-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BCyhvcyy7DX/pJzCowzPt8l6czY1Qk+LxldR9ao/BwwDEbIB5eaYeZrnvrYa0yWI KxDuT7uJ0/QYwh9PSlQ6VQ== 0000891618-97-004682.txt : 19971117 0000891618-97-004682.hdr.sgml : 19971117 ACCESSION NUMBER: 0000891618-97-004682 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICROCIDE PHARMACEUTICALS INC CENTRAL INDEX KEY: 0001010915 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 943186021 STATE OF INCORPORATION: CA FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-28006 FILM NUMBER: 97720401 BUSINESS ADDRESS: STREET 1: 850 MAUDE AVE CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 BUSINESS PHONE: 4154281550 MAIL ADDRESS: STREET 1: 850 MAUDE AVE CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 10-Q 1 FORM 10-Q FOR PERIOD ENDED 9/30/97 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 0-28006 MICROCIDE PHARMACEUTICALS, INC. (Exact name of registrant as specified in its charter) DELAWARE 94-3186021 (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification Number) 850 MAUDE AVENUE, MOUNTAIN VIEW, CALIFORNIA 94043 (Address of principal executive offices) (ZIP Code) Registrant's telephone number, including area code: 650-428-1550 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 ---- ---- Number of shares of Common Stock, no par value, outstanding as of October 31, 1997: 10,896,814. 2 MICROCIDE PHARMACEUTICALS, INC. INDEX FOR FORM 10-Q SEPTEMBER 30, 1997
PAGE NUMBER PART I FINANCIAL INFORMATION Item 1. Financial Statements and Notes Condensed Balance Sheets as of September 30, 1997 and December 31, 1996 3 Condensed Statements of Operations for the three and nine months ended September 30, 1997 and September 30, 1996 4 Condensed Statements of Cash Flows for the nine months ended September 30, 1997 and September 30, 1996 5 Notes to Condensed Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II OTHER INFORMATION 12 Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults in Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K SIGNATURES 13
-2- 3 MICROCIDE PHARMACEUTICALS, INC. CONDENSED BALANCE SHEETS (In thousands)
September 30, December 31, 1997 1996 ------- ------- (Unaudited) (Note) ASSETS Current assets: Cash and cash equivalents $ 6,849 $ 8,317 Short-term investments 34,770 39,191 Prepaid expenses and other current assets 1,366 334 ------- ------- Total current assets 42,985 47,842 Property and equipment, net 9,102 8,825 Other assets 573 159 ------- ------- Total assets $52,660 $56,826 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 957 $ 1,523 Construction payable 536 745 Accrued compensation 725 496 Current portion of capital lease obligations 778 1,110 Deferred revenue 1,044 1,189 Other accrued liabilities 558 237 ------- ------- Total current liabilities 4,598 5,300 Long-term portion of capital lease obligations 300 811 Accrued rent 222 141 Stockholders' equity: Common stock 66,605 66,314 Stockholder note receivable -- (35) Deferred compensation (1,274) (1,577) Net unrealized gain (loss) on securities (61) 9 available-for-sale Accumulated deficit (17,730) (14,137) ------- ------- Total stockholders' equity 47,540 50,574 ------- ------- Total liabilities and stockholders' equity $52,660 $56,826 ======= =======
NOTE: The balance sheet at December 31, 1996 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See Notes to Condensed Financial Statements. -3- 4 MICROCIDE PHARMACEUTICALS, INC. CONDENSED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, --------------------- --------------------- 1997 1996 1997 1996 ------ ------ ------ ------ Revenues: License, milestone and other revenues $1,054 $ -- $2,054 $1,000 Research revenue 3,024 2,485 9,125 6,353 ------ ------ ------ ------ Total revenues 4,078 2,485 11,179 7,353 Operating expenses: Research and development 5,078 3,014 13,515 7,099 General and administrative 1,005 721 3,126 1,828 ------ ------ ------ ------ Total operating expenses 6,083 3,735 16,641 8,927 ------ ------ ------ ------ Loss from operations (2,005) (1,250) (5,462) (1,574) Interest income 665 681 2,003 1,234 Interest expense (41) (64) (134) (187) ------ ------ ------ ------ Net loss $(1,381) $ (633) $(3,593) $ (527) ======= ====== ======= ====== Net loss per share $(0.13) $(0.06) $(0.33) $(0.08) ====== ====== ====== ====== Shares used in calculation of net loss per share 10,843 10,677 10,800 6,301 ====== ====== ====== ======
See Notes to Condensed Financial Statements. -4- 5 MICROCIDE PHARMACEUTICALS, INC. CONDENSED STATEMENTS OF CASH FLOWS Increase (decrease) in cash and cash equivalents (Unaudited)
Nine Months Ended September 30, ------------------ 1997 1996 -------- ------ CASH FLOWS USED IN OPERATING ACTIVITIES: Net loss $(3,593) $ (527) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 2,231 1,153 Amortization of deferred compensation 446 349 Accrued rent 81 (7) Net unrealized gain (loss) on securities (70) 2 Changes in assets and liabilities: Prepaid expenses and other current assets (1,032) (58) Other assets (414) 19 Accounts payable (566) 38 Construction payable (209) -- Accrued compensation and other accrued liabilities 550 143 Deferred revenue (145) 1,138 -------- ------ Net cash provided by (used in) operating activities (2,721) 2,250 ------- ------ CASH FLOWS USED IN INVESTING ACTIVITIES: Purchase of short-term investments (21,289) -- Maturities of short-term investments 25,710 -- Capital expenditures (2,508) (1,964) ------- ------ Net cash provided by (used in) investing activities 1,913 (1,964) ------- ------ CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on capital lease obligations (843) (829) Repayment of shareholder note receivable 35 -- Net proceeds from issuance of common stock 148 36,529 Net proceeds from issuance of convertible preferred stock -- 4,988 ------- ------ Net cash provided by (used in) financing activities (660) 40,688 ------- ------ Net increase (decrease) in cash and cash equivalents (1,468) 40,974 Cash and cash equivalents, beginning of period 8,317 8,517 ------- ------ Cash and cash equivalents, end of period $ 6,849 $49,491 ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Income taxes paid $ 22 $ -- ======= ====== Interest paid $ 116 $ 184 ======= ====== SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Conversion of convertible preferred stock to common stock $ -- $27,423 ======= =======
See Notes to Condensed Financial Statements. -5- 6 MICROCIDE PHARMACEUTICALS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS September 30, 1997 (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Basis of Presentation Microcide Pharmaceuticals, Inc. (the "Company") is a biopharmaceutical company founded to discover, develop and commercialize novel antibiotics for the treatment of serious bacterial infections. The Company's discovery and development programs address the growing problem of antibiotic resistance in certain bacteria through two principal themes: (i) Targeted Antibiotics, which focuses on developing novel antibiotics and antibiotic potentiators, and (ii) Targeted Genomics, which utilizes bacterial genetics to discover new classes of antibiotics and other novel treatments for bacterial disease. The Company has also extended its functional genomics technology platform into a program designed to discover improved systemic antifungal agents. The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for the interim periods shown herein are not necessarily indicative of operating results for the entire year. This unaudited financial data should be read in conjunction with the financial statements and footnotes contained in the Company's annual report on Form 10-K for the year ended December 31, 1996. 2. INVESTMENTS Investment securities are classified as available-for-sale (estimated fair value) and consist of the following investments (in thousands):
September 30, December 31, 1997 1996 ------------ ----------- Cash equivalents and short-term investments: Money market funds $ 1,956 $ 420 Corporate debt securities 38,481 44,174 ----------- ---------- $ 40,437 $ 44,594 =========== ==========
-6- 7 3. PER SHARE INFORMATION Net income (loss) per share is computed using the weighted average number of shares of common stock outstanding during the periods presented. Common equivalent shares are included in the computation for income periods and excluded from the computation for loss periods as their effect is antidilutive, except that, pursuant to the Securities and Exchange Commission Staff Accounting Bulletins, common and common equivalent shares (stock options, warrants, and convertible preferred stock) issued during the 12 month period prior to the Company's initial public offering have been included in the calculation as if they were outstanding for all periods through March 31, 1996 (using the treasury stock method for stock options and warrants and the if-converted method for convertible preferred stock). The pro forma calculation of net income (loss) per share has been computed as described above but also gives retroactive effect from the date of issuance to the conversion of the convertible preferred stock which automatically converted to common shares upon closing of the Company's initial public offering in May 1996. In February 1997, the Financial Accounting Standards Board issued Statement 128, "Earnings per Share", which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. The impact is not expected to result in a change in primary earnings per share for the three and nine months ended September 30, 1997 and September 30, 1996 as the Company incurred net losses in these periods and, accordingly, the calculation of earnings per share for these periods excluded stock options as their effect was antidilutive. -7- 8 MICROCIDE PHARMACEUTICALS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW As part of the Company's strategy to enhance its research and development capabilities and to fund, in part, its capital requirements, Microcide has entered into collaborative agreements with three major pharmaceutical companies. The Company has received license fees, research support payments and milestone payments pursuant to these agreements and can potentially receive additional research support payments, additional milestone payments and royalty payments. License payments are typically nonrefundable up-front payments for licenses to develop, manufacture and market products, if any, that are developed as a result of the collaboration. Research support payments are typically contractually obligated payments to fund research and development over the term of the collaboration. Milestone payments are payments contingent upon the achievement of specified milestones, such as selection of candidates for drug development, the commencement of clinical trials or receipt of regulatory approvals. If drugs are successfully developed and commercialized as a result of the collaborative agreements, the Company will receive royalty payments based upon the net sales of such drugs. In June 1997, Microcide signed an agreement to provide Daiichi Pharmaceutical Co., Ltd. with a subset of its synthetic molecular diversity collection for use in Daiichi's own drug discovery screening programs in consideration for future payments by Daiichi of $1.5 million. Delivery of the compounds, receipt of the associated payments and recognition of related revenues are expected to occur during the second half of 1997. In July 1997, Microcide signed a one-year agreement to provide a minimum of 40,000 extracts from its natural products diversity collection to Tularik Inc. for use in Tularik's non-antimicrobial drug discovery screening programs. Pursuant to the agreement, Microcide will receive payments for the extracts upon delivery to Tularik, may provide refermentation of extracts for agreed upon amounts and may potentially receive license fees and royalties on resulting products. Revenues relating to these contracts have been partially recognized in the third quarter ending September 30, 1997. Through September 30, 1997, the Company had received in the aggregate $27.3 million in license fees, milestone payments and research support payments under the collaborative agreements. Assuming none of the existing collaborative agreements is terminated prior to its scheduled expiration, the Company will be