu of the foregoing as may be permitted by law. Any sum, other than
Basic Rent, shall be computed on the basis of the average monthly amount
accruing during the twenty-four (24) month period immediately prior to the Event
of Default, except that if it becomes necessary to compute such rental before
the twenty-four (24) month period has occurred, then the computation shall be on
the basis of the average monthly amount during the shorter period. As used in
Sections 14.2(a)(i) and (2) above, the "worth at the time of award" shall be
computed by allowing interest at the rate of ten percent (10%) per annum. As
used in Section l4.2(a)(i)(3) above, the "worth at the time of award" shall be
computed by discounting the amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent (1%).

            (ii) Landlord may elect not to terminate Tenant's right to
possession of the Premises, in which event Landlord may continue to enforce all
of its rights and remedies under this Lease, including the right to collect all
rent as it becomes due. Efforts by the Landlord to maintain, preserve or relet
the Premises, or the appointment of a receiver to protect the Landlord's
interests under this Lease, shall not constitute a termination of the Tenant's
right to possession of the Premises. In the event that Landlord elects to avail
itself of the remedy provided by this Section 14.2(a)(ii), Landlord shall not
unreasonably withhold its consent to an assignment or subletting of the Premises
subject to the reasonable standards for Landlord's consent as are contained in
this Lease.

      (b) Landlord shall be under no obligation to observe or perform any
covenant of this Lease on its part to be observed or performed which accrues
after the date of any Event of Default by Tenant unless and until the Event of
Default is cured by Tenant, it being understood and agreed that the performance
by Landlord of its obligations under this Lease are expressly conditioned upon
Tenant's full and timely performance of its obligations under this Lease. The
various rights and remedies reserved to Landlord in this Lease or otherwise
shall be cumulative and, except as otherwise provided by California law,
Landlord may pursue any or all of its rights and remedies at the same time.

      (c) No delay or omission of Landlord to exercise any right or remedy shall
be construed as a waiver of the right or remedy or of any breach or Event of
Default by Tenant. The acceptance by Landlord of rent shall not be a (i) waiver
of any preceding breach or Event of Default by Tenant of any provision of this
Lease, other than the failure of Tenant to pay the particular rent accepted,
regardless of Landlord's knowledge of the preceding breach or Event of Default
at the time of acceptance of rent, or (ii) a waiver of Landlord's right to
exercise any remedy available to Landlord by virtue of the breach or Event of
Default. The acceptance of any payment from a debtor in possession, a trustee, a
receiver or any other person acting on behalf of Tenant or Tenant's estate shall
not waive or cure a breach or Event of Default under Section 14.1 No payment by
Tenant or receipt by Landlord of a lesser amount than the rent required by this
Lease shall be deemed to be other than a partial payment on account of the
earliest due stipulated rent, nor shall any endorsement or statement on any
check or letter be deemed an accord and satisfaction and Landlord shall accept
the check or payment without prejudice to Landlord's right to recover the
balance of the rent or pursue any other remedy available to it. No act or thing
done by Landlord or Landlord's


                                       17



agents during the Term shall be deemed an acceptance of, surrender of the
Premises, and no agreement to accept a surrender shall be valid unless in
writing and signed by Landlord. No employee of Landlord or of Landlord's agents
shall have any power to accept the keys to the Premises prior to the termination
of this Lease, and the delivery of the keys to any employee shall not operate as
a termination of this Lease or a surrender of the Premises.

      (d) Any agreement for free or abated rent or other charges, or for the
giving or paying by Landlord to or for Tenant of any cash or other bonus,
inducement or consideration for Tenant's entering into this Lease ("Inducement
Provisions") shall be deemed conditioned upon Tenant's full and faithful
performance of the terms, covenants and conditions of this Lease. Upon an Event
of Default under this Lease by Tenant, any such Inducement Provisions shall
automatically be deemed deleted from this Lease and of no further force or
effect and the amount of any rent reduction or abatement or other bonus or
consideration already given by Landlord or received by Tenant as an Inducement
shall be immediately due and payable by Tenant to Landlord, notwithstanding any
subsequent cure of said Event of Default by Tenant. The acceptance by Landlord
of rent or the cure of the Event of Default which initiated the operation of
this Section 14.1 shall not be deemed a waiver by Landlord of the provisions of
this Section 44.2(d).

      SECTION 14.3. LATE PAYMENTS.

      (a) Any payment due to Landlord under this Lease, including without
limitation Basic Rent, Tenant's Share of Operating Expenses or any other payment
due to Landlord under this Lease, that is not received by Landlord within five
(5) days following the date due shall bear interest at the maximum rate
permitted by law from the date due until fully paid. The payment of interest
shall not cure any breach or Event of Default by Tenant under this Lease. In
addition, Tenant acknowledges that the late payment by Tenant to Landlord of
Basic Rent and Tenant's Share of Operating Expenses will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult and impracticable to ascertain. Those costs may include,
but are not limited to, administrative, processing and accounting charges, and
late charges which may be imposed on Landlord by the terms of any pound lease,
mortgage or trust deed covering the Premises. Accordingly, if any Basic Rent or
Tenant's Share of Operating Expenses due from Tenant shall not be received by
Landlord or Landlord's designee within five (5) days following the date due,
then Tenant shall pay to Landlord, in addition to the interest provided above, a
late charge, which the Tenant agrees is reasonable, in a sum equal to three
percent (%) of the amount overdue for each delinquent payment. Acceptance of a
late charge by Landlord shall not constitute a waiver of Tenant's breech or
Event of Default with respect to the overdue amount, nor shall it prevent
Landlord from exercising any of its other rights and remedies.

      (b) Should Tenant deliver to Landlord, at any time during the Term, three
(3) or more insufficient checks, the Landlord may require that all monies then
and thereafter due from Tenant be paid to Landlord by cashiers check. If any
check for any payment to Landlord hereunder is returned by the bank for any
reason, such payment shall not be deemed to have been received by Landlord and
Tenant shall be responsible for any applicable late charge, internet payment and
the charge to Landlord by its bank for such returned check. Nothing in this
Section shall be construed to compel Landlord to accept Basic Rent, Tenant's
Share or Operating Expenses or any other payment from Tenant if there exists an
Event of Default unless such payment fully cures any and all such Event of
Default. Any acceptance of any such payment shall not be deemed to waive any
other right of Landlord under this Lease. Any payment by Tenant to Landlord may
be applied by Landlord, in its sole and absolute discretion, in any order
determined by landlord to any amounts then due to Landlord.

      SECTION 14.4. [INTENTIONALLY OMITTED)

      SECTION 14.5. DEFAULT BY LANDLORD. Landlord shall not be deemed to be in
default in the performance of any obligation under this Lease, and Tenant shall
have no rights to take any action against Landlord, unless and until Landlord
has failed to perform the obligation within thirty (30) days after written
notice by Tenant to Landlord specifying in reasonable detail the nature and
extent of the failure; provided, however, that if the nature of Landlord's
obligation is such that more than thirty (30) days are required for its
performance, then landlord shall not be deemed to be in default if it commences
performance within the thirty (30) day period and thereafter diligently pursues
the cure to completion. In the event of Landlord's default under this Lease,
Tenant's sole remedies shall be to seek damages or specific performance from
Landlord, provided that any damages shall be limited to Tenant's actual
out-of-pocket expenses and shall in no event include any consequential damages,
lost profits or opportunity costs,

      SECTION 14.6. EXPENSES AND LEGAL FEES. All sums reasonably incurred by
Landlord in connection with any Event of Default by Tenant under this Lease or
holding over of possession by Tenant after the expiration or earlier termination
of this Lease, or any action related to a filing for bankruptcy or
reorganization by Tenant, including without limitation all costs, expenses and
actual accountants, appraisers, attorneys and other professional fees, and any
collection agency or other collection charges, shall be due and payable to
Landlord on demand, and shall bear interest at the rate of ten percent (10%) per
annum. Should either Landlord or Tenant bring any action in connection with this
Lease, the prevailing party shall be entitled to recover as a part of the action
its reasonable attorneys' fees, and all other cost. The prevailing party for the
purpose of this Section shall be determined by the trier of the facts.

      SECTION 14.7. WAIVER OF JURY TRIAL. LANDLORD AND TENANT EACH ACKNOWLEDGES
THAT IT IS AWARE OF AND HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT
TO ITS RIGHTS TO TRIAL BY JURY, AND EACH PARTY DOES HEREBY EXPRESSLY AND
KNOWINGLY WAIVE AND RELEASE ALL SUCH RIGHTS TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER
(AND/OR AGAINST ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, OR SUBSIDIARY OR
AFFILIATED ENTITIES) ON ANY MATTERS WHATSOEVER ARISING OUT


                                       18



OF IN ANY WAY CONNECTED WITH THIS LEASE, TENANT'S USE OR OCCUPANCY OF THE
PREMISES, AND/OR ANY CLAIM OF INJURY OR DAMAGE, FURTHERMORE, THIS WAIVER AND
RELEASE OF ALL RIGHTS TO A JURY TRIAL IS DEEMED TO BE INDEPENDENT OF EACH AND
EVERY OTHER PROVISION, COVENANT, AND/OR CONDITION SET FORTH IN THIS LEASE.

      SECTION 14.8. SATISFACTION OF JUDGMENT. The obligations of Landlord do not
constitute the personal obligations of the individual partners, trustees,
directors, officers or shareholders of Landlord or its constituent partners.
Should Tenant recover a money judgment against Landlord, such judgment shall be
satisfied only from the interest of Landlord in the Site and out of the rent or
other income from such property receivable by Landlord or out of consideration
received by Landlord from the sale or other disposition of all or any part of
Landlord's right, title or interest in the Site and no action for any deficiency
may be sought or obtained by Tenant.

      SECTION 14.9. LIMITATION OF ACTIONS AGAINST LANDLORD. Any claim, demand or
right of any kind by Tenant which is based upon or arises in connection with
this Lease, including without limitation any arising under a tort or contact
cause of action, shall be barred unless Tenant commences an action thereon
within six (6) months after the date that the act, omission, event or default
upon which the claim, demand or right arises, has occurred.

                            ARTICLE XV. END OF TERM

      SECTION 15.1. HOLDING OVER. This Lease shall terminate without further
notice upon the expiration of the Term, and any holding over by Tenant after the
expiration shall not constitute a renewal or extension of this Lease, or give
Tenant any rights under this Lease, except when in writing signed by both
parties. Any period of time following the Expiration Date or earlier termination
of this Lease required for Tenant to remove its property or to place the
Premises in the condition required pursuant to Section 15.3 (or for Landlord to
do so if Tenant fails to do so) shall be deemed a holding over by Tenant. If
Tenant holds over for any period after the Expiration Date (or earlier
termination) of the Term without the prior written consent of Landlord, such
possession shall constitute a tenancy at sufferance only and an Event of Default
under this Lease; such holding over with the prior written consent of Landlord
shall constitute a month-to-month tenancy commencing on the first (1st) day
following the termination of this Lease and terminating thirty (30) days
following delivery of written notice of termination by either Landlord or Tenant
to the other. In either of such events, possession shall be subject to all of
the terms of this Lease, except that the monthly Basic Rent shall be one
hundred fifty percent (150%) of the greater of (a) the Basic Rent for the month
immediately preceding the date of termination or (b) the fair market rental for
the Premises. If Tenant fails to surrender the Premises upon the expiration of
this Lease despite demand to do so by Landlord, Tenant shall indemnify and hold
Landlord harmless from all loss or liability, including without limitation, any
claims made by any succeeding tenant relating to such failure to surrender.
Acceptance by Landlord of rent after the termination shall not constitute a
consent to a holdover or result in a renewal of this Lease. The foregoing
provisions of this Section are in addition to and do not affect Landlord's right
of re-entry or any other rights of Landlord under this Lease or at law.

      SECTION 15.2. MERGER ON TERMINATION. The voluntary or other surrender of
this Lease by Tenant, or a natural termination of this Lease, shall terminate
any or all existing subleases unless Landlord, at its option, elects in writing
to treat the surrender or termination as an assignment to it of any or all
subleases affecting the Premises.

      SECTION 15.3. SURRENDER OF PREMISES; REMOVAL OF PROPERTY. Subject to the
provisions of 7.3 of this Lease, upon the Expiration Date or upon any earlier
termination of this Lease, Tenant shall quit and surrender possession of the
Premises to Landlord in as good order, condition and repair as when received or
as hereinafter may be improved by landlord or Tenant, reasonable wear and tear
and repairs which are Landlord's obligation excepted, and shall, without expense
to Landlord, remove or cause to be removed from the Premises all personal
property and debris, except for any items that Landlord may by written
authorization allow to remain. Tenant shall repair all damage to the Premises
resulting from the removal which repair shall include the patching and filling
of holes and repair of structural damage, provided that Landlord may instead
elect to repair any structural damage at Tenant's expense. If Tenant shall fail
to comply with the provisions of this Section, Landlord may effect the removal
and/or make any repair, and the cost to Landlord shall be additional rent
payable by Tenant upon demand. If Tenant fails to remove Tenant's personal
property from the Premises upon the expiration of the Term. Landlord may remove,
store, dispose of and/or retain such personal property, at Landlord's option, in
accordance with then applicable laws, all at the expense of Tenant. If requested
by Landlord, Tenant shall execute, acknowledge and deliver to Landlord an
instrument in writing releasing and quitclaiming to Landlord all right, title
and interest of Tenant in the Premises.

                       ARTICLE XVI. PAYMENTS AND NOTICES

      All sums payable by Tenant to Landlord shall be deemed to be rent under
this Lease and shall be paid, without deduction or offset, in lawful money of
the United Slates to Landlord at its address set forth in Item 12 of the Basic
Lease Provisions, or at any other place as Landlord may designate in writing.
Unless this Lease expressly provides otherwise, as for example in the payment of
Basic Rent and the Tenant's Share of Operating Costs pursuant to Sections 4.1
and 4.2, all payments shall be due and payable within five (5) days after
demand. All payments requiring proration shall be prorated on the basis of a
thirty (30) day month and a three hundred sixty (360) day year. Any notice,
election, demand, consent, approval or other communication to be given or other
document to be delivered by either party to the other may be delivered in person
or by courier or overnight delivery service to the other party, or may be
deposited in the United States mail, duly registered or certified, postage
prepaid, return receipt requested, and addressed to the other party at the
address set forth in Item 12 of the Basic Lease Provisions, or if to Tenant, at
that address or, from and after the Commencement Date, at the Premises (whether
or not Tenant has departed from, abandoned or vacated the Premises). Either
party may, by written notice to the other, served in


                                       19



the manner provided in this Article, designate a different address. If any
notice or other document is sent by mail, it shall be deemed served or delivered
seventy-two (72) hours after mailing. If more than one person or entity is named
as Tenant under this Lease, service of any notice upon any one of them shall be
deemed as service upon all of them.

                      ARTICLE XVII. RULES AND REGULATIONS

      Tenant agrees to observe faithfully and comply strictly with the Rules and
Regulations, attached as Exhibit E and any reasonable and nondiscriminatory
amendments, modifications and/or additions as may be adopted and published by
written notice to tenants by Landlord for the safety, care, security, good
order, or cleanliness of the Premises, Building, Site and Common Areas. Landlord
shall not be liable to Tenant for any violation of the Rules and Regulations or
the breach of any covenant or condition in any lease by any other tenant or such
tenant's agents, employees, contractors, guests or invitees. One or more waivers
by Landlord of any breach of the Rules and Regulations by tenant or by any other
tenant(s) shall not be a waiver of any subsequent breach of that rule or any
other. Tenant's failure to keep and observe the Rules and Regulations shall
constitute a breach of this Lease. In the case of any conflict between the Rules
and Regulations and this Lease, this Lease shall be controlling.

                       ARTICLE XVIII. BROKER'S COMMISSION

      The parties recognize as the broker(s) who negotiated this Lease the
firm(s), if any, whose name(s) is (are) stated in Item 10 of the Basic Lease
Provisions; and agree that Landlord shall be responsible for the payment of
brokerage commissions to those broker(s) unless otherwise provided in this
Lease. Tenant warrants that it has had no dealings with any other real estate
broker or agent in connection with the negotiation of this Lease, and Tenant
agrees to indemnify and hold Landlord harmless from any cost, expense or
liability (including reasonable attorneys' fees) for any compensation,
commissions or charges claimed by any other real estate broker, or agent
employed or claiming to represent or to have been employed by Tenant in
connection with the negotiation of this Lease. The foregoing agreement shall
survive the termination of this Lease. If Tenant fails to take possession of the
Premises or if this Lease otherwise terminates prior to the Expiration Date as
the result of failure of performance by Tenant, Landlord shall be entitled to
recover from Tenant the unamortized portion of any brokerage commission funded
by Landlord in addition to any other damages to which Landlord may be entitled.

                  ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST

      In the event of any transfer of Landlord interest in the Premises, the
transferor shall be automatically relieved of all further obligations on the
part of Landlord, and the transferor shall be relieved of any obligation to pay
any funds in which Tenant has an interest to the extent that such funds have
been turned over, subject to that interest, to the transferee and Tenant is
notified of the transfer as required by law. No beneficiary of a deed of trust
to which this Lease is or may be subordinate, and no landlord under a so-called
sale-leaseback, shall be responsible in connection with the Security Deposit,
unless the mortgagee or beneficiary under the deed of trust or the landlord
actually receives the Security Deposit. It is intended that the covenants and
obligations contained in this Lease on the part of Landlord shall, subject to
the foregoing, be binding on Landlord, its successors and assigns, only during
and in respect to their respective successive periods of ownership.

                           ARTICLE XX. INTERPRETATION

      SECTION 20.1. GENDER AND NUMBER. Whenever the context of this Lease
requires the words "Landlord" and "Tenant" shall include the plural as well as
the singular, and words used in neuter, masculine or feminine genders shall
include the others.

      SECTION 20.2. HEADINGS. The captions and headings of the articles and
sections of this Lease are for convenience only, are not a part of this Lease
and shall have no effect upon its construction or interpretation.

      SECTION 20.3. JOINT AND SEVERAL LIABILITY. If more than one person or
entity is named as Truant, the obligations imposed upon each shall be joint and
several and the act of or notice front, or notice or refund to, or the signature
of, any one or more of them shall be binding on all of them with respect to the
tenancy of this Lease, including, but not limited to, any renewal, extension,
termination or modification of this Lease.

      SECTION 20.4. SUCCESSORS. Subject to Articles IX and XIX, all rights and
liabilities given to or imposed upon Landlord and Tenant shall extend to and
bind their respective heirs, executors, administrators, successors and assigns.
Nothing contained in this Section is intended, or shall be construed, to grant
to any person other than Landlord and Tenant and their successors and assigns
any rights or remedies under this Lease.

      SECTION 20.5. TIME OF ESSENCE. Time is of the essence with respect to the
performance of every provision of this Lease.

      SECTION 20.6. CONTROLLING LAW/VENUE. This Lease shall be governed by and
interpreted in accordance with the laws of the State of California. Any
litigation commenced concerning any matters whatsoever arising out of or in any
way connected to this Lease shall be initiated in the Superior Court of the
county in which the Site is located.

      SECTION 20.7. SEVERABILITY. If any term or provision of this Lease, the
deletion of which would not adversely affect the receipt of any material benefit
by either party or the deletion of which is consented to by the party adversely
affected, shall be held invalid or unenforceable to any extent, the remainder of
this Lease shall not


                                       20



be affected and each term and provision of this Lease shall be valid and
enforceable to the fittest extent permitted by law.

      SECTION 20.8. WAIVER AND CUMULATIVE REMEDIES. One or more waivers by
Landlord or Tenant of any breach of any term, Covenant or condition contained in
this Lease shall not be a waiver of any subsequent breach of the same or any
other term, covenant or condition. Consent to any act by one of the parties
shall not be deemed to render unnecessary the obtaining of that party's consent
to any subsequent act. No breach by Tenant of this Lease shall be deemed to have
been waived by Landlord unless the waiver is in a writing signed by Landlord.
The right and remedies of Landlord under this Lease shall be cumulative and in
addition to any and all other rights and remedies which Landlord may have.

      SECTION 20.9. INABILITY TO PERFORM. In the event that either party stall
be delayed or hindered in or prevented from the performance of any work or in
performing any act required under this Lease by reason of any cause beyond the
reasonable control of that party, other than financial inability, then the
performance of the work or the doing of the act shall be excused for the period
of the delay and the time for performance shall be extended for a period
equivalent to the period of the delay. The provisions of this Section shall not
operate to excuse Tenant from the prompt payment of rent or from the timely
performance of any other obligation under this Lease within Tenant's reasonable
control.

      SECTION 20.10. ENTIRE AGREEMENT. This Lease and its exhibits and other
attachments cover in full each and every agreement of every kind between the
parties concerning the Premises, the Building and the Site, and all preliminary
negotiations, oral agreements, understandings and/or practices, except those
contained in this Lease, are superseded and of no further effect. Tenant waives
its rights to rely on any representations or promises made by Landlord or others
which are not contained in this Lease. No verbal agreement or implied covenant
shall be held to modify the provisions of this Lease, any statute, law, or
custom to the contrary notwithstanding.

      SECTION 20.11. QUIET ENJOYMENT. Upon the observance and performance of all
the covenants, terms and conditions on Tenant's part to be observed and
performed, and subject to the other provisions of this Lease, Tenant shall have
the right of quiet enjoyment and use of the Premises for the Term without
hindrance or interruption by Landlord or any other person claiming by or through
Landlord.

      SECTION 20.12. SURVIVAL. All covenants of Landlord or Tenant which
reasonably would be intended to survive the expiration or sooner termination of
this Lease, including without limitation any warranty or indemnity hereunder,
shall so survive and continue to be binding upon and inure to the benefit of the
respective parties and their successors and assigns.

      SECTION 20.13. INTERPRETATION. This Lease shall not be construed in favor
of or against either party, but shall be construed as if both parties prepared
this Lease.

                      ARTICLE XXI. EXECUTION AND RECORDING

      SECTION 21.1. COUNTERPARTS. This Lease may be executed in one or more
counterparts, each of which shall constitute an original and all of which shall
be one and the same agreement.

      SECTION 21.2. CORPORATE, LIMITED LIABILITY COMPANY AND PARTNERSHIP
AUTHORITY. If Tenant is a corporation, limited liability company or partnership,
each individual executing this Lease on behalf of the corporation, limited
liability company or partnership represents and warrants that he or she is duly
authorized to execute and deliver this Lease on behalf of the corporation,
limited liability company or partnership, and that this Lease is binding upon
the corporation, limited liability company or partnership in accordance with its
terms. Tenant shall, at Landlord's request, deliver a certified copy of its
board of directors' resolution, operating agreement or partnership agreement or
certificate authorizing or evidencing the execution of this Lease.

      SECTION 21.3. EXECUTION OF LEASE; NO OPTION OR OFFER. The submission of
this Lease to Tenant shall be for examination purposes only, and shall not
constitute an offer to or option for Tenant to lease the Premises. Execution of
this Lease by Tenant and its return to Landlord shall not be binding upon
Landlord, notwithstanding any time interval, until Landlord has in fact executed
and delivered this Lease to Tenant, it being intended that this Lease shall only
become effective upon execution by Landlord and delivery of a fully executed
counterpart to Tenant.

      SECTION 21.4. RECORDING. Tenant shall not record this Lease without the
prior written consent of Landlord. Tenant, upon the request of Landlord, shall
execute and acknowledge a "short form" memorandum of this Lease for recording
purposes.

      SECTION 21.5. AMENDMENTS. No amendment or termination of this Lease shall
be effective unless in writing signed by authorized signatories of Tenant and
Landlord, or by their respective successors in interest. No actions, policies,
oral or informal arrangements, business dealings or other course of conduct by
or between the parties shall be deemed to modify this Lease in any respect.

      SECTION 21.6. EXECUTED COPY. Any fully executed photocopy or similar
reproduction of this Lease shall be deemed an original for all purposes.

      SECTION 21.7. ATTACHMENTS. All exhibits, amendments, riders and addenda
attached to this Lease are hereby incorporated into and made a part of this
Lease.


                                       21



                          ARTICLE XXII. MISCELLANEOUS

      SECTION 22.1. CHANGES REQUESTED BY LENDER. If, in connection with
obtaining financing for the Site, the lender shall request reasonable
modifications in this Lease as a condition to the financing, Tenant will not
unreasonably withhold or delay its consent, provided that the modifications do
not increase in any manner the obligations of Tenant or diminish Tenant's rights
hereunder or materially and adversely affect the leasehold interest created by
this Lease.

      SECTION 22.2. MORTGAGEE PROTECTION. No act or failure to act on the part
of Landlord which would otherwise entitle Tenant to be relieved of its
obligations hereunder shall result in such a release or termination unless (a)
Tenant has given notice by registered or certified mail to any beneficiary of a
deed of trust or mortgage covering the Building whose address has been furnished
to Tenant and (b) such beneficiary is afforded a reasonable opportunity to cure
the default by Landlord (which in no event shall be less than thirty (30) days),
including, if necessary to effect the cure, time to obtain possession of the
Building by power of sale or judicial foreclosure provided that such foreclosure
remedy is diligently pursued. Tenant agrees that each beneficiary of a deed of
trust or mortgage covering the Building is an express third party beneficiary
hereof, Tenant shall have no right or claim for the collection of any deposit
from such beneficiary or from any purchaser at a foreclosure sale unless such
beneficiary or purchaser shall have actually received and not refunded the
deposit, and Tenant shall comply with any written directions by any beneficiary
to pay rent due hereunder directly to such beneficiary without determining
whether a default exists under such beneficiary's deed of trust.

      SECTION 22.3. COVENANTS AND CONDITIONS. All of the provisions of this
Lease shall be construed to be conditions as well as covenants as though the
words specifically expressing or imparting covenants and conditions were used in
each separate provision.

      SECTION 22.4. SECURITY MEASURES. Tenant hereby acknowledges that Landlord
shall have no obligation whatsoever to provide guard service or other security
measures for the benefit of the Premises or the Site. Tenant assumes all
responsibility for the protection of Tenant, its employees, agents, invitees and
property from acts of third parties. Nothing herein contained shall prevent
Landlord, at its sole option, from providing security protection for the Site or
any part thereof, in which event the cost thereof shall be included within the
definition of Site Costs.

LANDLORD:                               TENANT:

THE IRVINE COMPANY                      MOLECULAR DEVICES CORPORATION


By:                                     By:
   -----------------------------------     -----------------------------------
   Donald S. McNutt                        Name (Print):
   Senior Vice President, Leasing          Title (Print):
   Office Properties


By:                                     By:
   -----------------------------------     -----------------------------------
   Chris Popma, Vice President             Name:
   Asset Management, Office Properties     Title:


                                       22



                                   EXHIBIT A

                                   [GRAPHIC]





                                   EXHIBIT B
                                   ---------

                THE IRVINE COMPANY - INVESTMENT PROPERTIES GROUP

                         HAZARDOUS MATERIAL SURVEY FORM

      The purpose of this form is to obtain information regarding the use of
hazardous substances on Investment Properties Group ("IPG") property.
Prospective tenants and contractors should answer the questions in light of
their proposed activities on the premises. Existing tenants and contractors
should answer the questions as they relate to ongoing activities on the premises
and should update any information previously submitted.

      If additional space is needed to answer the questions, you may attach
separate sheets of paper to this form. When completed, the form should be sent
to the following address:

                               INSIGNIA/ESG, INC.
                     160 West Santa Clara Street, Suite 1350
                               San Jose, CA 95113

      Your cooperation in this matter is appreciated. If you have any questions,
please call your property manager at (949) 753-4744 for assistance.

1.    GENERAL INFORMATION.

      Name of Responding Company:
                                 -----------------------------------------------
      Check all that apply:        Tenant       (  )          Contractor  (  )
                                   Prospective  (  )          Existing    (  )

      Mailing Address:
                      ----------------------------------------------------------
      Contact person & Title:
                             ---------------------------------------------------
      Telephone Number:   (     )
                                  ----------------------------------

      Current TIC Tenant(s):

      Address of Lease Premises:
                                ------------------------------------------------

      Length of Lease or Contract Term:
                                       -----------------------------------------

      Prospective TIC Tenant(s):

      Address of Leased Premises:
                                 -----------------------------------------------

      Address of Current Operations:
                                    --------------------------------------------

      Describe the proposed operations to take place on the property, including
      principal products manufactured or services to be conducted. Existing
      tenants and contractors should describe any proposed changes to ongoing
      operations.

      --------------------------------------------------------------------------

      --------------------------------------------------------------------------

      --------------------------------------------------------------------------


                                     1 of 5



2.    HAZARDOUS MATERIALS. For the purposes of this Survey Form, the term
      "hazardous material" means any raw material, product or agent considered
      hazardous under any state or federal law. The term does not include wastes
      which are intended to be discarded.

      2.1   Will any hazardous materials be used or stored on site?

             Chemical Products                     Yes (   )           No (   )
             Biological Hazards/                   Yes (   )           No (   )
                Infectious Wastes

             Radioactive Materials                 Yes (   )           No (   )
             Petroleum Products                    Yes (   )           No (   )

      2.2   List any hazardous materials to be used or stored, the quantities
            that will be onsite at any given time, and the location and method
            of storage (e.g., bottles in storage closet on the premises).

                                    Location and Method
            Hazardous Materials         of Storage                Quantity
            -------------------     -------------------      -------------------

            -------------------     -------------------      -------------------

            -------------------     -------------------      -------------------

            -------------------     -------------------      -------------------

            -------------------     -------------------      -------------------

      2.3   Is any underground storage of hazardous materials proposed or
            currently conducted on the premises? Yes ( ) No ( )

            If yes, describe the materials to be stored, and the size and
            construction of the tank. Attach copies of any permits obtained for
            the underground storage of such substances.

            --------------------------------------------------------------------

            --------------------------------------------------------------------

            --------------------------------------------------------------------

3.    HAZARDOUS WASTE. For the purposes of this Survey Form, the term "hazardous
      waste" means any waste (including biological, infectious or radioactive
      waste) considered hazardous under any state or federal law, and which is
      intended to be discarded.

      3.1   List any hazardous waste generated or to be generated on the
            premises, and indicate the quantity generated on a monthly basis.

                                    Location and Method
            Hazardous Materials         of Storage                Quantity
            -------------------     -------------------      -------------------

            -------------------     -------------------      -------------------

            -------------------     -------------------      -------------------

            -------------------     -------------------      -------------------

            -------------------     -------------------      -------------------


                                     2 of 5



      3.2   Describe the method(s) of disposal (including recycling) for each
            waste. Indicate where and how often disposal will take place.

                                    Location and Method
            Hazardous Materials         of Storage             Disposal Method
            -------------------     -------------------      -------------------

            -------------------     -------------------      -------------------

            -------------------     -------------------      -------------------

            -------------------     -------------------      -------------------

            -------------------     -------------------      -------------------

      3.3   Is any treatment or processing of hazardous, infectious or
            radioactive wastes currently conducted or proposed to be conducted
            on the premise? Yes ( ) No ( )

            If yes, please describe any existing or proposed treatment methods.

            --------------------------------------------------------------------

            --------------------------------------------------------------------

            --------------------------------------------------------------------

      3.4   Attach copies of any hazardous waste permits or licenses issued to
            your company with respect to its operations on the premises.

4.    SPILLS

      4.1   During the past year, have any spills or releases of hazardous
            materials occurred on the premises? Yes ( ) No ( )

            If so, please describe the spill and attach the results of any
            testing conducted to determine the extent of such spills.

            --------------------------------------------------------------------

            --------------------------------------------------------------------

            --------------------------------------------------------------------

      4.2   Were any agencies notified in connection with such spills? Yes ( )
            No ( )

            If so, attach copies of any spill reports or other correspondence
            with regulatory agencies.

      4.3   Were any clean-up actions undertaken in connection with the spills?
            Yes ( ) No ( )

            If so, briefly describe the actions taken. Attach copies of any
            clearance letters obtained from any regulatory agencies involved
            and the results of any final soil or groundwater sampling done upon
            completion of the clean-up work.