entitled to receive up to an additional $20.2 million of research support payments. In addition, in the event that any of the collaborative agreements are extended beyond their current terms, the Company will be entitled to receive additional research support payments. In the event that the Company achieves the specified research and product development milestones, the Company will be entitled to receive milestone payments under its collaborative agreements with three major pharmaceutical companies ranging from $13.0 million to $32.5 million per product. No royalty payments have yet been received and the Company does not expect to receive royalties based upon the net sales of drugs for a significant number of years, if ever. In July 1997, the Company signed a 30 month agreement to sublease two buildings, each building consisting of approximately 18,000 square feet of additional research and office space. The agreement calls for total minimum monthly rental payments ranging from $62,000 to $64,000 beginning on November 1, 1997. In September 1997, the Company signed an agreement to sub-sublease one of the buildings for a term of one year, subject to two three month optional extension periods, for total minimum monthly rental payments of $35,000. The Company intends to utilize the other building for additional research and administrative space. -8- 9 Quarterly results of operations are subject to significant fluctuations based on the timing and amount of certain revenues earned under the collaborative agreements. The Company expects to incur operating losses in the future. This Form 10-Q contains forward-looking statements based upon current expectations, including statements with regard to the potential receipt of additional research support payments, milestone payments and royalties from the Company's collaborative partners, payments related to delivering molecular diversity samples to Daiichi and Tularik, and the period of time the Company's existing capital resources and future payments under collaborative agreements will be sufficient to satisfy the Company's funding requirements, expectations concerning the Company's future research and development and general and administrative expenses and future facility needs. Such forward-looking statements involve risk and uncertainties, including without limitation, the risk that the Company's collaborations will be terminated, development candidates will not be identified, development candidates which are selected will not proceed through pre-clinical trials or will not prove safe and effective for treatment of humans in clinical trials, or that the identification, selection, pre-clinical, and clinical testing of development candidates will take substantially longer or be substantially more expensive than contemplated by the Company, or that the Company will not be able to obtain on a timely basis government regulatory clearance required for clinical testing, manufacturing, and marketing of its products. For a discussion of other risks and uncertainties affecting the Company's business, see the Company's annual report on Form 10-K for the year ended December 31, 1996. Actual results and timing of certain events could differ materially from those indicated in the forward-looking statements as a result of these or other factors. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 Revenues. Total revenues for the third quarter of 1997 were $4.1 million, an increase of 64% from the $2.5 million in revenues recognized in 1996. License, milestone and other revenues earned for the third quarter included revenues of $1.1 million in 1997 relating to the Daiichi and Tularik diversity agreements; there were no license, milestone and other revenues in the third quarter of 1996. Research support revenue in the third quarter increased from $2.5 million in 1996 to $3.0 million in 1997 due primarily to higher revenues earned from the Pfizer and Daiichi collaborative agreements resulting from an increase in the number of research personnel devoted to the collaborative projects, as well as an increase in reimbursable research expenses, such as costs related to certain equipment and outside consulting services. Research and Development Expenses. Research and development expenses for the third quarter increased approximately 68% from $3.0 million in 1996 to $5.1 million in 1997. The increases are due primarily to higher compensation and other employee-related expenses associated with an increase in headcount to support the Company's corporate collaborations and its internal programs, higher spending for research supplies and materials, higher expenses related to assembling the Company's molecular diversity collection, higher costs relating to expanded research and development facilities and higher expenses for outside consulting services. General and Administrative Expenses. General and administrative expenses for the third quarter increased 39% from $721,000 in 1996 to $1.0 million in 1997. Increased expenses -9- 10 primarily consisted of higher compensation expenses due to an increase in administrative personnel and higher costs for legal and other outside services. Interest Income and Expense. Interest income for the third quarter decreased slightly from $681,000 in 1996 to $665,000 in 1997, primarily due to a decrease in average cash balances. Interest expense for the third quarter decreased from $64,000 in 1996 to $41,000 in 1997 due to a decrease in capital lease balances outstanding. NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 Revenues. Total revenues for the first nine months of 1997 were $11.2 million, an increase of 52% from the $7.4 million in revenues for 1996. License, milestone and other revenues were $1.0 million for the first nine months of 1996 and $2.1 million in 1997; included in this figure for the first nine months of 1997 was $1.1 million of revenues related to the Daiichi and Tularik diversity agreements. Research support revenue increased from $6.4 million in the first nine months of 1996 to $9.1 million in 1997 due primarily to higher revenues earned from the Pfizer and Daiichi collaborative agreements resulting from an increase in the number of research personnel devoted to the collaborative projects, as well as an increase in reimbursable research expenses, such as costs related to certain equipment and outside consulting services. Research and Development Expenses. Research and development expenses for the first nine months of 1997 were $13.5 million, an increase of approximately 90% from $7.1 million in the first nine months of 1996, primarily due to increased compensation and other employee-related expenses associated with an increase in headcount to support the Company's corporate collaborations and its internal programs, higher spending for research supplies and materials, higher expenses related to assembling the Company's molecular diversity collection, higher costs relating to expanded research and development facilities and higher expenses for outside consulting services. General and Administrative Expenses. General and administrative expenses for the first nine months of 1997 increased approximately 71% from $1.8 million in 1996 to $3.1 million in 1997. Increased expenses primarily consisted of higher compensation expenses due to an increase in administrative personnel and higher costs for legal and other outside services. Interest Income and Expense. Interest income for the first nine months of 1997 increased from $1.2 million in 1996 to $2.0 million in 1997, primarily due to an increase in average cash balances in 1997 related to proceeds received from the Company's initial public offering in May 1996, proceeds received from the sale of other equity and cash received under collaborative agreements. Interest expense for the first nine months of 1997 decreased from $187,000 in 1996 to $134,000 in 1997 due to a decrease in capital lease balances outstanding. LIQUIDITY AND CAPITAL RESOURCES The Company has financed its operations since inception primarily through the sale of equity, through funds provided under collaborative agreements and through equipment financing. As of September 30, 1997 the Company had received approximately $64.2 million in net proceeds from the sale of equity and approximately $27.5 million from license, milestone and other revenues and research support payments under collaborative agreements. Cash, cash equivalents and short-term investments at September 30, 1997 were $41.6 million compared to $47.5 million at December 31, 1996. For the first nine months of 1997, net cash of $2.7 million was used for operations, $2.5 million was used for -10- 11 capital expenditures and $843,000 was used for principal payments on capital lease obligations. The Company believes that its existing capital resources, interest income and future payments due under collaborative agreements will enable the Company to maintain current and planned operations at least through 1998. -11- 12 PART II OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Changes in Securities None. Item 3. Defaults in Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits have been filed with this report: 10.19 Sublease agreement between the Registrant, Quickturn Design Systems, Inc. and Portola Land Co. dated July 1997 10.20 Sub-sublease agreement between the Registrant, Alpha Blox Corporation, Quickturn Design Systems, Inc. and Portola Land Co. dated September 1997 11.1 Calculation of Net Loss Per Share 27.1 Financial Data Schedule (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended September 30, 1997. -12- 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: November 14, 1997 MICROCIDE PHARMACEUTICALS, INC. ------------------------------------------------- (Registrant) /s/ James E. Rurka ------------------------------------------------- President, Chief Executive Officer and Director (principal executive officer) /s/ Matthew J. Hogan ------------------------------------------------- Chief Financial Officer (principal financial and accounting officer) -13- 14 EXHIBIT INDEX Exhibit Number Description - ------ ----------- 10.19 Sublease agreement between the Registrant, Quickturn Design Systems, Inc. and Portola Land Co. dated July 1997 10.20 Sub-sublease agreement between the Registrant, Alpha Blox Corporation, Quickturn Design Systems, Inc. and Portola Land Co. dated September 1997 11.1 Calculation of Net Loss Per Share 27.1 Financial Data Schedule EX-10.19 2 SUBLEASE AGREEMENT DATED JULY 1997 1 EXHIBIT 10.19 SUBLEASE 1. PARTIES. This Sublease is made and effective this __ day of July 1997 ("Effective Date") by and among Quickturn Design Systems, Inc., a Delaware corporation ("Sublessor"), Microcide Pharmaceuticals, Inc., a Delaware corporation ("Sublessee") and Portola Land Co., a California limited partnership ("Master Lessor"). 2. PREMISES. Sublessor hereby leases to Sublessee and Sublessee hereby subleases from Sublessor for the Term (as defined below in Section 3), at the Rent set forth in Section 4 below, and upon all of the conditions set forth herein, that certain property situated in the County of Santa Clara, State of California, commonly known as 800 Maude Avenue and 830 Maude Avenue, Mountain View, CA 94043 and described as two (2) free-standing buildings consisting of approximately eighteen thousand forty (18,040) rentable square feet and seventeen thousand four hundred fifteen (17,415) rentable square feet, respectively. (See attached Exhibit A for further description.) 3. TERM. 3.1 Term. The term of this Sublease shall be for approximately two (2) years and six (6) months (the "Term") commencing on or about November 1, 1997 ("Commencement Date") and ending on April 30, 2000, unless sooner terminated pursuant to any provision herein ("Termination Date"). 3.2 Delay in Commencement. If for any reason Sublessor cannot deliver possession of the Premises to Sublessee on November 1, 1997, Sublessor shall not be subject to any liability therefore, nor shall such failure affect the validity of this Lease or the obligations of Sublessee hereunder or extend the term of this Sublease. Notwithstanding the foregoing, Sublessee shall not be obligated to pay rent until Sublessor tenders possession of the Premises to Sublessee. If Sublessor has not delivered possession of the Premises by January 1, 1998, Sublessee may, at its option, notify Sublessor in writing on or before January 10, 1998, that Sublessee intends to cancel this Sublease. In the event of such cancellation, the parties shall be discharged from all obligations hereunder. 3.3 Early Commencement. If Sublessee occupies the Premises prior to November 1, 1997, such occupancy shall be subject to all provisions of this Sublease, such occupancy shall not advance the Termination Date and Sublessee shall pay rent for such period at the initial monthly rates set forth below. 1 2 4. RENT; OPERATING EXPENSES AND REAL ESTATE TAXES. 4.1 Rent for Premises. The Rent is calculated for the Premises as follows: 800 Maude Avenue 11/1/1997 through 1/31/1999 $1.75/sq. foot/month NNN 02/1/1999 through 4/30/2000 $1.80/sq. foot/month NNN 830 Maude Avenue 11/1/1997 through 1/31/1999 $1.75/sq. foot/month NNN 02/1/1999 through 4/30/2000 $1.80/sq. foot/month NNN