            --------------------------------------------------------------------

            --------------------------------------------------------------------

            --------------------------------------------------------------------

5.    WASTEWATER TREATMENT/DISCHARGE

      5.1   Do you discharge industrial wastewater to:

            ________ storm drain?             ________ sewer?
            ________ surface water?           ________ no industrial discharge


                                     3 of 5



      5.2   Is your industrial wastewater treated before discharge?  Yes ( )
            No ( )

            If yes, describe the type of treatment conducted.

            --------------------------------------------------------------------

            --------------------------------------------------------------------

            --------------------------------------------------------------------

      5.3   Attach copies of any wastewater discharge permits issued to your
            company with respect to its operations on the premises.

6.    AIR DISCHARGES.

      6.1   Do you have any air filtration systems or stacks that discharge into
            the air? Yes ( ) No ( )

      6.2   Do you operate any equipment that require air emissions permits?
            Yes ( ) No ( )

      6.3   Attach copies of any air discharge permits pertaining to these
            operations.

7.    HAZARDOUS MATERIALS DISCLOSURES.

      7.1   Does your company handle an aggregate of at least 500 pounds, 55
            gallons or 200 cubic feet of hazardous material at any given time?
            Yes ( ) No ( )

      7.2   Has your company prepared a Hazardous Materials Disclosure -
            Chemical Inventory and Business Emergency Plan or similar disclosure
            document pursuant to state or county requirements? Yes ( ) No ( )

            If so, attach a copy.

      7.3   Are any of the chemicals used in your operations regulated under
            Proposition 65?

            If so, describe the procedures followed to comply with these
            requirements.

            --------------------------------------------------------------------

            --------------------------------------------------------------------

            --------------------------------------------------------------------

      7.4   Is your company subject to OSHA Hazard Communication Standard
            Requirements? Yes ( ) No ( )

            If so, describe the procedures followed to comply with these
            requirements.

            --------------------------------------------------------------------

            --------------------------------------------------------------------

            --------------------------------------------------------------------

8.    ANIMAL TESTING.
      --------------

      8.1   Does your company bring or intend to bring live animals onto the
            premises for research or development purposes? Yes ( ) No ( )

            If so, describe the activity.

            --------------------------------------------------------------------

            --------------------------------------------------------------------

            --------------------------------------------------------------------


                                     4 of 5



      8.2   Does your company bring or intend to bring animal body parts or
            bodily fluids onto the premises for research or development
            purposes? Yes ( ) No ( )

            If so, describe the activity.

            --------------------------------------------------------------------

            --------------------------------------------------------------------

            --------------------------------------------------------------------

9.    ENFORCEMENT ACTIONS, COMPLAINTS.

      9.1   Has your company ever been subject to any agency enforcement
            actions, administrative orders, lawsuits, or consent orders/decrees
            regarding environmental compliance or health and safety?

            Yes ( ) No ( )

            If so, describe the actions and any continuing obligations imposed
            as a result of these actions.

      9.2   Has your company ever received any request for information, notice
            of violation or demand letter, complaint, or inquiry regarding
            environmental compliance or health and safety? Yes ( ) No ( )

      9.3   Has an environmental audit ever been conducted which concerned
            operations or activities on premises occupied by you? Yes ( ) No ( )

      9.4   If you answered "yes" to any questions in this section, describe the
            environmental action or complaint and any continuing compliance
            obligation imposed as a result of the same.

            --------------------------------------------------------------------

            --------------------------------------------------------------------

            --------------------------------------------------------------------

            --------------------------------------------------------------------

            --------------------------------------------------------------------


                                        By:
                                        ----------------------------------------
                                            Name:
                                                 -------------------------------
                                            Title:
                                                   -----------------------------
                                            Date:
                                                  ------------------------------


                                     5 of 5




                                                                JANUARY 14, 1997

                                SUNNYVALE LEASES

                                   EXHIBIT C

                         HAZARDOUS MATERIALS DISCLOSURE

Tenant acknowledges the following disclosure, by Landlord with respect to
Hazardous Materials at the Premises. Tenant agrees to comply with the
precautionary requirements and other provisions, set forth below, that arc
associated with these Hazardous Materials.

      (1)   Portions of the structures on the Premises may contain
            asbestos-containing materials. Accordingly, Tenant agrees that it
            will not make any repairs or alterations to the structures on the
            Premises: (a) without inquiring from Landlord whether Tenant's
            planned repairs or alterations are likely to disturb
            asbestos-containing materials in the structure, and (b) if, in
            Landlords judgment, the planned repairs or alterations will disturb
            the asbestos-containing materials, without securing Landlord's prior
            consent to the repairs or alterations.

      (2)   Portions of the groundwater in the City of Sunnyvale contain
            volatile organic compounds and/or solvents. These substances may be
            present in the groundwater beneath the Premises.

            Landlord is unaware of any practical impediment to the use or
            occupancy of the Premises as a result of the presence of these
            substances in the groundwater.

      (3)   Tenant agrees that its exemption in Section 5.3(f) of the Lease from
            liability or responsibility with respect to the Hazardous Materials
            described in this Exhibit C shall not extend to any such Hazardous
            Materials whose presence was caused or permitted by Tenant, its
            agents, employees, contractors, contractors, licensees, or invitees.





                                   EXHIBIT D
                                   ---------

                               TENANT'S INSURANCE

      The following standards for Tenants insurance shall be in effect at the
Building. Landlord reserves the right to adopt reasonable nondiscriminatory
modifications and additions to those standards. Tenant agrees to obtain and
present evidence to Landlord that it has fully complied with the insurance
requirements.

      1. Tenant shall, at Its sole cost and expense, commencing on the date
Tenant Is given access to the Premises for any purpose and during the entire
Term, procure, pay for and keep in full force and effect: (i) commercial general
liability insurance with respect to the Premises and the operations of or on
behalf of Tenant in, on or about the Premises, including but not limited to
personal injury, owned and nonowned automobile, blanket contractual, independent
contractors, broad form property damage (with an exception to any pollution
exclusion `with respect to damage arising out of heat, smoke or fumes from a
hostile fire), fire and water legal liability, products liability (if a product
is sold from the Premises), liquor law liability (if alcoholic beverages are
sold, sewed or consumed within the Premises), and severability of interest,
which policy(ies) shall be written on an "occurrence" basis and for not less
than the amount set forth in Item 13 of the Basic Lease Provisions, with a
combined single limit (with a $50,000 minimum limit on fire legal liability) per
occurrence for bodily injury, death, and property damage liability, or the
current limit of liability carried by Tenant, whichever is greater, and subject
to such increases in amounts as Landlord may determine from time to time; (ii)
workers' compensation insurance coverage as required by law, together with
employers' liability insurance; (iii) with respect to improvements, alterations,
and the like required or permitted to be made by Tenant under this Lease,
builder's all-risk insurance, in an amount equal to the replacement cost of the
work (provided that such coverage shall not be required until any such
improvements or alterations are made); (iv) insurance against fire, vandalism,
malicious mischief and such other additional perils as may be included in a
standard "all risk" form in general use in the county in which the Premises are
situated, insuring Tenant's leasehold improvements, trade fixtures, furnishings,
equipment and items of personal property of Tenant located in the Premises, in
an amount equal to not less than ninety percent (90%) of their actual
replacement cost (with replacement cost endorsement); and (v) business
interruption Insurance in amounts satisfactory to cover one (1) year of loss. In
no event shall the limits of any policy be considered as limiting the liability
of Tenant under this Lease.

      2. In the event Landlord consents to Tenant's use, generation or storage
of Hazardous Materials on, under or about the Premises pursuant to Section 5.3
of this Lease, then Tenant shall notify Landlord in writing before it brings
such Hazardous Materials to the Premises and Landlord shall thereafter have the
continuing right to require Tenant, at Tenant's sole cost and expense (provided
the same is available for purchase upon commercially reasonable terms), to
purchase insurance specified and approved by Landlord, with coverage not less
than Five Million Dollars ($5,000,000.00), insuring (i) any Hazardous Materials
shall be removed from the Premises, (ii) the Premises shall be restored to a
clean, healthy, safe and sanitary condition, and (iii) any liability of Tenant,
Landlord and Landlord's officers, directors, shareholders, agents, employees,
and representatives, arising from such Hazardous Materials.

      3. All policies of insurance required to be carried by Tenant pursuant to
this Exhibit D containing a deductible exceeding Ten Thousand Dollars
($10,000.00) per occurrence must be approved in writing by Landlord prior to the
issuance of such policy. Tenant shall be solely responsible for the payment of
all deductibles.

      4. All policies of insurance required to be carried by Tenant pursuant to
this Exhibit D shall be written by responsible insurance companies authorized to
do business in the State of California and with a Best's rating of not less than
"A" subject to final acceptance and approval by Landlord. Any insurance required
of Tenant may be furnished by Tenant under any blanket policy carried by it or
under a separate policy, so long as (i) the Premises are specifically covered
(by rider, endorsement or otherwise) and (ii) the policy otherwise complies with
the provisions of this Exhibit D. A true and exact copy of each paid up policy
evidencing the insurance (appropriately authenticated by the Insurer) or a
certificate of insurance, certifying that the policy has been issued, provides
the coverage required by this Exhibit D and contains the required provisions,
shall be delivered to Landlord prior to the date Tenant is given the right of
possession of the Premises. Proper evidence of the renewal of any insurance
coverage shall also be delivered to Landlord not less than thirty (30) days
prior to the expiration of the coverage. Landlord may at anytime, and from time
to time, inspect and/or copy any and all insurance policies required by this
Lease.

      5. Each policy evidencing insurance required to be carried by Tenant
pursuant to this Exhibit D shall contain the following provisions and/or clauses
satisfactory to Landlord: (i) a provision that the policy and the coverage
provided shall be primary and that any coverage carried by Landlord shall be
noncontributory with respect to any policies carried by Tenant except as to
workers' compensation insurance; (ii) a provision including Landlord, the
Additional Insureds identified in Item 11 of the Basic Lease Provisions, and any
other parties in interest designated by Landlord as an additional insured,
except as to workers' compensation insurance; (iii) a waiver by the insurer of
any right to subrogation against Landlord, its agent, employees, contractors and
representatives which arises or might arise by reason of any payment under the
policy or by reason of any act or omission of Landlord, its agents, employees,
contractors or representatives; and (iv) a provision that the insurer will not
cancel or change the coverage provided by the policy without first giving
Landlord thirty (30) days prior written notice.

      6. In the event that Tenant fails to procure, maintain and/or pay for, at
the times and for the durations specified in this Exhibit D, any insurance
required by this Exhibit D, or fails to carry insurance required by any
governmental authority, Landlord may at its election procure that insurance and
pay the premiums, in which event Tenant shall repay Landlord all sums paid by
Landlord, together with interest at the maximum rate permitted by law and any
related costs or expenses incurred by Landlord, within ten (10) days following
Landlord's written demand to Tenant.


                                      -1-



                                   EXHIBIT E
                                   ---------

                             RULES AND REGULATIONS

      This Exhibit sets forth the rules and regulations governing Tenant's use
of the Premises leased to Tenant pursuant to the terms, covenants and conditions
of the Lease to which this Exhibit is attached and therein made part thereof. In
the event of any conflict or inconsistency between this Exhibit and the Lease,
the Lease shall control.

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

      2. The walls, walkways, sidewalks, entrance passages, courts and
vestibules shall not be obstructed or used for any purpose other than ingress
and egress of pedestrian travel to and from the Premises, and shall not be used
for loitering or gathering, or to display, store or place any merchandise,
equipment or devices, or for any other purpose. The walkways, entrance
passageways, courts, vestibules and roof are not for the use of the general
public and Landlord shall in all cases retain the right to control and prevent
access thereto by all persons whose presence in the judgment of the Landlord
shall be prejudicial to the safety, character, reputation and interests of the
Building and its tenants, provided that nothing herein contained shall be
construed to prevent such access to persons with whom Tenant normally deals in
the ordinary course of Tenant's business unless such persons are engaged in
illegal activities. No tenant or employee or invitee of any tenant shall be
permitted upon the roof of the Building.

      3. No awnings or other projection shall be attached to the outside walls
of the Building. No security bars or gates, curtains, blinds, shades or screens
shall be attached to or hung in, or used in connection with, any window or door
of the Premises without the prior written consent of Landlord. Neither the
interior nor exterior of any windows shall be coated or otherwise sunscreened
without the express written consent of Landlord.

      4. Tenant shall not mark, nail, paint, drill into, or in any way deface
any part of the Premises or the Building, Tenant shall not lay linoleum, tile,
carpet or other similar floor covering so that the same shall be affixed to the
floor of the Premises in any manner except as approved by Landlord in writing.
The expense of repairing any damage resulting from a violation of this rule or
removal of any floor covering shall be borne by Tenant.

      5. The toilet rooms, urinals, wash bowls and other plumbing apparatus
shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown
therein. The expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the tenant who, or whose employees or
invitees, caused it.

      6. Landlord shall direct electricians as to the manner and location of any
future telephone wiring. No boring or cutting for wires will be allowed without
the prior consent of Landlord. The locations of the telephones, call boxes and
other office equipment affixed to the Premises shall be subject to the prior
written approval of Landlord.

      7. The Premises shall not be used for manufacturing or for the storage of
merchandise except as such storage may be incidental to the permitted use of the
Premises. No exterior storage shall be allowed at any time without the prior
written approval of Landlord. The Premises shall not be used for cooking or
washing clothes without the prior written consent of Landlord, or for lodging or
sleeping or for any immoral or illegal purposes.

      8. Tenant shall not make, or permit to be made, any unseemly or disturbing
noises or disturb or interfere with occupants of this or neighboring buildings
or premises or those having business with them, whether by the use of any
musical instrument, radio, phonograph, noise, or otherwise. Tenant shall not
use, keep or permit to be used, or kept, any foul or obnoxious gas or substance
in the Premises or permit or suffer the Premises to be used or occupied in any
manner offensive or objectionable to Landlord or other occupants of this or
neighboring buildings or premises by reason of any odors, fumes or gases.

      9. No animals shall be permitted at any time within the Premises.

      10. Tenant shall not use the name of the Building or the Project in
connection with or in promoting or advertising the business of Tenant, except as
Tenant's address, without the written consent of Landlord. Landlord shall have
the right to prohibit any advertising by any Tenant which, in Landlord's
reasonable opinion, tends to impair the reputation of the Project or its
desirability for its intended uses, and upon written notice from Landlord any
Tenant shall refrain from or discontinue such advertising.

      11. Canvassing, soliciting, peddling, parading, picketing, demonstrating
or otherwise engaging in any conduct that unreasonably impairs the value or use
of the Premises or the Project are prohibited and each Tenant shall cooperate to
prevent the same.

      12. No equipment of any type shall be placed on the Premises which in
Landlord's opinion exceeds the load limits of the floor or otherwise threatens
the soundness of the structure or improvements of the Building.


                                     1 of 2



      13. No air conditioning unit or other similar apparatus shall be installed
or used by any Tenant without the prior written consent of Landlord.

      14. The entire Premises, including vestibules entrances, doors, fixtures,
windows and plate glass, shall at all times be maintained in a safe, neat and
clean condition by Tenant. All trash, refuse and waste materials shall be
regularly removed from the Premises by Tenant and placed in the containers at
the locations designated by Landlord for refuse collection. All cardboard boxes
must be "broken down" prior to being placed in the trash container. All
styrofoam chips must be bagged or otherwise contained prior to placement in the
trash container, so as not to constitute a nuisance. Pallets may not be disposed
of in the trash container or enclosures. The burning of trash, refuse or waste
materials is prohibited.

      15. Tenant shall use at Tenant's cost such pest extermination contractor
as Landlord may direct and at such intervals as Landlord may require.

      16. All keys for the Premises shall be provided to Tenant by Landlord and
Tenant shall return to Landlord any of such keys so provided upon the
termination of the Lease. Tenant shall not change locks or install other locks
on doors of the Premises, without the prior written consent of Landlord. In the
event of loss of any keys furnished by Landlord for Tenant, Tenant shall pay to
Landlord the costs thereof.

      17. No person shall enter or remain within the Project while intoxicated
or under the influence of liquor or drugs. Landlord shall have the right to
exclude or expel from the Project any person who, in the absolute discretion of
Landlord, is under the influence of liquor or drugs.

      Landlord reserves the right to amend or supplement the foregoing Rules
and Regulations and to adopt and promulgate additional rules and regulations
applicable to the Premises. Notice of such rules and regulations and amendments
and supplements thereto, if any, shall be given to the Tenant.


                                     2 of 2

EX-10.40

                                                                   EXHIBIT 10.40

                   [Molecular Devices Corporation letterhead]

April 11, 2002

Joseph D. Keegan, Ph.D.
c/o Molecular Devices Corporation
1311 Orleans Drive
Sunnyvale, CA  94089

Dear Joe:

This will serve to confirm the agreement of Molecular Devices Corporation
(the "Company") that, in consideration of your election to forgo the
change-in-control severance benefits under your Employment Agreement dated
March 11, 1998 (the "Employment Agreement"), you will be entitled to benefits
under the Company's 2001 Change In Control Severance Plan (the "Plan").  In
addition, the Company hereby agrees that it will not terminate the Plan or
implement any amendment of the Plan that would result in lesser benefits to you
under the Plan than you currently have under the Employment Agreement without
(a) your written consent or (b) restoring to you your rights under the
Employment Agreement.

Very truly yours,

Molecular Devices Corporation


By: /s/ Tim Harkness
    ----------------------------
    Tim Harkness, CFO/VP Finance

AGREED:

    /s/ Joseph D. Keegan, Ph.D.
- --------------------------------
    Joseph D. Keegan, Ph.D.

                          MOLECULAR DEVICES CORPORATION

                  CHANGE IN CONTROL SEVERANCE BENEFIT PLAN FOR

                                JOSEPH D. KEEGAN

                      PRESIDENT AND CHIEF EXECUTIVE OFFICER

SECTION 1.  INTRODUCTION.

            The Molecular Devices Corporation Change in Control Severance
Benefit Plan (the "Plan") was established effective February 15, 2001. The
purpose of the Plan is to provide for the payment of severance benefits to
certain eligible employees of Molecular Devices Corporation (the "Company")
whose employment with the Company is terminated following a Change in Control.
This Plan shall supersede any severance benefit plan, policy or practice
previously maintained by the Company. This Plan document also is the Summary
Plan Description for the Plan.

SECTION 2.  DEFINITIONS.

      For purposes of the Plan, the following terms are defined as follows:

            (a) "BASE SALARY" means the Eligible Employee's annual base salary
as in effect during the last regularly scheduled payroll period immediately
preceding the Change in Control or as increased thereafter.

            (b) "BOARD" means the Board of Directors of the Company.

            (c) "CHANGE IN CONTROL" is defined as one or more of the following
events:

                  (i) there is consummated a sale or other disposition of all or
substantially all of the assets of the Company (other than a sale to an entity
where at least fifty percent (50%) of the combined voting power of the voting
securities of such entity are owned by the stockholders of the Company in
substantially the same proportions as their ownership of the Company immediately
prior to such sale);

                  (ii) any person, entity or group (other than the Company, a
subsidiary or affiliate of the Company, or a Company employee benefit plan,
including any trustee of such plan acting as trustee) becomes the beneficial
owner, directly or indirectly, of securities of the Company representing fifty
percent (50%) or more of the combined voting power of the Company's then
outstanding securities other than by virtue of a merger, consolidation or
similar transaction; or

                  (iii) there is consummated a merger, consolidation or similar
transaction involving (directly or indirectly) the Company and, immediately
after the consummation of such transaction, the stockholders immediately prior
to the consummation of


such transaction do not own, directly or indirectly, outstanding voting
securities representing more than fifty percent (50%) of the combined
outstanding voting power of the surviving entity in such transaction or more
than fifty percent (50%) of the combined outstanding voting power of the parent
of the surviving entity in such transaction.

            (d) "COMPANY" means Molecular Devices Corporation or, following a
Change in Control, the surviving entity resulting from such transaction.

            (e) "CONSTRUCTIVE TERMINATION" means a voluntary termination of
employment by an Eligible Employee after one of the following is undertaken
without the Eligible Employee's express written consent:

                  (i) the assignment to the Eligible Employee of duties or
responsibilities that results in a material diminution in the Eligible
Employee's authority, duties or responsibilities as in effect immediately prior
to the Change in Control; provided, however, that a mere change in the Eligible
Employee's title or reporting relationships shall not provide the basis for a
Constructive Termination;

                  (ii) a reduction in the Eligible Employee's base salary, as in
effect immediately prior to the Change in Control (or as increased thereafter),
unless such reduction is made pursuant to an across-the-board reduction of the
base salaries of all similarly situated employees of the Company of no more than
ten percent (10%);

                  (iii) a change in the Eligible Employee's business location of
more than 35 miles from the business location immediately prior to the Change in
Control;

                  (iv) a material breach by the Company of any provisions of the
Plan or any enforceable written agreement between the Company and the Eligible
Employee; or

                  (v) any failure by the Company to obtain assumption of the
Plan by any successor or assign of the Company.

            (f) "CONTINUATION PERIOD" means the period for which an Eligible
Employee is entitled to receive the benefits described in Section 4(c). The
Continuation Period is eighteen (18) months.

            (g) "COVERED TERMINATION" means an Involuntary Termination Without
Cause or a Constructive Termination, either of which occurs within thirteen (13)
months following the effective date of a Change in Control.

            (h) "INVOLUNTARY TERMINATION WITHOUT CAUSE" means an involuntary
termination of employment by the Company other than for one of the following
reasons:

                  (i) refusal or failure to follow the lawful and reasonable
directions of the Board of Directors or individual to whom the Eligible Employee
reports, which refusal or failure is not cured within 30 days following delivery
of written notice of such conduct to the Eligible Employee;


                  (ii) a material failure by the Eligible Employee to perform
his or her duties in a manner reasonably satisfactory to the Board of Directors
that is not cured within 30 days following delivery of written notice of such
failure to the Eligible Employee; or

                  (iii) conviction of a felony involving moral turpitude that is
likely to inflict or has inflicted material injury on the business of the
Company.

SECTION 3.  ELIGIBILITY FOR BENEFITS.

            (a) GENERAL RULES. Subject to the requirements set forth in this
Section, the Company will provide the severance benefits described in Section 4
of the Plan to Eligible Employees. For purposes of this Plan, "Eligible
Employees" are designated executive employees of the Company who have not
entered into individual severance benefit or change in control agreements with
the Company and whose employment with the Company terminates due to a Covered
Termination.

                  (i) In order to be eligible to receive benefits under the
Plan, an Eligible Employee must remain on the job until his or her date of
termination, as scheduled by the Company.

                  (ii) In order to be eligible to receive benefits under the
Plan, an Eligible Employee also must execute a general waiver and release in
substantially the form attached hereto as Exhibit A, Exhibit B or Exhibit C, as
appropriate, and such release must become effective in accordance with its
terms. The Company, in its sole discretion, may modify the form of the required
release to comply with applicable state law. Subject to the foregoing, the
Company, in its sole discretion, shall determine the form of the required
release.

                (b) EXCEPTIONS TO BENEFIT ENTITLEMENT. An employee who otherwise
is an Eligible Employee will not receive benefits under the Plan in any of the
following circumstances, as determined by the Company in its sole discretion:

                  (i) The employee has executed an individually negotiated
employment contract or agreement with the Company relating to severance benefits
or change in control benefits that is in effect on his or her termination date.

                  (ii) The employee's employment with the Company is
involuntarily terminated by the Company other than as an Involuntary Termination
without Cause.

                  (iii) The employee voluntarily terminates employment with the
Company and such termination does not constitute a Constructive Termination.
Voluntary terminations include, but are not limited to, resignation, retirement
or failure to return from a leave of absence on the scheduled date.

                  (iv) The employee voluntarily terminates employment with the
Company in order to accept employment with another entity that is wholly or
partly owned (directly or indirectly) by the Company or an affiliate of the
Company.


SECTION 4.  AMOUNT OF BENEFIT.

            (a) BASE SALARY. Each Eligible Employee shall receive twelve (12)
months of Base Salary. Such amount shall be paid in a lump sum and shall be
subject to all required tax withholding.

            (b) BONUS PAYMENT. Each Eligible Employee shall receive a bonus
payment equal to what would have been earned at one hundred percent (100%) of
target for the year of termination.

            (c) CONTINUED INSURANCE BENEFITS. Provided that the Eligible
Employee elects continued coverage under the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA"), the Company shall pay the portion of
premiums of each Eligible Employee's group medical, dental and vision coverage,
including coverage for the Eligible Employee's eligible dependents, that the
Company paid prior to the Covered Termination, for eighteen (18) months;
provided, however, that no such premium payments shall be made following the
effective date of the Eligible Employee's coverage by a medical, dental or
vision insurance plan of a subsequent employer. Each Eligible Employee shall be
required to notify the Company immediately if the Eligible Employee becomes
covered by a medical, dental or vision insurance plan of a subsequent employer.
No provision of this Plan will affect the continuation coverage rules under
COBRA, except that the Company's payment of any applicable insurance premiums
during the Continuation Period will be credited as payment by the Eligible
Employee for purposes of the Eligible Employee's payment required under COBRA.
Therefore, the period during which an Eligible Employee must elect whether or
not to continue the Company's group medical, dental or vision coverage under
COBRA, the length of time during which COBRA continuation coverage will be made
available to the Eligible Employee, and all other rights and obligations of the
Eligible Employee under COBRA will be applied in the same manner that such rules
would apply in the absence of this Plan. At the conclusion of the Continuation
Period, the Eligible Employee will be responsible for the entire payment of
premiums required under COBRA for the duration of the COBRA continuation period.
For purposes of this Section 4(c), applicable premiums that will be paid by the
Company during the Continuation Period shall not include any amounts payable by
the Eligible Employee under a Section 125 health care reimbursement plan, which
amounts, if any, are the sole responsibility of the Eligible Employee.

            (d) ACCELERATION OF VESTING. Effective as of the date of the Covered
Termination, each Eligible Employee shall be credited with full acceleration of
vesting for all options outstanding that the Eligible Employee holds on such
date that have not yet vested. Notwithstanding the foregoing, if the acquiring
entity in the transaction which constitutes a Change in Control under the Plan
intends to utilize the "pooling of interests" accounting method in connection
with such transaction, and such transaction would be eligible for the "pooling
of interests" accounting method but for the additional vesting credit provided
for in this Section 4(d), then Eligible Employees shall not be entitled to
receive such additional vesting credit.

            (e) OUTPLACEMENT SERVICES. On behalf of the Eligible Employee, the
Company shall pay for an executive assistance program for a period not to exceed
three (3) months and at a cost not to exceed $7,500, provided that the Eligible
Employee enrolls in the program within six (6) months following the Covered
Termination.


SECTION 5.  LIMITATIONS ON BENEFITS.

            (a) RELEASE. To receive benefits under this Plan, an Eligible
Employee must execute a release of claims in favor of the Company, in the form
attached to this Plan as Exhibit A, Exhibit B or Exhibit C, as appropriate, and
such release must become effective in accordance with its terms.

            (b) CERTAIN REDUCTIONS AND OFFSETS. Notwithstanding any other
provision of the Plan to the contrary, any benefits payable to an Eligible
Employee under this Plan shall be reduced by any severance benefits payable by
the Company to such individual under any other policy, plan, program or
arrangement, including, without limitation, a contract between the Eligible
Employee and any entity, covering such individual. Furthermore, to the extent
that any federal, state or local laws, including, without limitation, so-called
"plant closing" laws, require the Company to give advance notice or make a
payment of any kind to an Eligible Employee because of that Eligible Employee's
involuntary termination due to a layoff, reduction in force, plant or facility
closing, sale of business, change of control, or any other similar event or
reason, the benefits payable under this Plan shall either be reduced or
eliminated. The benefits provided under this Plan are intended to satisfy any
and all statutory obligations that may arise out of an Eligible Employee's
involuntary termination of employment for the foregoing reasons, and the Plan
Administrator shall so construe and implement the terms of the Plan.

            (c) MITIGATION. Except as otherwise specifically provided herein,
Eligible Employees shall not be required to mitigate damages or the amount of
any payment provided under this Plan by seeking other employment or otherwise,
nor shall the amount of any payment provided for under this Plan be reduced by
any compensation earned by any Eligible Employee as a result of employment by
another employer or any retirement benefits received by such Eligible Employee
after the date of the Covered Termination.

            (d) TERMINATION OF BENEFITS. Benefits under this Plan shall
terminate immediately if the Eligible Employee, at any time, violates any
proprietary information or confidentiality obligation to the Company.

            (e) NON-DUPLICATION OF BENEFITS. No Eligible Employee is eligible to
receive benefits under this Plan more than one time.

            (f) INDEBTEDNESS OF ELIGIBLE EMPLOYEES. If a terminating employee is
indebted to the Company or an affiliate of the Company at his or her termination
date, the Company reserves the right to offset any severance payments under the
Plan by the amount of such indebtedness.

            (g) PARACHUTE PAYMENTS. If any payment or benefit the Eligible
Employee would receive in connection with a Change in Control from the Company
or otherwise ("Payment") would (i) constitute a "parachute payment" within the
meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), and (ii) but for this sentence, be subject to the excise tax imposed by
Section 4999 of the Code (the "Excise Tax"), then such Payment shall be reduced
to the Reduced Amount. The "Reduced Amount" shall be either (x) the largest
portion of the Payment that would result in no portion of the Payment being
subject to


the Excise Tax or (y) the largest portion, up to and including the total, of the
Payment, whichever amount, after taking into account all applicable federal,
state and local employment taxes, income taxes, and the Excise Tax (all computed
at the highest applicable marginal rate), results in the Eligible Employee's
receipt, on an after-tax basis, of the greater amount of the Payment
notwithstanding that all or some portion of the Payment may be subject to the
Excise Tax. If a reduction in payments or benefits constituting "parachute
payments" is necessary so that the Payment equals the Reduced Amount, reduction
shall occur in the following order unless the Eligible Employee elects in
writing a different order (provided, however, that such election shall be
subject to Company approval if made on or after the date on which the event that
triggers the Payment occurs): reduction of cash payments; cancellation of
accelerated vesting of stock awards; reduction of employee benefits. In the
event that acceleration of vesting of stock award compensation is to be reduced,
such acceleration of vesting shall be cancelled in the reverse order of the date
of grant of the Eligible Employee's stock awards unless the Eligible Employee
elects in writing a different order for cancellation.

      The accounting firm engaged by the Company for general audit purposes as
of the day prior to the effective date of the Change in Control shall perform
the foregoing calculations. If the accounting firm so engaged by the Company is
serving as accountant or auditor for the individual, entity or group effecting
the Change in Control, the Company shall appoint a nationally recognized
accounting firm to make the determinations required hereunder. The Company shall
bear all expenses with respect to the determinations by such accounting firm
required to be made hereunder.

      The accounting firm engaged to make the determinations hereunder shall
provide its calculations, together with detailed supporting documentation, to
the Company and the Eligible Employee within fifteen (15) calendar days after
the date on which the Eligible Employee's right to a Payment is triggered (if
requested at that time by the Company or the Eligible Employee) or such other
time as requested by the Company or the Eligible Employee. If the accounting
firm determines that no Excise Tax is payable with respect to a Payment, either
before or after the application of the Reduced Amount, it shall furnish the
Company and the Eligible Employee with an opinion reasonably acceptable to
Executive that no Excise Tax will be imposed with respect to such Payment. Any
good faith determinations of the accounting firm made hereunder shall be final,
binding and conclusive upon the Company and the Eligible Employee.

SECTION 6.  RIGHT TO INTERPRET PLAN; AMENDMENT AND TERMINATION.

            (a) EXCLUSIVE DISCRETION. The Plan Administrator shall have the
exclusive discretion and authority to establish rules, forms, and procedures for
the administration of the Plan and to construe and interpret the Plan and to
decide any and all questions of fact, interpretation, definition, computation or
administration arising in connection with the operation of the Plan, including,
but not limited to, the eligibility to participate in the Plan and amount of
benefits paid under the Plan. The rules, interpretations, computations and other
actions of the Plan Administrator shall be binding and conclusive on all
persons.