Sublessee shall pay to Sublessor as rent for the Premises equal monthly payments of $62,046.25, in advance, on the first day of each month for months 1 through 15 of the Term and $63,819.00, in advance, on the first day of each month for months 16 through 30 of the Term (collectively, the "Rent"). Sublessee shall pay to Sublessor on the Effective Date the sum of $62,046.25 as payment for the first month's Rent. Sublessor shall apply any partial Rent payments made by Sublessee on a pro rata basis toward the monthly Rent then due. Rent shall be payable in lawful money of the United States to Sublessor at the address stated herein or to such other persons or at such other places as Sublessor may designate in writing. 4.2 Operating Expenses; Real Estate Taxes. This Sublease is a "triple net" or "NNN" sublease and Sublessee shall be responsible for paying directly for services such as utilities, janitorial costs, all operating expenses and annual increases (including without limitation building and common area maintenance such as parking, landscaping and lighting), costs of insurance, repairs, operations and real property taxes. Sublessee shall have the right to verify all operating expenses. 5. SECURITY DEPOSIT. Sublessee shall deposit with Sublessor on the Effective Date the sum of $63,819.00 as security for Sublessee's faithful performance of its obligations hereunder (the "Security Deposit"). If Sublessee fails to pay Rent or other charges due hereunder, or otherwise defaults with respect to any provision of this Sublease, Sublessor may use, apply or retain all or any portion of the Security Deposit for the payment of any Rent or other charge in default or for the payment of any other sum to which Sublessor may become obligated by reason of Sublessee's default, or to compensate Sublessor for any loss or damage which Sublessor may suffer thereby. If Sublessor so uses or applies all or any portion of the Security Deposit, Sublessee shall, within ten (10) days after its receipt of Sublessor's written demand, deposit cash with Sublessor in an amount sufficient to restore the Security Deposit to the full amount set forth above. Sublessee's failure to do so shall be a material breach of this Sublease. Sublessor shall not be required to keep the Security Deposit separate from its general accounts. If Sublessee performs all of its obligations hereunder, following the Termination Date and after Sublessee has vacated the Premises, Sublessor shall return the Security Deposit (or the portion thereof which has not been applied by Sublessor) to Sublessee (or at Sublessor's option, to the last assignee, if any, of Sublessee's interest in the Sublease). No trust relationship is created herein between Sublessor and Sublessee with respect to the Security Deposit. No payment of interest or other 2 3 incremental charge shall be payable to Sublessee for Sublessor's use of the Security Deposit. 6. USE. 6.1 Use. The Premises shall be used and occupied by Sublessee only for research and development, office and administration, storage and other legal uses approved by the City of Mountain View. 6.2 Compliance with Law. (a) Sublessor's Warranty re Compliance. As of the Commencement Date, Sublessor warrants to Sublessee that, to the best of Sublessor's knowledge and without independent investigation, the Premises, in their existing state, do not violate any applicable building code regulation or ordinance; provided, however, Sublessor's warranty is given without regard to the use for which Sublessee intends to use the Premises. Sublessor shall rectify promptly, at its sole cost and expense, any violation of such warranty, after written notice from Sublessee. Notwithstanding the foregoing, the Premises may not meet all requirements of the Americans with Disabilities Act ("ADA") and Sublessor makes no warranty nor assumes any liability with respect to ADA compliance. It shall be conclusively deemed that no violation of Sublessor's warranty existed unless written notice to the contrary is received by Sublessor prior to the first anniversary of the Commencement Date. (b) Sublessee's Compliance. Except as provided in Section 6.2(a), Sublessee shall, at its sole expense, comply promptly with all applicable statutes, ordinances, rules, regulations, orders, restrictions of record, and requirements in effect during the Term regulating Sublessee's use of the Premises. Sublessee shall not use or permit the use of the Premises in any manner that will tend to (i) create waste or a nuisance; or (ii) to disturb other tenants of the Premises, if there are multiple tenants in the building containing the Premises. 6.3 Condition of Premises; Improvements. *Operating systems to be in good condition on commencement of sublease (RC 7/22/97; AM FOR NICO 7/27/97) (a) "AS IS" Condition of Premises. Sublessor shall provide Sublessee with sufficient opportunity to conduct its own review of all operating systems prior to the Commencement Date. Sublessor makes no representation or gives no warranty with respect to the condition of such operating systems. Except as expressly provided in Section 6.2(a) and this Section 6.3, Sublessee hereby accepts (a) the Premises "AS IS" in their condition existing as of the Commencement Date, subject to all applicable zoning, municipal, county and state laws, ordinances, and regulations governing and regulating the use of the Premises; (b) this Sublease subject thereto; and ( c) all matters disclosed thereby and in any exhibits attached to this Sublease. Notwithstanding the foregoing, prior to the Commencement Date Sublessor shall clean the carpets and floors at the Premises and replace defective ceiling tiles and light bulbs. All other improvements shall be at Sublessee's sole expense. Sublessee acknowledges that neither Sublessor nor Sublessor's agents have made any representation or warranty as to the suitability of the Premises for the conduct of Sublessee's business. 3 4 (b)Improvements by Sublessee. Sublessee shall have the right to modify the building interiors of the Premises with Sublessor's and Master Lessor's prior written consent, subject to the appropriate provisions of the Master Lease. Sublessor makes no representation as to the condition of these systems. To the best of Sublessor knowledge there are no permit violations of existing building improvements. 6.4 Sublessee's Indemnification re Hazardous Substances. Sublessee shall indemnify, defend and hold Sublessor and Master Lessor, and each of their agents, employees and lenders, harmless from and against any and all losses, costs, claims, damages, liabilities and causes of action (including attorney's fees and costs and consultants' fees) arising out of or in any way connected with any hazardous substance located on the Premises immediately subsequent to the Commencement Date or any subsequent presence of hazardous substances on or about the Premises, including the soils and ground waters thereof, caused or permitted by Sublessee. Sublessee's obligations under this provision shall survive the expiration or termination of the Sublease. 7. MASTER LEASE. 7.1 Master Lease; Conflicts; Definitions. Sublessor is the lessee of the Premises by virtue of a lease by and between Sublessor and Master Lessor dated April 26, 1994, as amended by that certain Addendum to Master Lease dated April 26, 1994 (collectively the "Master Lease"), a copy of which is attached hereto as Exhibit B and incorporated herein by reference. This Sublease is and shall be at all times subject and subordinate to the Master Lease. The terms, conditions and respective obligations of Sublessor and Sublessee to each other under this Sublease shall be the terms and conditions of the Master Lease except for those provisions of the Master Lease which are expressly changed by this Sublease. In the event of any conflict between the terms of this Sublease and the terms of the Master Lease, the terms of this Sublease shall control over the Master Lease. The term "Lessor" in the Master Lease shall be deemed in this Sublease to refer to the "Sublessor." The term "Lessee" in the Master Lease" shall be deemed in this Sublease to refer to the "Sublessee." Any capitalized terms not defined in this Sublease shall have the meaning ascribed to them by the Master Lease. 7.2 Sublessee's Assumption of Obligations. During the Term and for all periods subsequent with respect to obligations which have arisen prior to the Termination Date, Sublessee does hereby expressly assume and agree to perform and comply with, for the benefit of Sublessor and Master Lessor, each and every obligation of Sublessor under the Master Lease ("Sublessee's Assumed Obligations"). Sublessee shall hold Sublessor free and harmless of and from all liability, judgments, costs, damages, claims or demands, including reasonable attorney's fees, arising out of Sublessee's failure to comply with or perform Sublessee's Assumed Obligations. 7.3 Sublessor's Compliance with Master Lease. Sublessor represents to Sublessee that as of the Effective Date the Master Lease is in full force and effect and that no default exists on the part of any party to the Master Lease. 4 5 8. ASSIGNMENT OF SUBLEASE AND DEFAULT. 8.1 Assignment to Master Lessor. Sublessor hereby assigns and transfers to Master Lessor its interest in this Sublease and all Rents (with the exception of fifty percent (50%) of the "Excess Rent"), subject however to terms of Paragraph 8.2 hereof. Sublessor retains all right, title and interest in and to fifty percent (50%) of the Excess Rent. "Excess Rent" is defined in Section 23 of the Addendum to Master Lease as "any consideration payable to Lessee, after deducting therefrom all reasonable costs necessary to effect the assignment or sublet, including, without limitation, brokerage and attorneys' fees, advertising costs, redecorating costs, and the cost of Lessee of the installation of the Lessee Improvements in the Premises." 8.2 Defaults by Sublessor. Master Lessor agrees that unless and until Sublessor materially defaults on the Master Lease, Sublessor may receive, collect and enjoy the rents accruing under this Sublease. However, if Sublessor defaults in the performance of its obligations to Master Lessor, then Master Lessor may, at its option, receive and collect, directly from Sublessee, all rent owing and to be owed under this Sublease; provided, however, Master Lessor agrees that it shall only be entitled to fifty percent (50%) of the Excess Rent. Master Lessor shall not, by reason of this assignment of the Sublease nor by reason of the collection of the rents from the Sublessee, be deemed liable to Sublessee for any failure of the Sublessor to perform and comply with its obligations hereunder. 8.3 Sublessee's Payment to Master Lessor. Sublessor hereby irrevocably authorizes and directs Sublessee, upon receipt of any written notice from the Master Lessor stating that a default exists in the performance of Sublessor under the Master Lease, to pay to Master Lessor the rents due and to become due under the Sublease. Sublessor agrees that Sublessee shall have the right to rely upon any such statement and request from Master Lessor, and that Sublessee shall pay such rents to Master Lessor without any obligation or right to inquire as to whether such default exists and notwithstanding any notice from or claim from Sublessor to the contrary. Sublessor agrees that it shall have no right or claim against Sublessee for any such rents so paid by Sublessee. 