            (b) AMENDMENT OR TERMINATION. The Company reserves the right to
amend or terminate this Plan or the benefits provided hereunder at any time;
provided, however, that no such amendment or termination shall occur following a
Change in Control if such amendment or


termination would affect the rights of any persons who were employed by the
Company prior to the Change in Control. Any action amending or terminating the
Plan shall be in writing and executed by the chairman of the Compensation
Committee of the Board of Directors of the Company.

SECTION 7.  TERMINATION OF CERTAIN EMPLOYEE BENEFITS.

            All non-health benefits (such as life insurance, disability and
401(k) plan coverage) terminate as of the employee's termination date (except to
the extent that a conversion privilege may be available thereunder).

SECTION 8.  NO IMPLIED EMPLOYMENT CONTRACT.

            The Plan shall not be deemed (i) to give any employee or other
person any right to be retained in the employ of the Company or (ii) to
interfere with the right of the Company to discharge any employee or other
person at any time and for any reason, which right is hereby reserved.

SECTION 9.  LEGAL CONSTRUCTION.

            This Plan is intended to be governed by and shall be construed in
accordance with the Employee Retirement Income Security Act of 1974 ("ERISA")
and, to the extent not preempted by ERISA, the laws of the State of California.

SECTION 10. CLAIMS, INQUIRIES AND APPEALS.

            (a)   APPLICATIONS FOR BENEFITS AND INQUIRIES.  Any application
for benefits, inquiries about the Plan or inquiries about present or future
rights under the Plan must be submitted to the Plan Administrator in
writing.  The Plan Administrator is:

                          Molecular Devices Corporation
                      Attn: Vice President, Human Resources
                               1311 Orleans Drive
                               Sunnyvale, CA 94089

            (b) DENIAL OF CLAIMS. In the event that any application for benefits
is denied in whole or in part, the Plan Administrator must notify the applicant,
in writing, of the denial of the application, and of the applicant's right to
review the denial. The written notice of denial will be set forth in a manner
designed to be understood by the employee and will include specific reasons for
the denial, specific references to the Plan provision upon which the denial is
based, a description of any information or material that the Plan Administrator
needs to complete the review and an explanation of the Plan's review procedure.

            This written notice will be given to the employee within ninety (90)
days after the Plan Administrator receives the application, unless special
circumstances require an extension of time, in which case, the Plan
Administrator has up to an additional ninety (90) days for processing the
application. If an extension of time for processing is required, written notice
of


the extension will be furnished to the applicant before the end of the initial
ninety (90) day period.

            This notice of extension will describe the special circumstances
necessitating the additional time and the date by which the Plan Administrator
is to render its decision on the application. If written notice of denial of the
application for benefits is not furnished within the specified time, the
application shall be deemed to be denied. The applicant will then be permitted
to appeal the denial in accordance with the Review Procedure described below.

            (c) REQUEST FOR A REVIEW. Any person (or that person's authorized
representative) for whom an application for benefits is denied (or deemed
denied), in whole or in part, may appeal the denial by submitting a request for
a review to the Plan Administrator within sixty (60) days after the application
is denied (or deemed denied). The Plan Administrator will give the applicant (or
his or her representative) an opportunity to review pertinent documents in
preparing a request for a review. A request for a review shall be in writing and
shall be addressed to:

                          Molecular Devices Corporation
                      Attn: Vice President, Human Resources
                               1311 Orleans Drive
                               Sunnyvale, CA 94089

A request for review must set forth all of the grounds on which it is based, all
facts in support of the request and any other matters that the applicant feels
are pertinent. The Plan Administrator may require the applicant to submit
additional facts, documents or other material as it may find necessary or
appropriate in making its review.

            (d) DECISION ON REVIEW. The Plan Administrator will act on each
request for review within sixty (60) days after receipt of the request, unless
special circumstances require an extension of time (not to exceed an additional
sixty (60) days), for processing the request for a review. If an extension for
review is required, written notice of the extension will be furnished to the
applicant within the initial sixty (60) day period. The Plan Administrator will
give prompt, written notice of its decision to the applicant. In the event that
the Plan Administrator confirms the denial of the application for benefits in
whole or in part, the notice will outline, in a manner calculated to be
understood by the applicant, the specific Plan provisions upon which the
decision is based. If written notice of the Plan Administrator's decision is not
given to the applicant within the time prescribed in this Subsection (d), the
application will be deemed denied on review.

            (e) RULES AND PROCEDURES. The Plan Administrator will establish
rules and procedures, consistent with the Plan and with ERISA, as necessary and
appropriate in carrying out its responsibilities in reviewing benefit claims.
The Plan Administrator may require an applicant who wishes to submit additional
information in connection with an appeal from the denial (or deemed denial) of
benefits to do so at the applicant's own expense.


            (f) EXHAUSTION OF REMEDIES. No legal action for benefits under the
Plan may be brought until the claimant (i) has submitted a written application
for benefits in accordance with the procedures described by Section 10(a) above,
(ii) has been notified by the Plan Administrator that the application is denied
(or the application is deemed denied due to the Plan Administrator's failure to
act on it within the established time period), (iii) has filed a written request
for a review of the application in accordance with the appeal procedure
described in Section 10(c) above and (iv) has been notified in writing that the
Plan Administrator has denied the appeal (or the appeal is deemed to be denied
due to the Plan Administrator's failure to take any action on the claim within
the time prescribed by Section 10(d) above).

SECTION 11. BASIS OF PAYMENTS TO AND FROM PLAN.

            All benefits under the Plan shall be paid by the Company. The Plan
shall be unfunded, and benefits hereunder shall be paid only from the general
assets of the Company.

SECTION 12. OTHER PLAN INFORMATION.

            (a) EMPLOYER AND PLAN IDENTIFICATION NUMBERS. The Employer
Identification Number assigned to the Company (which is the "Plan Sponsor" as
that term is used in ERISA) by the Internal Revenue Service is 94-2914362. The
Plan Number assigned to the Plan by the Plan Sponsor pursuant to the
instructions of the Internal Revenue Service is [510].

            (b)   ENDING DATE FOR PLAN'S FISCAL YEAR.  The date of the end of
the fiscal year for the purpose of maintaining the Plan's records is December
31.

            (c) AGENT FOR THE SERVICE OF LEGAL PROCESS. The agent for the
service of legal process with respect to the Plan is Molecular Devices
Corporation, Attn: Vice President, Human Resources, 1311 Orleans Drive,
Sunnyvale, CA 94089.

            (d)   PLAN SPONSOR AND ADMINISTRATOR.  The "Plan Sponsor" and the
"Plan Administrator" of the Plan is Molecular Devices Corporation,  Attn:
Vice President, Human Resources, 1311 Orleans Drive, Sunnyvale, CA 94089.
The Plan Sponsor's and Plan Administrator's telephone number is (408)
747-1700.  The Plan Administrator is the named fiduciary charged with the
responsibility for administering the Plan.

SECTION 13. STATEMENT OF ERISA RIGHTS.

      Participants in this Plan (which is a welfare benefit plan sponsored by
Molecular Devices Corporation) are entitled to certain rights and protections
under ERISA. An Eligible Employee is considered a participant in the Plan and,
under ERISA, is entitled to:

            (a) Examine, without charge, at the Plan Administrator's office and
at other specified locations, such as work sites, all Plan documents and copies
of all documents filed by the Plan with the U.S. Department of Labor, such as
detailed annual reports;


            (b) Obtain copies of all Plan documents and Plan information upon
written request to the Plan Administrator. The Administrator may make a
reasonable charge for the copies; and

            (c) Receive a summary of the Plan's annual financial report, in the
case of a plan that is required to file an annual financial report with the
Department of Labor. (Generally, all pension plans and welfare plans with one
hundred (100) or more participants must file these annual reports.)

      In addition to creating rights for Plan participants, ERISA imposes duties
upon the people responsible for the operation of the employee benefit plan. The
people who operate the Plan, called "fiduciaries" of the Plan, have a duty to do
so prudently and in the interest of the Eligible Employees and other Plan
participants and beneficiaries.

      No one, including the employer of the participants or any other person,
may fire a participant or otherwise discriminate against participants in any way
to prevent a participant from obtaining a Plan benefit or exercising his or her
rights under ERISA. If a participant's claim for a Plan benefit is denied in
whole or in part, he or she must receive a written explanation of the reason for
the denial. A participant has the right to have the Plan Administrator review
and reconsider his or her claim.

      Under ERISA, there are steps a participant can take to enforce the above
rights. For instance, if a participant requests materials from the Plan
Administrator and does not receive them within thirty (30) days, he or she may
file suit in a federal court. In such a case, the court may require the Plan
Administrator to provide the materials and pay the participant up to $110 a day
until he or she receives the materials, unless the materials were not sent
because of reasons beyond the control of the Plan Administrator. If a
participant has a claim for benefits that is denied or ignored, in whole or in
part, he or she may file suit in a state or federal court. If it should happen
that the Plan fiduciaries misuse the Plan's money, or if a participant is
discriminated against for asserting his or her rights, the participant may seek
assistance from the U.S. Department of Labor, or he or she may file suit in a
federal court. The court will decide who should pay court costs and legal fees.
If the participant is successful, the court may order the person the participant
has sued to pay these costs and fees. If the participant loses, the court may
order the participant to pay these costs and fees, for example, if it finds his
or her claim is frivolous.

      If a participant has any questions about the Plan, the participant should
contact the Plan Administrator. If a participant has any questions about this
statement or about his or her rights under ERISA, the participant should contact
the nearest office of the Pension and Welfare Benefits Administration, U.S.
Department of Labor, listed in the telephone directory or the Division of
Technical Assistance and Inquiries, Pension and Welfare Benefits Administration,
U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210.



SECTION 14. EXECUTION.

            To record the adoption of the Plan as set forth herein, effective as
of February 15, 2001, Molecular Devices Corporation has caused its duly
authorized officer to execute the same this 15th day of August, 2001.

                                          MOLECULAR DEVICES CORPORATION

                                          By:    /s/ JOSEPH D. KEEGAN
                                                 -------------------------------
                                          Title: PRESIDENT AND
                                                 CHIEF EXECUTIVE OFFICER

EX-10.41

                                                                   EXHIBIT 10.41

                   [Molecular Devices Corporation letterhead]

April 11, 2002

Timothy A. Harkness
c/o Molecular Devices Corporation
1311 Orleans Drive
Sunnyvale, CA  94089

Dear Tim:

This will serve to confirm the agreement of Molecular Devices Corporation
(the "Company") that, in consideration of your election to forgo the
change-in-control severance benefits under your Employment Agreement dated
July 7, 1998 (the "Employment Agreement"), you will be entitled to benefits
under the Company's 2001 Change In Control Severance Plan (the "Plan").  In
addition, the Company hereby agrees that it will not terminate the Plan or
implement any amendment of the Plan that would result in lesser benefits to you
under the Plan than you currently have under the Employment Agreement without
(a) your written consent or (b) restoring to you your rights under the
Employment Agreement.

Very truly yours,

Molecular Devices Corporation


By: /s/ Joseph D. Keegan, Ph.D.
    ----------------------------
    Joseph D. Keegan, Ph.D.
    CEO/President


AGREED:

    /s/ Tim Harkness
- --------------------------------
    Tim Harkness

                          MOLECULAR DEVICES CORPORATION

                  CHANGE IN CONTROL SEVERANCE BENEFIT PLAN FOR

                              TIMOTHY A. HARKNESS

                            CHIEF FINANCIAL OFFICER

SECTION 1.  INTRODUCTION.

            The Molecular Devices Corporation Change in Control Severance
Benefit Plan (the "Plan") was established effective February 15, 2001. The
purpose of the Plan is to provide for the payment of severance benefits to
certain eligible employees of Molecular Devices Corporation (the "Company")
whose employment with the Company is terminated following a Change in Control.
This Plan shall supersede any severance benefit plan, policy or practice
previously maintained by the Company. This Plan document also is the Summary
Plan Description for the Plan.

SECTION 2.  DEFINITIONS.

      For purposes of the Plan, the following terms are defined as follows:

            (a) "BASE SALARY" means the Eligible Employee's annual base salary
as in effect during the last regularly scheduled payroll period immediately
preceding the Change in Control or as increased thereafter.

            (b) "BOARD" means the Board of Directors of the Company.

            (c) "CHANGE IN CONTROL" is defined as one or more of the following
events:

                  (i) there is consummated a sale or other disposition of all or
substantially all of the assets of the Company (other than a sale to an entity
where at least fifty percent (50%) of the combined voting power of the voting
securities of such entity are owned by the stockholders of the Company in
substantially the same proportions as their ownership of the Company immediately
prior to such sale);

                  (ii) any person, entity or group (other than the Company, a
subsidiary or affiliate of the Company, or a Company employee benefit plan,
including any trustee of such plan acting as trustee) becomes the beneficial
owner, directly or indirectly, of securities of the Company representing fifty
percent (50%) or more of the combined voting power of the Company's then
outstanding securities other than by virtue of a merger, consolidation or
similar transaction; or

                  (iii) there is consummated a merger, consolidation or similar
transaction involving (directly or indirectly) the Company and, immediately
after the consummation of such transaction, the stockholders immediately prior
to the consummation of


such transaction do not own, directly or indirectly, outstanding voting
securities representing more than fifty percent (50%) of the combined
outstanding voting power of the surviving entity in such transaction or more
than fifty percent (50%) of the combined outstanding voting power of the parent
of the surviving entity in such transaction.

            (d) "COMPANY" means Molecular Devices Corporation or, following a
Change in Control, the surviving entity resulting from such transaction.

            (e) "CONSTRUCTIVE TERMINATION" means a voluntary termination of
employment by an Eligible Employee after one of the following is undertaken
without the Eligible Employee's express written consent:

                  (i) the assignment to the Eligible Employee of duties or
responsibilities that results in a material diminution in the Eligible
Employee's authority, duties or responsibilities as in effect immediately prior
to the Change in Control; provided, however, that a mere change in the Eligible
Employee's title or reporting relationships shall not provide the basis for a
Constructive Termination;

                  (ii) a reduction in the Eligible Employee's base salary, as in
effect immediately prior to the Change in Control (or as increased thereafter),
unless such reduction is made pursuant to an across-the-board reduction of the
base salaries of all similarly situated employees of the Company of no more than
ten percent (10%);

                  (iii) a change in the Eligible Employee's business location of
more than 35 miles from the business location immediately prior to the Change in
Control;

                  (iv) a material breach by the Company of any provisions of the
Plan or any enforceable written agreement between the Company and the Eligible
Employee; or

                  (v) any failure by the Company to obtain assumption of the
Plan by any successor or assign of the Company.

            (f) "CONTINUATION PERIOD" means the period for which an Eligible
Employee is entitled to receive the benefits described in Section 4(c). The
Continuation Period is eighteen (18) months.

            (g) "COVERED TERMINATION" means an Involuntary Termination Without
Cause or a Constructive Termination, either of which occurs within thirteen (13)
months following the effective date of a Change in Control.

            (h) "INVOLUNTARY TERMINATION WITHOUT CAUSE" means an involuntary
termination of employment by the Company other than for one of the following
reasons:

                  (i) refusal or failure to follow the lawful and reasonable
directions of the Board of Directors or individual to whom the Eligible Employee
reports, which refusal or failure is not cured within 30 days following delivery
of written notice of such conduct to the Eligible Employee;


                  (ii) a material failure by the Eligible Employee to perform
his or her duties in a manner reasonably satisfactory to the Board of Directors
that is not cured within 30 days following delivery of written notice of such
failure to the Eligible Employee; or

                  (iii) conviction of a felony involving moral turpitude that is
likely to inflict or has inflicted material injury on the business of the
Company.

SECTION 3.  ELIGIBILITY FOR BENEFITS.

            (a) GENERAL RULES. Subject to the requirements set forth in this
Section, the Company will provide the severance benefits described in Section 4
of the Plan to Eligible Employees. For purposes of this Plan, "Eligible
Employees" are designated executive employees of the Company who have not
entered into individual severance benefit or change in control agreements with
the Company and whose employment with the Company terminates due to a Covered
Termination.

                  (i) In order to be eligible to receive benefits under the
Plan, an Eligible Employee must remain on the job until his or her date of
termination, as scheduled by the Company.

                  (ii) In order to be eligible to receive benefits under the
Plan, an Eligible Employee also must execute a general waiver and release in
substantially the form attached hereto as Exhibit A, Exhibit B or Exhibit C, as
appropriate, and such release must become effective in accordance with its
terms. The Company, in its sole discretion, may modify the form of the required
release to comply with applicable state law. Subject to the foregoing, the
Company, in its sole discretion, shall determine the form of the required
release.

                (b) EXCEPTIONS TO BENEFIT ENTITLEMENT. An employee who otherwise
is an Eligible Employee will not receive benefits under the Plan in any of the
following circumstances, as determined by the Company in its sole discretion:

                  (i) The employee has executed an individually negotiated
employment contract or agreement with the Company relating to severance benefits
or change in control benefits that is in effect on his or her termination date.

                  (ii) The employee's employment with the Company is
involuntarily terminated by the Company other than as an Involuntary Termination
without Cause.

                  (iii) The employee voluntarily terminates employment with the
Company and such termination does not constitute a Constructive Termination.
Voluntary terminations include, but are not limited to, resignation, retirement
or failure to return from a leave of absence on the scheduled date.

                  (iv) The employee voluntarily terminates employment with the
Company in order to accept employment with another entity that is wholly or
partly owned (directly or indirectly) by the Company or an affiliate of the
Company.


SECTION 4.  AMOUNT OF BENEFIT.

            (a) BASE SALARY. Each Eligible Employee shall receive twelve (12)
months of Base Salary. Such amount shall be paid in a lump sum and shall be
subject to all required tax withholding.

            (b) BONUS PAYMENT. Each Eligible Employee shall receive a bonus
payment equal to what would have been earned at one hundred percent (100%) of
target for the year of termination.

            (c) CONTINUED INSURANCE BENEFITS. Provided that the Eligible
Employee elects continued coverage under the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA"), the Company shall pay the portion of
premiums of each Eligible Employee's group medical, dental and vision coverage,
including coverage for the Eligible Employee's eligible dependents, that the
Company paid prior to the Covered Termination, for eighteen (18) months;
provided, however, that no such premium payments shall be made following the
effective date of the Eligible Employee's coverage by a medical, dental or
vision insurance plan of a subsequent employer. Each Eligible Employee shall be
required to notify the Company immediately if the Eligible Employee becomes
covered by a medical, dental or vision insurance plan of a subsequent employer.
No provision of this Plan will affect the continuation coverage rules under
COBRA, except that the Company's payment of any applicable insurance premiums
during the Continuation Period will be credited as payment by the Eligible
Employee for purposes of the Eligible Employee's payment required under COBRA.
Therefore, the period during which an Eligible Employee must elect whether or
not to continue the Company's group medical, dental or vision coverage under
COBRA, the length of time during which COBRA continuation coverage will be made
available to the Eligible Employee, and all other rights and obligations of the
Eligible Employee under COBRA will be applied in the same manner that such rules
would apply in the absence of this Plan. At the conclusion of the Continuation
Period, the Eligible Employee will be responsible for the entire payment of
premiums required under COBRA for the duration of the COBRA continuation period.
For purposes of this Section 4(c), applicable premiums that will be paid by the
Company during the Continuation Period shall not include any amounts payable by
the Eligible Employee under a Section 125 health care reimbursement plan, which
amounts, if any, are the sole responsibility of the Eligible Employee.

            (d) ACCELERATION OF VESTING. Effective as of the date of the Covered
Termination, each Eligible Employee shall be credited with full acceleration of
vesting for all options outstanding that the Eligible Employee holds on such
date that have not yet vested. Notwithstanding the foregoing, if the acquiring
entity in the transaction which constitutes a Change in Control under the Plan
intends to utilize the "pooling of interests" accounting method in connection
with such transaction, and such transaction would be eligible for the "pooling
of interests" accounting method but for the additional vesting credit provided
for in this Section 4(d), then Eligible Employees shall not be entitled to
receive such additional vesting credit.

            (e) OUTPLACEMENT SERVICES. On behalf of the Eligible Employee, the
Company shall pay for an executive assistance program for a period not to exceed
three (3) months and at a cost not to exceed $7,500, provided that the Eligible
Employee enrolls in the program within six (6) months following the Covered
Termination.


SECTION 5.  LIMITATIONS ON BENEFITS.

            (a) RELEASE. To receive benefits under this Plan, an Eligible
Employee must execute a release of claims in favor of the Company, in the form
attached to this Plan as Exhibit A, Exhibit B or Exhibit C, as appropriate, and
such release must become effective in accordance with its terms.

            (b) CERTAIN REDUCTIONS AND OFFSETS. Notwithstanding any other
provision of the Plan to the contrary, any benefits payable to an Eligible
Employee under this Plan shall be reduced by any severance benefits payable by
the Company to such individual under any other policy, plan, program or
arrangement, including, without limitation, a contract between the Eligible
Employee and any entity, covering such individual. Furthermore, to the extent
that any federal, state or local laws, including, without limitation, so-called
"plant closing" laws, require the Company to give advance notice or make a
payment of any kind to an Eligible Employee because of that Eligible Employee's
involuntary termination due to a layoff, reduction in force, plant or facility
closing, sale of business, change of control, or any other similar event or
reason, the benefits payable under this Plan shall either be reduced or
eliminated. The benefits provided under this Plan are intended to satisfy any
and all statutory obligations that may arise out of an Eligible Employee's
involuntary termination of employment for the foregoing reasons, and the Plan
Administrator shall so construe and implement the terms of the Plan.

            (c) MITIGATION. Except as otherwise specifically provided herein,
Eligible Employees shall not be required to mitigate damages or the amount of
any payment provided under this Plan by seeking other employment or otherwise,
nor shall the amount of any payment provided for under this Plan be reduced by
any compensation earned by any Eligible Employee as a result of employment by
another employer or any retirement benefits received by such Eligible Employee
after the date of the Covered Termination.

            (d) TERMINATION OF BENEFITS. Benefits under this Plan shall
terminate immediately if the Eligible Employee, at any time, violates any
proprietary information or confidentiality obligation to the Company.

            (e) NON-DUPLICATION OF BENEFITS. No Eligible Employee is eligible to
receive benefits under this Plan more than one time.

            (f) INDEBTEDNESS OF ELIGIBLE EMPLOYEES. If a terminating employee is
indebted to the Company or an affiliate of the Company at his or her termination
date, the Company reserves the right to offset any severance payments under the
Plan by the amount of such indebtedness.

            (g) PARACHUTE PAYMENTS. If any payment or benefit the Eligible
Employee would receive in connection with a Change in Control from the Company
or otherwise ("Payment") would (i) constitute a "parachute payment" within the
meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), and (ii) but for this sentence, be subject to the excise tax imposed by
Section 4999 of the Code (the "Excise Tax"), then such Payment shall be reduced
to the Reduced Amount. The "Reduced Amount" shall be either (x) the largest
portion of the Payment that would result in no portion of the Payment being
subject to


the Excise Tax or (y) the largest portion, up to and including the total, of the
Payment, whichever amount, after taking into account all applicable federal,
state and local employment taxes, income taxes, and the Excise Tax (all computed
at the highest applicable marginal rate), results in the Eligible Employee's
receipt, on an after-tax basis, of the greater amount of the Payment
notwithstanding that all or some portion of the Payment may be subject to the
Excise Tax. If a reduction in payments or benefits constituting "parachute
payments" is necessary so that the Payment equals the Reduced Amount, reduction
shall occur in the following order unless the Eligible Employee elects in
writing a different order (provided, however, that such election shall be
subject to Company approval if made on or after the date on which the event that
triggers the Payment occurs): reduction of cash payments; cancellation of
accelerated vesting of stock awards; reduction of employee benefits. In the
event that acceleration of vesting of stock award compensation is to be reduced,
such acceleration of vesting shall be cancelled in the reverse order of the date
of grant of the Eligible Employee's stock awards unless the Eligible Employee
elects in writing a different order for cancellation.

      The accounting firm engaged by the Company for general audit purposes as
of the day prior to the effective date of the Change in Control shall perform
the foregoing calculations. If the accounting firm so engaged by the Company is
serving as accountant or auditor for the individual, entity or group effecting
the Change in Control, the Company shall appoint a nationally recognized
accounting firm to make the determinations required hereunder. The Company shall
bear all expenses with respect to the determinations by such accounting firm
required to be made hereunder.

      The accounting firm engaged to make the determinations hereunder shall
provide its calculations, together with detailed supporting documentation, to
the Company and the Eligible Employee within fifteen (15) calendar days after
the date on which the Eligible Employee's right to a Payment is triggered (if
requested at that time by the Company or the Eligible Employee) or such other
time as requested by the Company or the Eligible Employee. If the accounting
firm determines that no Excise Tax is payable with respect to a Payment, either
before or after the application of the Reduced Amount, it shall furnish the
Company and the Eligible Employee with an opinion reasonably acceptable to
Executive that no Excise Tax will be imposed with respect to such Payment. Any
good faith determinations of the accounting firm made hereunder shall be final,
binding and conclusive upon the Company and the Eligible Employee.

SECTION 6.  RIGHT TO INTERPRET PLAN; AMENDMENT AND TERMINATION.

            (a) EXCLUSIVE DISCRETION. The Plan Administrator shall have the
exclusive discretion and authority to establish rules, forms, and procedures for
the administration of the Plan and to construe and interpret the Plan and to
decide any and all questions of fact, interpretation, definition, computation or
administration arising in connection with the operation of the Plan, including,
but not limited to, the eligibility to participate in the Plan and amount of
benefits paid under the Plan. The rules, interpretations, computations and other
actions of the Plan Administrator shall be binding and conclusive on all
persons.

            (b) AMENDMENT OR TERMINATION. The Company reserves the right to
amend or terminate this Plan or the benefits provided hereunder at any time;
provided, however, that no such amendment or termination shall occur following a
Change in Control if such amendment or


termination would affect the rights of any persons who were employed by the
Company prior to the Change in Control. Any action amending or terminating the
Plan shall be in writing and executed by the chairman of the Compensation
Committee of the Board of Directors of the Company.

SECTION 7.  TERMINATION OF CERTAIN EMPLOYEE BENEFITS.

            All non-health benefits (such as life insurance, disability and
401(k) plan coverage) terminate as of the employee's termination date (except to
the extent that a conversion privilege may be available thereunder).

SECTION 8.  NO IMPLIED EMPLOYMENT CONTRACT.

            The Plan shall not be deemed (i) to give any employee or other
person any right to be retained in the employ of the Company or (ii) to
interfere with the right of the Company to discharge any employee or other
person at any time and for any reason, which right is hereby reserved.

SECTION 9.  LEGAL CONSTRUCTION.

            This Plan is intended to be governed by and shall be construed in
accordance with the Employee Retirement Income Security Act of 1974 ("ERISA")
and, to the extent not preempted by ERISA, the laws of the State of California.

SECTION 10. CLAIMS, INQUIRIES AND APPEALS.

            (a)   APPLICATIONS FOR BENEFITS AND INQUIRIES.  Any application
for benefits, inquiries about the Plan or inquiries about present or future
rights under the Plan must be submitted to the Plan Administrator in
writing.  The Plan Administrator is:

                          Molecular Devices Corporation
                      Attn: Vice President, Human Resources
                               1311 Orleans Drive
                               Sunnyvale, CA 94089

            (b) DENIAL OF CLAIMS. In the event that any application for benefits
is denied in whole or in part, the Plan Administrator must notify the applicant,
in writing, of the denial of the application, and of the applicant's right to
review the denial. The written notice of denial will be set forth in a manner
designed to be understood by the employee and will include specific reasons for
the denial, specific references to the Plan provision upon which the denial is
based, a description of any information or material that the Plan Administrator
needs to complete the review and an explanation of the Plan's review procedure.

            This written notice will be given to the employee within ninety (90)
days after the Plan Administrator receives the application, unless special
circumstances require an extension of time, in which case, the Plan
Administrator has up to an additional ninety (90) days for processing the
application. If an extension of time for processing is required, written notice
of


the extension will be furnished to the applicant before the end of the initial
ninety (90) day period.

            This notice of extension will describe the special circumstances
necessitating the additional time and the date by which the Plan Administrator
is to render its decision on the application. If written notice of denial of the
application for benefits is not furnished within the specified time, the
application shall be deemed to be denied. The applicant will then be permitted
to appeal the denial in accordance with the Review Procedure described below.

            (c) REQUEST FOR A REVIEW. Any person (or that person's authorized
representative) for whom an application for benefits is denied (or deemed
denied), in whole or in part, may appeal the denial by submitting a request for
a review to the Plan Administrator within sixty (60) days after the application
is denied (or deemed denied). The Plan Administrator will give the applicant (or
his or her representative) an opportunity to review pertinent documents in
preparing a request for a review. A request for a review shall be in writing and
shall be addressed to:

                          Molecular Devices Corporation
                      Attn: Vice President, Human Resources
                               1311 Orleans Drive
                               Sunnyvale, CA 94089

A request for review must set forth all of the grounds on which it is based, all
facts in support of the request and any other matters that the applicant feels
are pertinent. The Plan Administrator may require the applicant to submit
additional facts, documents or other material as it may find necessary or
appropriate in making its review.

            (d) DECISION ON REVIEW. The Plan Administrator will act on each
request for review within sixty (60) days after receipt of the request, unless
special circumstances require an extension of time (not to exceed an additional
sixty (60) days), for processing the request for a review. If an extension for
review is required, written notice of the extension will be furnished to the
applicant within the initial sixty (60) day period. The Plan Administrator will
give prompt, written notice of its decision to the applicant. In the event that
the Plan Administrator confirms the denial of the application for benefits in
whole or in part, the notice will outline, in a manner calculated to be
understood by the applicant, the specific Plan provisions upon which the
decision is based. If written notice of the Plan Administrator's decision is not
given to the applicant within the time prescribed in this Subsection (d), the
application will be deemed denied on review.

            (e) RULES AND PROCEDURES. The Plan Administrator will establish
rules and procedures, consistent with the Plan and with ERISA, as necessary and
appropriate in carrying out its responsibilities in reviewing benefit claims.
The Plan Administrator may require an applicant who wishes to submit additional
information in connection with an appeal from the denial (or deemed denial) of
benefits to do so at the applicant's own expense.


            (f) EXHAUSTION OF REMEDIES. No legal action for benefits under the
Plan may be brought until the claimant (i) has submitted a written application
for benefits in accordance with the procedures described by Section 10(a) above,
(ii) has been notified by the Plan Administrator that the application is denied
(or the application is deemed denied due to the Plan Administrator's failure to
act on it within the established time period), (iii) has filed a written request
for a review of the application in accordance with the appeal procedure
described in Section 10(c) above and (iv) has been notified in writing that the
Plan Administrator has denied the appeal (or the appeal is deemed to be denied
due to the Plan Administrator's failure to take any action on the claim within
the time prescribed by Section 10(d) above).

SECTION 11. BASIS OF PAYMENTS TO AND FROM PLAN.

            All benefits under the Plan shall be paid by the Company. The Plan
shall be unfunded, and benefits hereunder shall be paid only from the general
assets of the Company.

SECTION 12. OTHER PLAN INFORMATION.

            (a) EMPLOYER AND PLAN IDENTIFICATION NUMBERS. The Employer
Identification Number assigned to the Company (which is the "Plan Sponsor" as
that term is used in ERISA) by the Internal Revenue Service is 94-2914362. The
Plan Number assigned to the Plan by the Plan Sponsor pursuant to the
instructions of the Internal Revenue Service is [510].

            (b)   ENDING DATE FOR PLAN'S FISCAL YEAR.  The date of the end of
the fiscal year for the purpose of maintaining the Plan's records is December
31.

            (c) AGENT FOR THE SERVICE OF LEGAL PROCESS. The agent for the
service of legal process with respect to the Plan is Molecular Devices
Corporation, Attn: Vice President, Human Resources, 1311 Orleans Drive,
Sunnyvale, CA 94089.