8.4 No Modifications Without Master Lessor's Consent. No changes or modifications shall be made to this Sublease without the consent of Master Lessor. 9. CONSENT OF MASTER LESSOR TO SUBLEASE. 9.1 Consent. By executing this Sublease, Master Lessor hereby consents to the terms and conditions of this Sublease. Such consent will not release Sublessor from its obligation to pay rent and perform and comply with all of its obligations under the Master Lease. 9.2 No Waiver. The acceptance of rent by Master Lessor from Sublessee or any one else liable under the Master Lease shall not be deemed a waiver by Master Lessor of any provisions of the Master Lease. The consent to this Sublease shall not constitute a consent to any subsequent subletting or assignment. In the event of any default of Sublessor under the Master Lease, Master Lessor may proceed directly against 5 6 Sublessor or any one else liable under the Master Lease or this Sublease without first exhausting Master Lessor's remedies against any other person or entity liable thereon to Master Lessor. 9.3 Consents to Additional Subletting. Master Lessor may consent to subsequent sublettings and assignments of the Master Lease or this Sublease or any amendments or modifications thereto. Master Lessor shall promptly notify Sublessor of such proposed sublettings or assignments in writing. 9.4 Attornment. In the event that Sublessor defaults in its obligations under the Master Lease, then Master Lessor, at its option and without being obligated to do so, may require Sublessee to attorn to Master Lessor. In such event, Master Lessor shall undertake the obligations of Sublessor under this Sublease from the time of the exercise of said option until the Termination Date. Notwithstanding the foregoing, Master Lessor shall not be liable for any prepaid rents nor any security deposit paid by Sublessee, nor shall it be liable for any other defaults of the Sublessor under the Sublease. 9.5 Master Lease in Good Standing. Master Lessor acknowledges that, to the best of Master Lessor's knowledge, no default presently exists under the Master Lease of obligations to be performed by Sublessor and that the Master Lease is in full force and effect. 9.6 Copies of Default Notices to Sublessee. In the event that Sublessor defaults under its obligations to be performed under the Master Lease, Master Lessor agrees to deliver to Sublessee a copy of any such notice of default. Sublessee shall have the right to cure any default of Sublessor described in any notice of default within ten days after service of such notice of default on Sublessee. If such default is cured by Sublessee then Sublessee shall have the right of reimbursement and offset from and against Sublessor. THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK. 6 7 IN WITNESS WHEREOF, the authorized representatives of each of the parties duly execute this Sublease in the County of Santa Clara, California, as of the date first written above. SUBLESSOR: QUICKTURN DESIGN SYSTEMS, INC. By: /S/ Ray Ostby ------------------------------- Title: Vice President SUBLESSEE: MICROCIDE PHARMACEUTICALS, INC. By: /S/ James E. Rurka ------------------------------- Title: President & CEO MASTER LESSOR: PORTOLA LAND CO., A CALIFORNIA LIMITED PARTNERSHIP By: /S/ William Hurwick ------------------------------- Title: Partner NOTARIZATION: 7 8 EXHIBIT A This exhibit is of a drawing that depicts the Site Plan for the Premises 800-850 Maude Avenue, Mountain View, California. 7 9 EXHIBIT B AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE--NET (Do not use this form for Multi-Tenant Property) 1. Basic Provisions ("Basic Provisions") 1.1 Parties: This Lease ("Lease"), dated for reference purposes only, April 26 1994 is made by and between PORTOLA LAND COMPANY, a California Limited Partnership ("Lessor") and QUICKTURN DESIGN SYSTEMS, INC., a Delaware corporation ("Lessee") (collectively the "Parties," or individually a "Party"). 1.2 Premises: That certain real property, including all improvements therein or to be provided by Lessor under the terms of this Lease and commonly known by the street address of 800 and 830 Maude Avenue, Mountain View, CA 94043 located in the County of Santa Clara, State of California, and generally described as (describe briefly the nature of the property) 800 Maude Avenue. consisting of approximately 18,040 square feet, and 830 Maude Avenue consisting of approximately 17,415 square feet, for a total of approximately 35,455 square feet ("Premises"). (See Paragraph 2 for further provisions. 1.3 Term: Five (5) years and 11 months ("Original Term") commencing June 1, 1994 ("Commencement Date") and ending April 30, 2000 ("Expiration Date"). (See Paragraph 3 for further provisions.) 1.4 Early Possession: Upon execution of this Lease by Lessor and Lessee ("Early Possession Date"). (See Paragraphs 3.2 and 3.3 for further provisions.) 1.5 Base Rent: $__________ per month ("Base Rent"), payable on the first (1st) day of each month commencing July 1, 1994. (See Paragraph 4 for further provisions. [ ] If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted. 1.6 Base Rent Paid Upon Execution: $__________ as Base Rent for the period June 1, 1994 through June 30, 1994. 1.7 Security Deposit: $__________ See Addendum ("Security Deposit"). (See Paragraph 5 for further provisions. 1.8 Permitted Use: Office, administration, research and development, light manufacturing and all other uses legally permitted by the City of Mountain View. (See Paragraph 6 for further provisions.) 1.9 Insuring Party: Lessor is the "Insuring Party" unless otherwise stated herein. (See Paragraph 8 for further provisions.) 1.10 Real Estate Brokers: The following real estate brokers (collectively, "the Brokers") and brokerage relationships exist in this transaction and are consented to by the Parties (check applicable boxes): Cornish & Carey Commercial represents [X] Lessor exclusively ("Lessor's Broker"); [ ] both Lessor and Lessee, and Wayne Masco Associates represents 10 [X] Lessee exclusively ("Lessee's Broker"); [ ] both Lessee and Lessor. (See Paragraph 15 for further provisions.) 1.11 Guarantor. The obligations of the Lessee under this Lease are to be guaranteed by N/A (See Paragraph 37 for further provisions.) 1.12 Addenda. Attached hereto is an Addendum which constitutes a part of this Lease. 2. Premises 2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of square footage set forth in this Lease, or that may have been used in calculating rental, is an approximation which Lessor and Lessee agree is reasonable and the rental based thereon is not subject to revision whether or not the actual square footage is more or less. 2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free of debris on the Commencement Date and warrants to Lessee that the existing plumbing, fire sprinkler system, lighting, air conditioning, heating, roof and loading doors, if any, in the Premises, other than those constructed by Lessee, shall be in good operating condition on the Commencement Date. If a non-compliance with said warranty exists as of the Commencement Date Lessor shall, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within sixty (60) days after the Commencement Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. 2.3 Compliance with Covenants, Restrictions and Building Code. Lessor warrants to Lessee that the improvements on the Premises comply with all applicable covenants or restrictions of record and codes, regulations and ordinances, including without limitation, all building codes (including the Americans with Disabilities Act of 1990) and Applicable Law, as defined in Section 6.3 hereof, in effect on the Commencement Date. Said warranty does not apply to the use to which Lessee will put the Premises or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within twelve (12) months following the Commencement Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. 2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has been advised by the Brokers to satisfy itself with respect to the present and future suitability of the Premises for Lessee's intended use, (b) that Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to Lessee's occupancy of the Premises and/or the term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has made any oral or written representations or warranties with respect to the said matters other than as set forth in this Lease. 2.5 Lessee Prior Owner/Occupant. The warranties made by Lessor in this Paragraph 2 shall be of no force or effect if immediately prior to the date set forth in Paragraph 1.1 Lessee was 11 the owner or occupant of the Premises. In such event, Lessee shall, at Lessee's sole cost and expense, correct any non-compliance of the Premises with said warranties. 3. Term. 3.1 Term. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3. 3.2 Early Possession. If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession. All other terms of this Lease, however, (including but not limited to the obligations to pay Real Property Taxes and insurance premiums and to maintain the Premises) shall be in effect during such period. Any such early possession shall not affect nor advance the Expiration Date of the Original Term. 3.3 Delay in Possession. If for any reason Lessor cannot deliver possession of the Premises to Lessee as agreed herein by the Early Possession Date, if one is specified in Paragraph 1.4, or, if no Early Possession Date is specified, by the Commencement Date, Lessor shall not be subject to any liability; therefor, nor shall such failure affect the validity of this Lease, or the obligations of Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not, except as otherwise provided herein, be obligated to pay rent or perform any other obligation of Lessee under the terms of this Lease until Lessor delivers possession of the Premises to Lessee. If possession of the Premises is not delivered to Lessee within sixty (60) days after the Commencement Date, Lessee may, at its option, by notice in writing to Lessor within ten (10) days thereafter, cancel this Lease, in which event the Parties shall be discharged from all obligations hereunder; provided, however, that if such written notice by Lessee is not received by Lessor within said ten (10) day period, Lessee's right to cancel this Lease shall terminate and be of no further force or effect. Except as may be otherwise provided, and regardless of when the term actually commences, if possession is not tendered to Lessee when required by this Lease and Lessee does not terminate this Lease, as aforesaid, the period free of the obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts, changes or omissions of Lessee. 4. Rent. 4.1 Base Rent. Lessee shall cause payment of Base Rent and other rent or charges, as the same may be adjusted from time to time, to be received by Lessor in lawful money of the United States, without offset or deduction, on or before the day on which it is due under the terms of this Lease. Base Rent and all other rent and charges for any period during the term hereof which is for less than one (1) full calendar month shall be prorated based upon the actual number of days of the calendar month involved. Payment of Base Rent and other charges shall be made to Lessor at its address stated herein or to such other persons or at such other addresses as Lessor may from time to time designate in writing to Lessee. 5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful performance of Lessee's obligations under this Lease. If Lessee fails to pay Base Rent or other rent or charges due hereunder or otherwise Defaults under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, cost expense, loss or damage (including attorneys' fees) which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of said Security Deposit, Lessee shall within ten (10) days after written request therefor deposit moneys with Lessor sufficient to restore said Security Deposit to the full 12 amount required by this Lease. Any time the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional moneys with Lessor sufficient to maintain the same ratio between the Security Deposit and the Base Rent as those amounts are specified in the Basic Provisions. Lessor shall not be required to keep all or any part of the Security Deposit separate from its general accounts. Lessor shall, at the expiration or earlier termination of the term hereof and after Lessee has vacated the Premises, return to Lessee that portion of the Security Deposit not used or applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the Security Deposit shall be considered to be held in trust, to bear interest or other increment for its use, or to be prepayment for any moneys to be paid by Lessee under this Lease. 6. Use. 6.1 Use. Lessee shall use and occupy the Premises only for the purposes set forth in Paragraph 1.8. or any other use which is comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that creates waste or a nuisance or that unreasonably disturbs owners and/or occupants of or causes damage to neighboring premises or properties. 6.2 Hazardous Substances. (a) Reportable Uses Require Consent. The term "Hazardous Substance" as used in this lease shall mean any product substance, chemical, material or waste whose presence, nature, quantity and/or intensity of existence, use, manufacture, disposal, transportation, spill, release or effect, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substance shall include, but not be limited to, hydrocarbons, petroleum, gasoline, crude oil or any products, by-products or fractions thereof. Lessee shall not engage in any activity in, on or about the Premises which constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances without the express prior written consent of Lessor and compliance in a timely manner (at Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph 6.3). "Reportable Use" shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority. Reportable Use shall also include Lessee's being responsible for the presence in, on or about the Premises of a Hazardous Substance with respect to which any Applicable Law requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may without Lessor's prior consent, but in compliance with all Applicable Law, use any ordinary and customary materials reasonably required to be used by Lessee in the normal course of Lessee's business permitted on the Premises so long as such use is not a Reportable Use and does not expose the Premises or neighboring properties to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. (b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance, or a condition involving or resulting from same, has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any statement, report, notice, registration, application, permit, business plan, license, claim, action or proceeding given to, or received from, any governmental authority or private party, or persons entering or occupying the Premises, concerning the presence, spill, release, discharge of, or exposure to, any Hazardous Substance or contamination in, on, or about 13 the Premises, including but not limited to all such documents as may be involved in any Reportable Uses involving the Premises. (c) Indemnification. Lessee shall indemnify, protect, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, and the Premises harmless from and against any and all loss of rents and/or damages, liabilities, judgments, costs, claims, liens, expenses, penalties, permits and attorney's and consultant's fees arising out of or involving any Hazardous Substance or storage tank brought onto the Premises by or for Lessee or under Lessee's control in violation of Applicable Law. Lessee's obligations under this Paragraph 6 shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation (including consultant's and attorney's fees and testing), removal, remediation, restoration and/or abatement thereof, or of any contamination therein involved, and shall survive the expiration or earlier termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances or storage tanks, unless specifically so agreed by Lessor in writing at the time of such agreement. 6.3 Lessee's Compliance with Law. Except as otherwise provided in this Lease, Lessee shall, at Lessee's sole cost and expense fully, diligently and in a timely manner comply with all "Applicable Law", which term is used in this Lease to include all laws, rules, regulations, ordinances, directives, covenants, easements and restrictions of record, permits, the requirements of any applicable fire insurance underwriter or rating bureau, and the reasonable recommendations of Lessor's engineers and/or consultants, relating in any manner to Lessee's use of the Premises (including but not limited to matters pertaining to (i) industrial hygiene, (ii) environmental conditions on, in, under or about the Premises, including soil and groundwater conditions, and (iii) the use, generation, manufacture, production, installation, maintenance, removal, transportation, storage, spill or release of any Hazardous Substance or storage tank), now in effect or which may hereafter come into effect, and whether or not reflecting a change in policy from any previously existing policy. Lessee shall within five (5) days after receipt of Lessor's written request, provide Lessor with copies of all documents and information, including but not limited to, permits, registrations, manifests, applications, reports and certificates, evidencing Lessee's compliance with any Applicable Law specified by Lessor, and shall immediately, upon receipt, notify Lessor in writing (with copies of any documents involved) of any actual claim notice, citation, warning, complaint or report pertaining to or involving failure by Lessee or the Premises to comply with any Applicable Law. 6.4 Inspection; Compliance. Lessor and Lessor's Lender(s) (as defined in Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to employ experts and/or consultants in connection therewith and/or to advise Lessor with respect to Lessee's activities, including but not limited to the installation, operation, use, monitoring, maintenance, or removal of any Hazardous Substance or storage tank on or from the Premises. The costs and expenses of any such inspections shall be paid by the party requesting same, unless a Default or Breach of this Lease, violation of Applicable Law, or a contamination, caused by Lessee is found to exist or be imminent, or, unless the inspection is requested or ordered by a governmental authority as the result of any such existing violation or contamination. In any such case, Lessee shall upon request reimburse Lessor or Lessor's Lender, as the case may be, for the costs and expenses of such inspections. 7. Maintenance; Repairs; Utility Installations; Trade Fixtures and Alterations. 7.1 Lessee's Obligations. 14 (a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc.), 7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14 (condemnation), Lessee shall, at Lessee's sole cost and expense and at all times, keep the Premises and every part thereof in good order, condition and repair, structural and non-structural, so long as the need for such repairs occurs as a result of Lessee's use, including, without limiting the generality of the foregoing, all equipment or facilities serving the Premises, such as plumbing, heating, air conditioning, ventilating, electrical, lighting facilities, boilers, fired or unfired pressure vessels, fire sprinkler and/or standpipe and hose or other automatic fire extinguishing system, including fire alarm and/or smoke detection systems and equipment, fire hydrants, fixtures, walls (interior and exterior), foundations, ceilings, roofs, floors, windows, doors, plate glass, skylights, landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways located in on, about, or adjacent to the Premises. Lessee shall not cause or Permit any Hazardous Substance to be spilled or released in, on, under or about the Premises (including through the plumbing or sanitary sewer system) in violation of Applicable Law, and shall promptly, at Lessee's expense, take all investigatory and/or remedial action required by Applicable Law for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of, the Premises, or neighboring properties, that was caused by Lessee, or pertaining to or involving any Hazardous Substance and/or storage tank brought onto the Premises by or for Lessee or under its control. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices. Lessee's obligations shall include restorations when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair. If Lessee occupies the Premises for more than seven (7) years, Lessor may require Lessee to repaint the exterior of the buildings on the Premises as reasonably required, but not more frequently than once every seven (7) years. (b) Lessee shall, at Lessee's sole cost and expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in, the inspection, maintenance and service of the following equipment and improvements, if any, located on the Premises: (i) heating, air conditioning and ventilation equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler and/or standpipe and hose or other automatic fire extinguishing systems, including fire alarm and/or smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and drain maintenance and (vi) asphalt and parking lot maintenance. 7.2 Lessor's Obligations. Except for the warranties and agreements of Lessor contained in Paragraph 2.2 (relating to condition of the Premises), 2.3 (relating to compliance with covenants, restrictions and building code), 9 (relating to destruction of the Premises) and 14 (relating to condemnation of the Premises), it is intended by the Parties hereto that Lessor have no obligation, in any manner whatsoever, to repair and maintain the Premises, the improvements located thereon, or the equipment therein, whether structural or non structural, all of which obligations are intended to be that of the Lessee under Paragraph 7.1 hereof. It is the intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the Premises. Lessee and Lessor expressly waive the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease with respect to, or which affords Lessee the right to make repairs at the expense of Lessor or to terminate this Lease by reason of, any needed repairs. 7.3 Utility Installations; Trade Fixtures; Alterations. (a) Definitions; Consent Required. The term "Utility Installations" is used in this Lease to refer to all carpeting, window coverings, air lines, power panels, electrical distribution, security, fire protection systems, communication systems, lighting fixtures, heating, ventilating, and air conditioning equipment, plumbing, and fencing in, on or about the Premises. The term 15 "Trade Fixtures" shall mean Lessee's machinery and equipment that can be removed without doing material damage to the Premises. The term "Alterations" shall mean any modification of the improvements on the Premises from that which are provided by Lessor under the terms of this Lease other than Utility Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned Alterations and/or Utility Installations" are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor as defined in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility Installations in, on, under or about the Premises without Lessor's prior written consent. Lessee may however make non-structural Utility installations to the interior of the Premises (excluding the roof) as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls and the cumulative coat thereof during the term of this Lease as extended does not exceed $25.000. (b) Consent. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with proposed detailed plans. All consents given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent, shall be deemed conditional upon: (i) Lessee's acquiring all applicable permits required by governmental authorities, (ii) the furnishing of copies of such permits together with a copy of the plans and specifications for the Alteration or Utility Installation to Lessor prior to commencement of the work thereon, and (iii) the compliance by Lessee with all conditions of said permits in a prompt and expeditious manner. Any Alterations or Utility Installations by Lessee during the term of this Lease shall be done in a good and workmanlike manner with good and sufficient materials and in compliance with all Applicable Law. Lessee shall promptly upon completion thereof furnish Lessor with as-built plans and specifications therefor. Lessor may (but without obligation to do so) condition its consent to any requested Alteration or Utility Installation that costs $10,000 or more upon Lessee's providing Lessor with a lien and completion bond in an amount equal to one and one-quarter times the estimated cost of such Alteration or Utility Installation and/or upon Lessee's posting an additional Security Deposit with Lessor under Paragraph 36 hereof. (c) Indemnification. Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises which claims are or may be secured by any mechanics' or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than ten (10) days notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility in or on the Premises as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one and one-quarter times the amount of such contested lien, claim or demand indemnifying Lessor against liability for the same as required by law for the holding of the Premises free from the effect of such lien or claim. In addition, Lessor may require Lessee to pay Lessor's reasonable attorney's fees and costs in participating in such action if Lessor shall decide it is to its best interest to do so. 7.4 Ownership; Removal; Surrender; and Restoration. (a) Ownership. Subject to Lessor's right to require their removal or become the owner thereof as hereinafter provided In this Paragraph 7.4, all Alterations and Utility Additions made to the Premises by Lessee shall be the property of and owned by Lessee, but considered a part of the Premises. Lessor may, at any time and at its option, elect in writing to Lessee to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all Lessee Owned Alterations and Utility 16 Installations shall, at the expiration or earlier termination of this Lease, become the property of Lessor and remain upon and be surrendered by Lessee with the Premises. (b) Removal. Unless otherwise agreed in writing, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration of this Lease, notwithstanding their installation may have been consented to by Lessor. Lessor may require the removal at any time of all or any part of Lessee Owned Alterations or Utility Installations made without the required consent of Lessor only if Lessee has requested Lessor's decision on such removal in writing. (c) Surrender/Restoration. Lessee shall surrender the Premises by the end of the last day of the Lease term or any earlier termination date, with all of the improvements, parts and surfaces thereof clean and free of debris and in good operating order, condition and state of repair, ordinary wear and tear excepted. "Ordinary wear and tear" shall not include any damage or deterioration that would have been prevented by good maintenance practice or by Lessee performing all of its obligations under this Lease. Except as otherwise agreed or specified in writing by Lessor, the Premises, as surrendered, shall include the Utility Installations. The obligation of Lessee shall include the repair of any damage occasioned by the installation, maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and Alterations and/or Utility Installations, as well as the removal of any storage tank installed by or for Lessee, and the removal, replacement, or remediation of any soil, material, or ground water contaminated by Lessee, all as may then be required by Applicable Law and/or good practice. Lessee's Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee subject to its obligation to repair and restore the Premises per this Lease. 8. Insurance; Indemnity. 8.1 Payment For Insurance. Regardless of whether the Lessor or Lessee is the Insuring Party, Lessee shall pay for all insurance required under this Paragraph 8 except to the extent of the cost attributable to liability insurance carried by Lessor in excess of $1,000,000 per occurrence. Premiums for policy periods commencing prior to or extending beyond the Lease term shall be prorated to correspond to the Lease term. Payment shall be made by Lessee to Lessor within ten (10) days following receipt of an invoice for any amount due. 8.2 Liability Insurance. (a) Carried by Lessee. Lessee shall obtain and keep in force during the term of this Lease a Commercial General Liability policy of insurance protecting Lessee and Lessor (as an additional insured) against claims for bodily injury, personal injury and property damage based upon, involving or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an "Additional Insured-Managers or Lessors of Premises" Endorsement and contain the "Amendment of the Pollution Exclusion" for damage caused by heat, smoke or fumes from a hostile fire. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an "insured contract" for the performance of Lessee's indemnity obligations under this Lease. The limits of said insurance required by this Lease or as carried by Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance to be carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only. (b) Carried By Lessor. In the event Lessor is the insuring Party, Lessor shall also maintain liability insurance described in Paragraph 8.2(a) above, in addition to, and not in lieu of, 17 the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein. 8.3 Property Insurance--Building, Improvements and Rental Value. (a) Building and Improvements. The Insuring Party shall obtain and keep in force during the term of this Lease a policy or policies in the name of Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds of trust or ground leases on the Premises ("Lender(s)"), insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full replacement cost of the Premises, as the same shall exist from time to time, or the amount required by Lenders, but in no event more than the commercially reasonable and available insurable value thereof if, by reason of the unique nature or age of the improvements involved, such latter amount is less than full replacement cost. If Lessor is the Insuring Party, however, Lessee Owned Alterations and Utility Installations shall be insured by Lessee under Paragraph 8.4 rather than by Lessor. If the coverage is available and commercially appropriate, such policy or polices shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for any additional costs resulting from debris removal and reasonable amounts of coverage for the enforcement of any ordinance or law regulating the reconstruction or replacement of any undamaged sections of the Premises required to be demolished or removed by reason of the enforcement of any building, zoning, safety or land use laws as the result of a covered cause of loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $1,000 per occurrence, and Lessee shall be liable for such deductible amount in the event of an Insured Loss, as defined in Paragraph 9.1(c). (b) Rental Value. The Insuring Party shall, in addition, obtain and keep in force during the term of this Lease a policy or policies in the name of Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the full rental and other charges payable by Lessee to Lessor under this Lease for one (1) year (including all real estate taxes, insurance costs, and any scheduled rental increases). Said insurance shall provide that in the event the Lease is terminated by reason of an insured loss, the period of indemnity for such coverage shall be extended beyond the date of the completion of repairs or replacement of the Premises, to provide for one full year's loss of rental revenues from the date of any such loss. Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected rental income, property taxes, insurance premium costs and other expenses, if any, otherwise payable by Lessee, for the next twelve (12) month period. Lessee shall be liable for any deductible amount in the event of such loss. (c) Adjacent Premises. If the Premises are part of a larger building, or if the Premises are part of a group of buildings owned by Lessor which are adjacent to the Premises, the Lessee shall pay for any increase in the premiums for the property insurance of such building or buildings if said increase is caused by Lessee's acts, omissions, use or occupancy of the Premises. (d) Tenant's Improvements. If the Lessor is the Insuring Party, the Lessor shall not be required to insure Lessee Owned Alterations and Utility Installations unless the item in question has become the property of Lessor under the terms of this Lease. If Lessee is the Insuring Party, the policy carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations and Utility Installations. 18 8.4 Lessee's Property Insurance. Subject to the requirements of Paragraph 8.5, Lessee at its cost shall by endorsement to a policy already carried, maintain insurance coverage on all of Lessee's personal property, Lessee Owned Alterations and Utility Installations in, on, or about the Premises similar in coverage to that carried by the Insuring Party under Paragraph 8.3. Such insurance shall be full replacement cost coverage with a deductible reasonably acceptable to Lessor and Lessee. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property or the restoration of Lessee Owned Alterations and Utility Installations. Lessee shall be the Insuring Party with respect to the insurance required by this Paragraph 8.4 and shall provide Lessor with written evidence that such insurance is in force. 8.5 Insurance Policies. Insurance required hereunder shall be in companies duly licensed to transact business in the state where the Premises are located, and maintaining during the policy term a "General Policyholders Rating" of at least B+, V, or such other rating as may be required by a Lender having a lien on the Premises, as set forth in the most current issue of "Best's Insurance Guide." Lessee shall not do or permit to be done anything which shall invalidate the insurance policies referred to in this Paragraph 8. If Lessee is the Insuring Party, Lessee shall cause to be delivered to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of such insurance with the insureds and loss payable clauses as required by this Lease. No such policy shall be cancelable or subject to modification except after thirty (30) days prior written notice to Lessor. Lessee shall at least thirty (30) days prior to the expiration of such policies, furnish Lessor with evidence of renewals or "insurance binders" evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. If the Insuring Party shall fail to procure and maintain the insurance required to be carried by the Insuring Party under this Paragraph 8, the other Party may, but shall not be required to, procure and maintain the same, but at Lessee's expense. 8.6 Waiver of Subrogation. Without affecting any other rights or remedies, Lessee and Lessor ("Waiving Party") each hereby release and relieve the other, and waive their entire right to recover damages (whether in contract or in tort) against the other, for loss of or damage to the Waiving Party's property arising out of or incident to the perils required to be insured against under Paragraph 8. The effect of such releases and waivers of the right to recover damages shall not be limited by the amount of insurance carried or required, or by any deductibles applicable thereto. 8.7 Indemnity. Except for Lessor's negligence or that of its agents, employees, contractors or invitees, and/or breach of express warranties, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor's master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, costs, liens, judgments, penalties, permits, attorney's and consultant's fees, expenses and/or liabilities arising out of, involving, or in dealing with, the occupancy of the Premises by Lessee, the conduct of Lessee's business, any act, omission or neglect of Lessee, its agents, contractors, employees or invitees, and out of any Default or Breach by Lessee in the performance in a timely manner of any obligation on Lessee's part to be performed under this Lease. The foregoing shall include, but not be limited to, the defense or pursuit of any claim or any action or proceeding involved therein, and whether or not (in the case of claims made against Lessor) litigated and/or reduced to judgment, and whether well founded or not, in case any action or proceeding be brought against Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor shall defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be indemnified. 