            (d)   PLAN SPONSOR AND ADMINISTRATOR.  The "Plan Sponsor" and the
"Plan Administrator" of the Plan is Molecular Devices Corporation,  Attn:
Vice President, Human Resources, 1311 Orleans Drive, Sunnyvale, CA 94089.
The Plan Sponsor's and Plan Administrator's telephone number is (408)
747-1700.  The Plan Administrator is the named fiduciary charged with the
responsibility for administering the Plan.

SECTION 13. STATEMENT OF ERISA RIGHTS.

      Participants in this Plan (which is a welfare benefit plan sponsored by
Molecular Devices Corporation) are entitled to certain rights and protections
under ERISA. An Eligible Employee is considered a participant in the Plan and,
under ERISA, is entitled to:

            (a) Examine, without charge, at the Plan Administrator's office and
at other specified locations, such as work sites, all Plan documents and copies
of all documents filed by the Plan with the U.S. Department of Labor, such as
detailed annual reports;


            (b) Obtain copies of all Plan documents and Plan information upon
written request to the Plan Administrator. The Administrator may make a
reasonable charge for the copies; and

            (c) Receive a summary of the Plan's annual financial report, in the
case of a plan that is required to file an annual financial report with the
Department of Labor. (Generally, all pension plans and welfare plans with one
hundred (100) or more participants must file these annual reports.)

      In addition to creating rights for Plan participants, ERISA imposes duties
upon the people responsible for the operation of the employee benefit plan. The
people who operate the Plan, called "fiduciaries" of the Plan, have a duty to do
so prudently and in the interest of the Eligible Employees and other Plan
participants and beneficiaries.

      No one, including the employer of the participants or any other person,
may fire a participant or otherwise discriminate against participants in any way
to prevent a participant from obtaining a Plan benefit or exercising his or her
rights under ERISA. If a participant's claim for a Plan benefit is denied in
whole or in part, he or she must receive a written explanation of the reason for
the denial. A participant has the right to have the Plan Administrator review
and reconsider his or her claim.

      Under ERISA, there are steps a participant can take to enforce the above
rights. For instance, if a participant requests materials from the Plan
Administrator and does not receive them within thirty (30) days, he or she may
file suit in a federal court. In such a case, the court may require the Plan
Administrator to provide the materials and pay the participant up to $110 a day
until he or she receives the materials, unless the materials were not sent
because of reasons beyond the control of the Plan Administrator. If a
participant has a claim for benefits that is denied or ignored, in whole or in
part, he or she may file suit in a state or federal court. If it should happen
that the Plan fiduciaries misuse the Plan's money, or if a participant is
discriminated against for asserting his or her rights, the participant may seek
assistance from the U.S. Department of Labor, or he or she may file suit in a
federal court. The court will decide who should pay court costs and legal fees.
If the participant is successful, the court may order the person the participant
has sued to pay these costs and fees. If the participant loses, the court may
order the participant to pay these costs and fees, for example, if it finds his
or her claim is frivolous.

      If a participant has any questions about the Plan, the participant should
contact the Plan Administrator. If a participant has any questions about this
statement or about his or her rights under ERISA, the participant should contact
the nearest office of the Pension and Welfare Benefits Administration, U.S.
Department of Labor, listed in the telephone directory or the Division of
Technical Assistance and Inquiries, Pension and Welfare Benefits Administration,
U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210.



SECTION 14. EXECUTION.

            To record the adoption of the Plan as set forth herein, effective as
of February 15, 2001, Molecular Devices Corporation has caused its duly
authorized officer to execute the same this 15th day of August, 2001.

                                          MOLECULAR DEVICES CORPORATION

                                          By:    /s/ TIMOTHY A. HARKNESS
                                                 -------------------------------
                                          Title: CHIEF FINANCIAL OFFICER

EX-10.42

                                                                   EXHIBIT 10.42

                   [Molecular Devices Corporation letterhead]

April 11, 2002

John S. Senaldi
c/o Molecular Devices Corporation
1311 Orleans Drive
Sunnyvale, CA  94089

Dear John:

This will serve to confirm the agreement of Molecular Devices Corporation
(the "Company") that, in consideration of your election to forgo the
change-in-control severance benefits under your Employment Agreement dated
July 10, 1998 (the "Employment Agreement"), you will be entitled to benefits
under the Company's 2001 Change In Control Severance Plan (the "Plan").  In
addition, the Company hereby agrees that it will not terminate the Plan or
implement any amendment of the Plan that would result in lesser benefits to you
under the Plan than you currently have under the Employment Agreement without
(a) your written consent or (b) restoring to you your rights under the
Employment Agreement.

Very truly yours,

Molecular Devices Corporation


By: /s/ Joseph D. Keegan, Ph.D.
    ----------------------------
    Joseph D. Keegan, Ph.D.
    CEO/President


AGREED:

    /s/ John S. Senaldi
- --------------------------------
    John S. Senaldi

                          MOLECULAR DEVICES CORPORATION

                  CHANGE IN CONTROL SEVERANCE BENEFIT PLAN FOR

                                 JOHN S. SENALDI

                            VICE PRESIDENT MARKETING

SECTION 1.  INTRODUCTION.

            The Molecular Devices Corporation Change in Control Severance
Benefit Plan (the "Plan") was established effective February 15, 2001. The
purpose of the Plan is to provide for the payment of severance benefits to
certain eligible employees of Molecular Devices Corporation (the "Company")
whose employment with the Company is terminated following a Change in Control.
This Plan shall supersede any severance benefit plan, policy or practice
previously maintained by the Company. This Plan document also is the Summary
Plan Description for the Plan.

SECTION 2.  DEFINITIONS.

      For purposes of the Plan, the following terms are defined as follows:

            (a) "BASE SALARY" means the Eligible Employee's annual base salary
as in effect during the last regularly scheduled payroll period immediately
preceding the Change in Control or as increased thereafter.

            (b) "BOARD" means the Board of Directors of the Company.

            (c) "CHANGE IN CONTROL" is defined as one or more of the following
events:

                  (i) there is consummated a sale or other disposition of all or
substantially all of the assets of the Company (other than a sale to an entity
where at least fifty percent (50%) of the combined voting power of the voting
securities of such entity are owned by the stockholders of the Company in
substantially the same proportions as their ownership of the Company immediately
prior to such sale);

                  (ii) any person, entity or group (other than the Company, a
subsidiary or affiliate of the Company, or a Company employee benefit plan,
including any trustee of such plan acting as trustee) becomes the beneficial
owner, directly or indirectly, of securities of the Company representing fifty
percent (50%) or more of the combined voting power of the Company's then
outstanding securities other than by virtue of a merger, consolidation or
similar transaction; or

                  (iii) there is consummated a merger, consolidation or similar
transaction involving (directly or indirectly) the Company and, immediately
after the consummation of such transaction, the stockholders immediately prior
to the consummation of


such transaction do not own, directly or indirectly, outstanding voting
securities representing more than fifty percent (50%) of the combined
outstanding voting power of the surviving entity in such transaction or more
than fifty percent (50%) of the combined outstanding voting power of the parent
of the surviving entity in such transaction.

            (d) "COMPANY" means Molecular Devices Corporation or, following a
Change in Control, the surviving entity resulting from such transaction.

            (e) "CONSTRUCTIVE TERMINATION" means a voluntary termination of
employment by an Eligible Employee after one of the following is undertaken
without the Eligible Employee's express written consent:

                  (i) the assignment to the Eligible Employee of duties or
responsibilities that results in a material diminution in the Eligible
Employee's authority, duties or responsibilities as in effect immediately prior
to the Change in Control; provided, however, that a mere change in the Eligible
Employee's title or reporting relationships shall not provide the basis for a
Constructive Termination;

                  (ii) a reduction in the Eligible Employee's base salary, as in
effect immediately prior to the Change in Control (or as increased thereafter),
unless such reduction is made pursuant to an across-the-board reduction of the
base salaries of all similarly situated employees of the Company of no more than
ten percent (10%);

                  (iii) a change in the Eligible Employee's business location of
more than 35 miles from the business location immediately prior to the Change in
Control;

                  (iv) a material breach by the Company of any provisions of the
Plan or any enforceable written agreement between the Company and the Eligible
Employee; or

                  (v) any failure by the Company to obtain assumption of the
Plan by any successor or assign of the Company.

            (f) "CONTINUATION PERIOD" means the period for which an Eligible
Employee is entitled to receive the benefits described in Section 4(c). The
Continuation Period is eighteen (18) months.

            (g) "COVERED TERMINATION" means an Involuntary Termination Without
Cause or a Constructive Termination, either of which occurs within thirteen (13)
months following the effective date of a Change in Control.

            (h) "INVOLUNTARY TERMINATION WITHOUT CAUSE" means an involuntary
termination of employment by the Company other than for one of the following
reasons:

                  (i) refusal or failure to follow the lawful and reasonable
directions of the Board of Directors or individual to whom the Eligible Employee
reports, which refusal or failure is not cured within 30 days following delivery
of written notice of such conduct to the Eligible Employee;


                  (ii) a material failure by the Eligible Employee to perform
his or her duties in a manner reasonably satisfactory to the Board of Directors
that is not cured within 30 days following delivery of written notice of such
failure to the Eligible Employee; or

                  (iii) conviction of a felony involving moral turpitude that is
likely to inflict or has inflicted material injury on the business of the
Company.

SECTION 3.  ELIGIBILITY FOR BENEFITS.

            (a) GENERAL RULES. Subject to the requirements set forth in this
Section, the Company will provide the severance benefits described in Section 4
of the Plan to Eligible Employees. For purposes of this Plan, "Eligible
Employees" are designated executive employees of the Company who have not
entered into individual severance benefit or change in control agreements with
the Company and whose employment with the Company terminates due to a Covered
Termination.

                  (i) In order to be eligible to receive benefits under the
Plan, an Eligible Employee must remain on the job until his or her date of
termination, as scheduled by the Company.

                  (ii) In order to be eligible to receive benefits under the
Plan, an Eligible Employee also must execute a general waiver and release in
substantially the form attached hereto as Exhibit A, Exhibit B or Exhibit C, as
appropriate, and such release must become effective in accordance with its
terms. The Company, in its sole discretion, may modify the form of the required
release to comply with applicable state law. Subject to the foregoing, the
Company, in its sole discretion, shall determine the form of the required
release.

                (b) EXCEPTIONS TO BENEFIT ENTITLEMENT. An employee who otherwise
is an Eligible Employee will not receive benefits under the Plan in any of the
following circumstances, as determined by the Company in its sole discretion:

                  (i) The employee has executed an individually negotiated
employment contract or agreement with the Company relating to severance benefits
or change in control benefits that is in effect on his or her termination date.

                  (ii) The employee's employment with the Company is
involuntarily terminated by the Company other than as an Involuntary Termination
without Cause.

                  (iii) The employee voluntarily terminates employment with the
Company and such termination does not constitute a Constructive Termination.
Voluntary terminations include, but are not limited to, resignation, retirement
or failure to return from a leave of absence on the scheduled date.

                  (iv) The employee voluntarily terminates employment with the
Company in order to accept employment with another entity that is wholly or
partly owned (directly or indirectly) by the Company or an affiliate of the
Company.


SECTION 4.  AMOUNT OF BENEFIT.

            (a) BASE SALARY. Each Eligible Employee shall receive twelve (12)
months of Base Salary. Such amount shall be paid in a lump sum and shall be
subject to all required tax withholding.

            (b) BONUS PAYMENT. Each Eligible Employee shall receive a bonus
payment equal to what would have been earned at one hundred percent (100%) of
target for the year of termination.

            (c) CONTINUED INSURANCE BENEFITS. Provided that the Eligible
Employee elects continued coverage under the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA"), the Company shall pay the portion of
premiums of each Eligible Employee's group medical, dental and vision coverage,
including coverage for the Eligible Employee's eligible dependents, that the
Company paid prior to the Covered Termination, for eighteen (18) months;
provided, however, that no such premium payments shall be made following the
effective date of the Eligible Employee's coverage by a medical, dental or
vision insurance plan of a subsequent employer. Each Eligible Employee shall be
required to notify the Company immediately if the Eligible Employee becomes
covered by a medical, dental or vision insurance plan of a subsequent employer.
No provision of this Plan will affect the continuation coverage rules under
COBRA, except that the Company's payment of any applicable insurance premiums
during the Continuation Period will be credited as payment by the Eligible
Employee for purposes of the Eligible Employee's payment required under COBRA.
Therefore, the period during which an Eligible Employee must elect whether or
not to continue the Company's group medical, dental or vision coverage under
COBRA, the length of time during which COBRA continuation coverage will be made
available to the Eligible Employee, and all other rights and obligations of the
Eligible Employee under COBRA will be applied in the same manner that such rules
would apply in the absence of this Plan. At the conclusion of the Continuation
Period, the Eligible Employee will be responsible for the entire payment of
premiums required under COBRA for the duration of the COBRA continuation period.
For purposes of this Section 4(c), applicable premiums that will be paid by the
Company during the Continuation Period shall not include any amounts payable by
the Eligible Employee under a Section 125 health care reimbursement plan, which
amounts, if any, are the sole responsibility of the Eligible Employee.

            (d) ACCELERATION OF VESTING. Effective as of the date of the Covered
Termination, each Eligible Employee shall be credited with full acceleration of
vesting for all options outstanding that the Eligible Employee holds on such
date that have not yet vested. Notwithstanding the foregoing, if the acquiring
entity in the transaction which constitutes a Change in Control under the Plan
intends to utilize the "pooling of interests" accounting method in connection
with such transaction, and such transaction would be eligible for the "pooling
of interests" accounting method but for the additional vesting credit provided
for in this Section 4(d), then Eligible Employees shall not be entitled to
receive such additional vesting credit.

            (e) OUTPLACEMENT SERVICES. On behalf of the Eligible Employee, the
Company shall pay for an executive assistance program for a period not to exceed
three (3) months and at a cost not to exceed $7,500, provided that the Eligible
Employee enrolls in the program within six (6) months following the Covered
Termination.


SECTION 5.  LIMITATIONS ON BENEFITS.

            (a) RELEASE. To receive benefits under this Plan, an Eligible
Employee must execute a release of claims in favor of the Company, in the form
attached to this Plan as Exhibit A, Exhibit B or Exhibit C, as appropriate, and
such release must become effective in accordance with its terms.

            (b) CERTAIN REDUCTIONS AND OFFSETS. Notwithstanding any other
provision of the Plan to the contrary, any benefits payable to an Eligible
Employee under this Plan shall be reduced by any severance benefits payable by
the Company to such individual under any other policy, plan, program or
arrangement, including, without limitation, a contract between the Eligible
Employee and any entity, covering such individual. Furthermore, to the extent
that any federal, state or local laws, including, without limitation, so-called
"plant closing" laws, require the Company to give advance notice or make a
payment of any kind to an Eligible Employee because of that Eligible Employee's
involuntary termination due to a layoff, reduction in force, plant or facility
closing, sale of business, change of control, or any other similar event or
reason, the benefits payable under this Plan shall either be reduced or
eliminated. The benefits provided under this Plan are intended to satisfy any
and all statutory obligations that may arise out of an Eligible Employee's
involuntary termination of employment for the foregoing reasons, and the Plan
Administrator shall so construe and implement the terms of the Plan.

            (c) MITIGATION. Except as otherwise specifically provided herein,
Eligible Employees shall not be required to mitigate damages or the amount of
any payment provided under this Plan by seeking other employment or otherwise,
nor shall the amount of any payment provided for under this Plan be reduced by
any compensation earned by any Eligible Employee as a result of employment by
another employer or any retirement benefits received by such Eligible Employee
after the date of the Covered Termination.

            (d) TERMINATION OF BENEFITS. Benefits under this Plan shall
terminate immediately if the Eligible Employee, at any time, violates any
proprietary information or confidentiality obligation to the Company.

            (e) NON-DUPLICATION OF BENEFITS. No Eligible Employee is eligible to
receive benefits under this Plan more than one time.

            (f) INDEBTEDNESS OF ELIGIBLE EMPLOYEES. If a terminating employee is
indebted to the Company or an affiliate of the Company at his or her termination
date, the Company reserves the right to offset any severance payments under the
Plan by the amount of such indebtedness.