8.8 Exemption of Lessor from Liability. Except to the extent caused by the negligence or willful misconduct of Lessor, its agents, employees, contractors or invitees, Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of 19 Lessee, Lessee's employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places, and regardless of whether the cause of such damage or injury or the means of repairing the same is accessible or not. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor. 9. Damage or Destruction. 9.1 Definitions. (a) "Premises Partial Damage" shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, the repair cost of which damage or destruction is less than 50% of the then Replacement Cost of the Premises immediately prior to such damage or destruction, excluding from such calculation the value of the land and Lessee Owned Alterations and Utility Installations. (b) "Premises Total Destruction" shall mean damage or destruction to the Premises, other than Lessee Owned Alterations and Utility Installations the repair cost of which damage or destruction is 50% or more of the then Replacement Cost of the Premises immediately prior to such damage or destruction, excluding from such calculation the value of the land and Lessee Owned Alterations and Utility Installations. (c) "Insured Loss" shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility installations, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved. (d) "Replacement Cost" shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of applicable building codes, ordinances or laws, and without deduction for depreciation. (e) "Hazardous Substance Condition" shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises. 9.2 Partial Damage--Insured Loss. If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility Installations} as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor's election, make the repair of any damage or destruction the total cost to repair of which is $10,000 or less, and, in such event, Lessor shall make the insurance proceeds available to Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds (except as to the deductible which is Lessee's responsibility) as and when required to complete said repairs. In the event, however, the shortage in proceeds was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate 20 assurance thereof, within ten (10) days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said ten (10) day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If Lessor does not receive such funds or assurance within said period, Lessor may nevertheless elect by written notice to Lessee within ten (10) days thereafter to make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect. If in such case Lessor does not so elect, then this Lease shall terminate as of the date of the occurrence of the damage or destruction. Unless otherwise agreed, Lessee shall in no event have any right to reimbursement from Lessor for any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party. 9.3 Partial Damage--Uninsured Loss. If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by negligent or willful action, Lessee (in which event Lessee shall make the repairs at Lessee's expense and this Lease shall continue in full force and effect, but subject to Lessor's rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such damage of Lessor's desire to terminate this Lease as of the date sixty (60) days following the giving of such notice. In the event Lessor elects to give such notice of Lessor's intention to terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's commitment to pay for the repair of such damage totally at Lessee's expense and without reimbursement from Lessor. Lessee shall provide Lessor with the required funds or satisfactory assurance thereof within thirty (30) days following Lessee's said commitment. In such event this lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible and the required funds are available. If Lessee does not give such notice and provide the funds or assurance thereof within the times specified above, this Lease shall terminate as of the date specified in Lessor's notice of termination. 9.4 Total Destruction. Notwithstanding any other provision hereof, if a Premises Total Destruction occurs (including any destruction required by an authorized public authority), this Lease shall terminate sixty (60) days following the date of such Premises Total Destruction, whether or not the damage or destruction is an Insured Loss or was caused by negligent or willful act of Lessee. In the event, however, that the damage or destruction was caused by the negligence or willful misconduct of Lessee, Lessor shall have the right to recover Lessor's damages from Lessee except as released and waived in Paragraph 8.6. 9.5 Damage Near End of Term. If at any time during the last six (6) months of the term of this Lease there is damage for which the cost to repair exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's option, terminate this Lease effective sixty (60) days following the date of occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within thirty (30) days after the date of occurrence of such damage. Provided, however, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessor may preserve this Lease by, within twenty (20) days following the occurrence of the damage, or before the expiration of the time provided in such option for its exercise, whichever is earlier ("Exercise Period"), (i) exercising such option and (ii) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs. If Lessee duly exercises such option during said Exercise Period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's expense, repair such damage as soon as reasonably possible and this Lease shall 21 continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during said exercise period, then Lessor may at Lessor's option terminate this lease as of the expiration of said sixty (60) day period following the occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within ten (10) days after the expiration of the Exercise Period, notwithstanding any term or provision in the grant of option to the contrary. 9.6 Abatement of Rent; Lessee's Remedies. (a) In the event of damage described in Paragraph 9.2 (Partial Damage--Insured), whether or not Lessor or Lessee repairs or restores the Premises, the Base Rent, Real Property Taxes, insurance premiums, and other charges, if any, payable by Lessee hereunder for the period during which such damage, its repair or the restoration continues (not to exceed the period for which rental value insurance is required under Paragraph 8.3(b))1, shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired. Except for abatement of Base Rent, Real Property Taxes, insurance premiums and other charges, if any, as aforesaid, all other obligations of Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim against Lessor for any damage suffered by reason of any such repair or restoration (b) If Lessor shall be obligated to repair or restore the Premises under the provisions of this Paragraph 9 and shall not commence, in a substantial and meaningful way, the repair or restoration of the Premises within ninety (90) days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice of Lessee's election to terminate this Lease on a date not less than sixty (60) days following the giving of such notice. If Lessee gives such notice to Lessor and such Lenders and such repair or restoration is not commenced within thirty (30) days after receipt of such notice, this Lease shall terminate as of the date specified in said notice. If Lessor or a Lender commences the repair or restoration of the Premises within thirty (30) days after receipt of such notice, this Lease shall continue in full force and effect. "Commence" as used in this Paragraph shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs. 9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition occurs, unless Lessee is responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by Applicable Law and this Lease shall continue in full force and effect, but subject to Lessor's rights under Paragraph 13), Lessor shall investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect. If Lessor's remediation will take more than ninety (90) days, or if Lessee's ability to conduct its operations on the Premises is, in Lessee's reasonable estimation, materially impaired by the remediation, Lessee shall have the right to give written notice to Lessor of Lessee's election to terminate this Lease. If Lessee does not elect to terminate, this Lease shall continue in full force and effect, and Lessor shall proceed to make such investigation and remediation as soon as reasonably possible. If a Hazardous Substance Condition occurs for which Lessee is not responsible, there shall be abatement of Lessee's obligations under this Lease to the same extent as provided in Paragraph 9.6(a) until the remediation is complete. 9.8 Termination--Advance Payments. Upon termination of this Lease pursuant to this Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall in addition promptly return to Lessee so much of Lessee's Security Deposit as has not been, or is not then required to be, used by Lessor under the terms of this Lease. 22 9.9 Waive Statutes. Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith. 10. Real Property Taxes. 10.1 (a} Payment of Taxes. Lessee shall Pay the Real Property Taxes, as defined in Paragraph 10.2, applicable to the Premises during the term of this Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least ten (10) days prior to the delinquency date of the applicable installment. Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes have been paid. If any such taxes to be paid by Lessee shall cover any period of time prior to or after the expiration or earlier termination of the term hereof, Lessee's share of such taxes shall be equitably prorated to cover only the period of time within the tax fiscal year this Lease is in effect, and Lessor shall reimburse Lessee for any overpayment after such proration. If Lessee shall fail to pay any Real Property Taxes required by this Lease to be paid by Lessee, Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor therefor upon demand (b) Advance Payment. In order to insure payment when due and before delinquency of any or all Real Property Taxes, Lessor reserves the right, at Lessor's option, to estimate the current Real Property Taxes applicable to the Premises and to require such current year's Real Property Taxes to be paid in advance to Lessor by Lessee either (i) in a lump sum amount equal to the installment due, at least twenty (20) days prior to the applicable delinquency date, or {ii) monthly in advance with the payment of the Base Rent. If Lessor elects to require payment monthly in advance, the monthly payment shall be that equal monthly amount which, over the number of months remaining before the month in which the applicable tax installment would become delinquent (and without interest thereon), would provide a fund large enough to fully discharge before delinquency the estimated installment of taxes so be paid. When the actual amount of the applicable tax bill is known, the amount of such equal monthly advance payment shall be adjusted as required to provide the funds needed to pay the applicable taxes before delinquency. If the amounts paid to Lessor by Lessee under the provisions of this Paragraph are insufficient to discharge the obligations of Lessee to pay such Real Property Taxes as the same become due, Lessee shall pay to Lessor upon Lessor's demand such additional sums as are necessary to pay such obligations. All moneys paid to Lessor under this Paragraph may be intermingled with other moneys of Lessor and shall not bear interest. 