            (g) PARACHUTE PAYMENTS. If any payment or benefit the Eligible
Employee would receive in connection with a Change in Control from the Company
or otherwise ("Payment") would (i) constitute a "parachute payment" within the
meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), and (ii) but for this sentence, be subject to the excise tax imposed by
Section 4999 of the Code (the "Excise Tax"), then such Payment shall be reduced
to the Reduced Amount. The "Reduced Amount" shall be either (x) the largest
portion of the Payment that would result in no portion of the Payment being
subject to


the Excise Tax or (y) the largest portion, up to and including the total, of the
Payment, whichever amount, after taking into account all applicable federal,
state and local employment taxes, income taxes, and the Excise Tax (all computed
at the highest applicable marginal rate), results in the Eligible Employee's
receipt, on an after-tax basis, of the greater amount of the Payment
notwithstanding that all or some portion of the Payment may be subject to the
Excise Tax. If a reduction in payments or benefits constituting "parachute
payments" is necessary so that the Payment equals the Reduced Amount, reduction
shall occur in the following order unless the Eligible Employee elects in
writing a different order (provided, however, that such election shall be
subject to Company approval if made on or after the date on which the event that
triggers the Payment occurs): reduction of cash payments; cancellation of
accelerated vesting of stock awards; reduction of employee benefits. In the
event that acceleration of vesting of stock award compensation is to be reduced,
such acceleration of vesting shall be cancelled in the reverse order of the date
of grant of the Eligible Employee's stock awards unless the Eligible Employee
elects in writing a different order for cancellation.

      The accounting firm engaged by the Company for general audit purposes as
of the day prior to the effective date of the Change in Control shall perform
the foregoing calculations. If the accounting firm so engaged by the Company is
serving as accountant or auditor for the individual, entity or group effecting
the Change in Control, the Company shall appoint a nationally recognized
accounting firm to make the determinations required hereunder. The Company shall
bear all expenses with respect to the determinations by such accounting firm
required to be made hereunder.

      The accounting firm engaged to make the determinations hereunder shall
provide its calculations, together with detailed supporting documentation, to
the Company and the Eligible Employee within fifteen (15) calendar days after
the date on which the Eligible Employee's right to a Payment is triggered (if
requested at that time by the Company or the Eligible Employee) or such other
time as requested by the Company or the Eligible Employee. If the accounting
firm determines that no Excise Tax is payable with respect to a Payment, either
before or after the application of the Reduced Amount, it shall furnish the
Company and the Eligible Employee with an opinion reasonably acceptable to
Executive that no Excise Tax will be imposed with respect to such Payment. Any
good faith determinations of the accounting firm made hereunder shall be final,
binding and conclusive upon the Company and the Eligible Employee.

SECTION 6.  RIGHT TO INTERPRET PLAN; AMENDMENT AND TERMINATION.

            (a) EXCLUSIVE DISCRETION. The Plan Administrator shall have the
exclusive discretion and authority to establish rules, forms, and procedures for
the administration of the Plan and to construe and interpret the Plan and to
decide any and all questions of fact, interpretation, definition, computation or
administration arising in connection with the operation of the Plan, including,
but not limited to, the eligibility to participate in the Plan and amount of
benefits paid under the Plan. The rules, interpretations, computations and other
actions of the Plan Administrator shall be binding and conclusive on all
persons.

            (b) AMENDMENT OR TERMINATION. The Company reserves the right to
amend or terminate this Plan or the benefits provided hereunder at any time;
provided, however, that no such amendment or termination shall occur following a
Change in Control if such amendment or


termination would affect the rights of any persons who were employed by the
Company prior to the Change in Control. Any action amending or terminating the
Plan shall be in writing and executed by the chairman of the Compensation
Committee of the Board of Directors of the Company.

SECTION 7.  TERMINATION OF CERTAIN EMPLOYEE BENEFITS.

            All non-health benefits (such as life insurance, disability and
401(k) plan coverage) terminate as of the employee's termination date (except to
the extent that a conversion privilege may be available thereunder).

SECTION 8.  NO IMPLIED EMPLOYMENT CONTRACT.

            The Plan shall not be deemed (i) to give any employee or other
person any right to be retained in the employ of the Company or (ii) to
interfere with the right of the Company to discharge any employee or other
person at any time and for any reason, which right is hereby reserved.

SECTION 9.  LEGAL CONSTRUCTION.

            This Plan is intended to be governed by and shall be construed in
accordance with the Employee Retirement Income Security Act of 1974 ("ERISA")
and, to the extent not preempted by ERISA, the laws of the State of California.

SECTION 10. CLAIMS, INQUIRIES AND APPEALS.

            (a)   APPLICATIONS FOR BENEFITS AND INQUIRIES.  Any application
for benefits, inquiries about the Plan or inquiries about present or future
rights under the Plan must be submitted to the Plan Administrator in
writing.  The Plan Administrator is:

                          Molecular Devices Corporation
                      Attn: Vice President, Human Resources
                               1311 Orleans Drive
                               Sunnyvale, CA 94089

            (b) DENIAL OF CLAIMS. In the event that any application for benefits
is denied in whole or in part, the Plan Administrator must notify the applicant,
in writing, of the denial of the application, and of the applicant's right to
review the denial. The written notice of denial will be set forth in a manner
designed to be understood by the employee and will include specific reasons for
the denial, specific references to the Plan provision upon which the denial is
based, a description of any information or material that the Plan Administrator
needs to complete the review and an explanation of the Plan's review procedure.

            This written notice will be given to the employee within ninety (90)
days after the Plan Administrator receives the application, unless special
circumstances require an extension of time, in which case, the Plan
Administrator has up to an additional ninety (90) days for processing the
application. If an extension of time for processing is required, written notice
of


the extension will be furnished to the applicant before the end of the initial
ninety (90) day period.

            This notice of extension will describe the special circumstances
necessitating the additional time and the date by which the Plan Administrator
is to render its decision on the application. If written notice of denial of the
application for benefits is not furnished within the specified time, the
application shall be deemed to be denied. The applicant will then be permitted
to appeal the denial in accordance with the Review Procedure described below.

            (c) REQUEST FOR A REVIEW. Any person (or that person's authorized
representative) for whom an application for benefits is denied (or deemed
denied), in whole or in part, may appeal the denial by submitting a request for
a review to the Plan Administrator within sixty (60) days after the application
is denied (or deemed denied). The Plan Administrator will give the applicant (or
his or her representative) an opportunity to review pertinent documents in
preparing a request for a review. A request for a review shall be in writing and
shall be addressed to:

                          Molecular Devices Corporation
                      Attn: Vice President, Human Resources
                               1311 Orleans Drive
                               Sunnyvale, CA 94089

A request for review must set forth all of the grounds on which it is based, all
facts in support of the request and any other matters that the applicant feels
are pertinent. The Plan Administrator may require the applicant to submit
additional facts, documents or other material as it may find necessary or
appropriate in making its review.

            (d) DECISION ON REVIEW. The Plan Administrator will act on each
request for review within sixty (60) days after receipt of the request, unless
special circumstances require an extension of time (not to exceed an additional
sixty (60) days), for processing the request for a review. If an extension for
review is required, written notice of the extension will be furnished to the
applicant within the initial sixty (60) day period. The Plan Administrator will
give prompt, written notice of its decision to the applicant. In the event that
the Plan Administrator confirms the denial of the application for benefits in
whole or in part, the notice will outline, in a manner calculated to be
understood by the applicant, the specific Plan provisions upon which the
decision is based. If written notice of the Plan Administrator's decision is not
given to the applicant within the time prescribed in this Subsection (d), the
application will be deemed denied on review.

            (e) RULES AND PROCEDURES. The Plan Administrator will establish
rules and procedures, consistent with the Plan and with ERISA, as necessary and
appropriate in carrying out its responsibilities in reviewing benefit claims.
The Plan Administrator may require an applicant who wishes to submit additional
information in connection with an appeal from the denial (or deemed denial) of
benefits to do so at the applicant's own expense.


            (f) EXHAUSTION OF REMEDIES. No legal action for benefits under the
Plan may be brought until the claimant (i) has submitted a written application
for benefits in accordance with the procedures described by Section 10(a) above,
(ii) has been notified by the Plan Administrator that the application is denied
(or the application is deemed denied due to the Plan Administrator's failure to
act on it within the established time period), (iii) has filed a written request
for a review of the application in accordance with the appeal procedure
described in Section 10(c) above and (iv) has been notified in writing that the
Plan Administrator has denied the appeal (or the appeal is deemed to be denied
due to the Plan Administrator's failure to take any action on the claim within
the time prescribed by Section 10(d) above).

SECTION 11. BASIS OF PAYMENTS TO AND FROM PLAN.

            All benefits under the Plan shall be paid by the Company. The Plan
shall be unfunded, and benefits hereunder shall be paid only from the general
assets of the Company.

SECTION 12. OTHER PLAN INFORMATION.

            (a) EMPLOYER AND PLAN IDENTIFICATION NUMBERS. The Employer
Identification Number assigned to the Company (which is the "Plan Sponsor" as
that term is used in ERISA) by the Internal Revenue Service is 94-2914362. The
Plan Number assigned to the Plan by the Plan Sponsor pursuant to the
instructions of the Internal Revenue Service is [510].

            (b)   ENDING DATE FOR PLAN'S FISCAL YEAR.  The date of the end of
the fiscal year for the purpose of maintaining the Plan's records is December
31.

            (c) AGENT FOR THE SERVICE OF LEGAL PROCESS. The agent for the
service of legal process with respect to the Plan is Molecular Devices
Corporation, Attn: Vice President, Human Resources, 1311 Orleans Drive,
Sunnyvale, CA 94089.

            (d)   PLAN SPONSOR AND ADMINISTRATOR.  The "Plan Sponsor" and the
"Plan Administrator" of the Plan is Molecular Devices Corporation,  Attn:
Vice President, Human Resources, 1311 Orleans Drive, Sunnyvale, CA 94089.
The Plan Sponsor's and Plan Administrator's telephone number is (408)
747-1700.  The Plan Administrator is the named fiduciary charged with the
responsibility for administering the Plan.

SECTION 13. STATEMENT OF ERISA RIGHTS.

      Participants in this Plan (which is a welfare benefit plan sponsored by
Molecular Devices Corporation) are entitled to certain rights and protections
under ERISA. An Eligible Employee is considered a participant in the Plan and,
under ERISA, is entitled to:

            (a) Examine, without charge, at the Plan Administrator's office and
at other specified locations, such as work sites, all Plan documents and copies
of all documents filed by the Plan with the U.S. Department of Labor, such as
detailed annual reports;


            (b) Obtain copies of all Plan documents and Plan information upon
written request to the Plan Administrator. The Administrator may make a
reasonable charge for the copies; and

            (c) Receive a summary of the Plan's annual financial report, in the
case of a plan that is required to file an annual financial report with the
Department of Labor. (Generally, all pension plans and welfare plans with one
hundred (100) or more participants must file these annual reports.)

      In addition to creating rights for Plan participants, ERISA imposes duties
upon the people responsible for the operation of the employee benefit plan. The
people who operate the Plan, called "fiduciaries" of the Plan, have a duty to do
so prudently and in the interest of the Eligible Employees and other Plan
participants and beneficiaries.

      No one, including the employer of the participants or any other person,
may fire a participant or otherwise discriminate against participants in any way
to prevent a participant from obtaining a Plan benefit or exercising his or her
rights under ERISA. If a participant's claim for a Plan benefit is denied in
whole or in part, he or she must receive a written explanation of the reason for
the denial. A participant has the right to have the Plan Administrator review
and reconsider his or her claim.

      Under ERISA, there are steps a participant can take to enforce the above
rights. For instance, if a participant requests materials from the Plan
Administrator and does not receive them within thirty (30) days, he or she may
file suit in a federal court. In such a case, the court may require the Plan
Administrator to provide the materials and pay the participant up to $110 a day
until he or she receives the materials, unless the materials were not sent
because of reasons beyond the control of the Plan Administrator. If a
participant has a claim for benefits that is denied or ignored, in whole or in
part, he or she may file suit in a state or federal court. If it should happen
that the Plan fiduciaries misuse the Plan's money, or if a participant is
discriminated against for asserting his or her rights, the participant may seek
assistance from the U.S. Department of Labor, or he or she may file suit in a
federal court. The court will decide who should pay court costs and legal fees.
If the participant is successful, the court may order the person the participant
has sued to pay these costs and fees. If the participant loses, the court may
order the participant to pay these costs and fees, for example, if it finds his
or her claim is frivolous.

      If a participant has any questions about the Plan, the participant should
contact the Plan Administrator. If a participant has any questions about this
statement or about his or her rights under ERISA, the participant should contact
the nearest office of the Pension and Welfare Benefits Administration, U.S.
Department of Labor, listed in the telephone directory or the Division of
Technical Assistance and Inquiries, Pension and Welfare Benefits Administration,
U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210.



SECTION 14. EXECUTION.

            To record the adoption of the Plan as set forth herein, effective as
of February 15, 2001, Molecular Devices Corporation has caused its duly
authorized officer to execute the same this 15th day of August, 2001.

                                          MOLECULAR DEVICES CORPORATION

                                          By:    /s/ JOHN S. SENALDI
                                                 -------------------------------
                                          Title: VICE PRESIDENT MARKETING

EX-21.1

                                                                    EXHIBIT 21.1


                         SUBSIDIARIES OF THE REGISTRANT

1.   Molecular Devices GmbH, a corporation organized under the Laws of Germany.

2.   Molecular Devices Ltd., a corporation organized under the Laws of England
     and Wales.

3.   Molecular Devices Skatron, a corporation organized under the Laws of
     Norway.

4.   Nihon Molecular Devices, a corporation organized under the Laws of Japan.

5.   Cytion S.A., a corporation organized under the Laws of Switzerland.

6.   LJL BioSystems, a corporation organized under the Laws of Delaware.

7.   LJL BioSystems, Ltd., a corporation organized under the Laws of England and
     Wales.

8.   Universal Imaging Corporation, a corporation organized under the Laws of
     Pennsylvania.

EX-23.1

                                                                    EXHIBIT 23.1

               CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

      We consent to the incorporation by reference in the Registration
Statements (Form S-8 No. 333-86155, 333-86159, 333-45288, 333-63036 and
333-91996 pertaining to the LJL BioSystems, Inc. 1994 Equity Incentive Plan, LJL
BioSystems, Inc. 1997 Stock Plan, LJL BioSystems, Inc. 1998 Directors' Stock
Option Plan, 1995 Stock Option Plan, 1995 Non-Employee Directors' Stock Option
Plan, 1995 Employee Stock Purchase Plan and 2001 Stock Option Plan of Molecular
Devices Corporation of our report dated January 27, 2003, with respect to the
consolidated financial statements and schedule of Molecular Devices Corporation
included in the Annual Report (Form 10-K) for the year ended December 31, 2002.

                                                           /s/ Ernst & Young LLP

Palo Alto, California
March 25, 2003


                                       1

EX-99.1

                                                                    EXHIBIT 99.1

                                  CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section
1350, as adopted), Joseph D. Keegan, Ph.D., Chief Executive Officer of Molecular
Devices Corporation (the "Company"), and Timothy A. Harkness, Chief Financial
Officer of the Company, each hereby certify that, to the best of their
knowledge:

1. The Company's Annual Report on Form 10-K for the period ended December 31,
2002, to which this Certification is attached as Exhibit 99.1 (the "ANNUAL
REPORT") fully complies with the requirements of section 13(a) or section 15(d)
of the Securities Exchange Act of 1934, and

2. The information contained in the Annual Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

IN WITNESS WHEREOF, the undersigned have set their hands hereto as of the 27th
day of March, 2003.


       /s/ Joseph D. Keegan                      /s/ Timothy A. Harkness
- --------------------------------------    --------------------------------------
         Joseph D. Keegan, Ph.D.                     Timothy A. Harkness
  President, Chief Executive Officer               Vice President, Finance,
                                                   Chief Financial Officer


A signed original of this written statement required by Section 906 has been
provided to Molecular Devices Corporation and will be retained by Molecular
Devices Corporation and furnished to the Securities and Exchange Commission or
its staff upon request.