10.2 Definition of "Real Property Taxes." As used herein, the term "Real Property Taxes" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income or estate taxes) imposed upon the Premises by any authority having the direct or indirect power to tax, including any city, state or federal government, or any school, agricultural, sanitary, fire, street, drainage or other improvement district thereof, levied against any legal or equitable interest of Lessor in the Premises or in the real property of which the Premises are a part, Lessor's right to rent or other income therefrom and/or Lessor's business of leasing the Premises. The term "Real Property Taxes" shall also include any tax, fee, levy, assessment or charge, or any increase therein, imposed by reason of events occurring, or changes in applicable law taking effect, during the term of this Lease, including but not limited to the execution of this Lease, or any modification, amendment or transfer thereof, and whether or not contemplated by the Parties. 10.3 Joint Assessment. If the Premises are not separately assessed, Lessee's liability shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be 23 reasonably available. Lessor's reasonable determination thereof, in good faith, shall be conclusive. 10.4 Personal Property Taxes. Lessee shall pay prior to delinquency all taxes assessed against and levied upon Lessee Owned Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee contained in the Premises or elsewhere. When possible, Lessee shall cause its Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. If any of Lessee's said personal property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days after receipt of a written statement setting forth the taxes applicable to Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b). 11. Utilities. Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Lessee, Lessee shall pay a reasonable proportion, to be determined by Lessor, of all charges jointly metered with other premises. 12. Assignment and Subletting. 12.1 Lessor's Consent Required. (a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or otherwise transfer or encumber (collectively, "assignment") or sublet all or any part of Lessee's interest in this Lease or in the Premises without Lessor's prior written consent given under and subject to the terms of Paragraph 36, which consent shall not be unreasonably withheld or delayed. 12.2 Terms and Conditions Applicable to Assignment and Subletting. (a) Regardless of Lessor's consent, any assignment or subletting shall not: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) alter the primary liability of Lessee for the payment of Base Rent and other sums due Lessor hereunder or for the performance of any other obligations to be performed by Lessee under this Lease. (b) Lessor may accept any rent or performance of Lessee's obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of any rent or performance shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for the Default or Breach by Lessee of any of the terms, covenants or conditions of this Lease. (c) The consent of Lessor to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting by Lessee or to any subsequent or successive assignment or subletting by the sublessee. However, Lessor may consent to subsequent sublettings and assignments of the sublease or any amendments or modifications thereto without notifying Lessee or anyone else liable on the Lease or sublease and without obtaining their consent, and such action shall not relieve such persons from liability under this Lease or sublease. (d) In the event of any Default or Breach of Lessee's obligations under this Lease, Lessor may proceed directly against Lessee, any Guarantors or any one else responsible for the performance of the Lessee's obligations under this Lease, including the sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor or Lessee. 24 (e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor's determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested by Lessor. (f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed, for the benefit of Lessor, to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented in writing. 12.3 Additional Terms and Conditions Applicable to Subletting. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein: (a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all rentals and income arising from any sublease of all or a portion of the Premises heretofore or hereafter made by Lessee, and Lessor may collect such rent and income and apply same toward Lessee's obligations under this Lease; provided, however, that until a Breach (as defined in Paragraph 13.1) shall occur in the performance of Lessee's obligations under this Lease, Lessee may, except as otherwise provided in this Lease, receive, collect and enjoy the rents accruing under such sublease. Lessor shall not, by reason of this or any other assignment of such sublease to Lessor, nor by reason of the collection of the rents from a sublessee, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee under such sublease. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee's obligations under this Lease, to pay to Lessor the rents and other charges due and to become due under the sublease. Sublessee shall rely upon any such statement and request from Lessor and shall pay such rents and other charges to Lessor without any obligation or right to inquire as to whether such Breach exists and notwithstanding any notice from or claim from Lessee to the contrary. Lessee shall have no right or claim against said sublessee, or, until the Breach has been cured, against Lessor, for any such rents and other charges so paid by said sublessee to Lessor. (b) DELETED (c) Any matter or thing requiring the consent of the sublessor under a sublease shall also require the consent of Lessor herein. (d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent. (e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee. 13. Default; Breach; Remedies. 13.1 Default; Breach. Lessor and Lessee agree that if an attorney is consulted by either party in connection with a Default or Breach (as hereinafter defined), $350.00 is a reasonable 25 minimum sum per such occurrence for legal services and costs in the preparation and service of a notice of Default, and that either party may include the cost of such services and costs in said notice as due and payable to cure said Default. A "Default" is defined as a failure by either party to observe, comply with or perform any of the terms, covenants, conditions or rules applicable to Lessee under this Lease. A "Breach" is defined as the occurrence of any one or more of the following Defaults, and, where a grace period for cure after notice is specified herein, the failure by either party to cure such Default prior to the expiration of the applicable grace period, and shall entitle Lessor to pursue the remedies set forth in Paragraphs 13.2 and/or 13.3. (a) The vacating of the Premises without the intention to reoccupy same, or the abandonment of the Premises. (b) Except as expressly otherwise provided in the Lease, the failure by Lessee to make any payment of Base Rent or any other monetary payment required to be made by Lessee hereunder, whether to Lessor or to a third party, as and when due, the failure by Lessee to provide Lessor with reasonable evidence of insurance or surety bond required under this Lease, or the failure of Lessee to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of three (3) days following receipt of written notice thereof by or on behalf of Lessor to Lessee. (c) Except as expressly otherwise provided in this Lease, the failure by Lessee to provide Lessor with reasonable written evidence (in duly executed original form, if applicable) of (i) compliance with applicable law per Paragraph 6.3, (ii) the inspection, maintenance and service contracts: required under Paragraph 7.1(b), (iii) the recission of an unauthorized assignment or subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the execution of any document requested under Paragraph 42 (easements) or (viii) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of twenty (20) days following receipt of written notice by or on behalf of Lessor to Lessee. (d) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that are to be observed, complied with or performed by Lessee, other than those described in subparagraphs (a), (b) or (c), above, where such Default continues for a period of thirty (30) days after written notice thereof by or on behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's Default is such that more than thirty (30) days are reasonably required for its cure, then it shall not be deemed to be a Breach of this Lease by Lessee if Lessee commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion. (e) The occurrence of any of the following events: (i) The making by Lessee of any general arrangement or assignment for the benefit of creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within sixty (60) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within sixty (60} days; provided, however, in the event that any provision of this subparagraph (e) is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions. 26 (f) The discovery by Lessor that any financial statement given to Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was materially false. (g) If the performance of Lessee's obligations under this Lease is guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's liability with respect to this Lease other than in accordance with the forms of such guaranty, (iii) a guarantor's becoming insolvent or the subject of a bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a guarantor's breach of its guaranty obligation on an anticipatory breach basis and Lessee's failure, within sixty (60) days following written notice by or on behalf of Lessor to Lessee of any such event, to provide Lessor with written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the guarantors that existed at the time of execution of this Lease. 13.2 Remedies. If Lessee fails to perform any affirmative duty or obligation of Lessee under this Lease, within ten (10) days after written notice to Lessee (or in case of an emergency, without notice), Lessor may at its option (but without obligation to do so), perform such duty or obligation on Lessee's behalf including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. The costs and expenses of any such performance by Lessor shall be due and payable by Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee shall not be honored by the bank upon which it is drawn, Lessor, at its option, may require all future payments to be made under this Lease by Lessee to be made only by cashier's check. In the event of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach, Lessor may: (a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease and the term hereof shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the worth at the time of the award of the unpaid rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorney's' fees, and that portion of the leasing commission paid by Lessor applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the prior sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent. Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of this Lease shall not waive Lessor's right to recover damages under this Paragraph. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding the unpaid rent and damages as are recoverable therein, or Lessor may reserve therein the right to recover all or any part thereof in a separate suit for such rent and/or damages. If a notice and grace period required under subparagraphs 13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or to perform or quit, as the case may be, given to Lessee under any statute authorizing the forfeiture of leases for unlawful detainer shall also constitute the applicable notice for grace period purposes required by subparagraphs 13.1 (b), (c) or (d). In such case, the applicable grace period under subparagraphs 13.1(b), (c) or (d) and under the unlawful detainer statute shall run concurrently after the one such statutory notice, and the 27 failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute. (b) Continue the Lease and Lessee's right to possession in effect (in California under California Civil Code Section 1951.4) after Lessee's Breach and abandonment and recover the rent as it becomes due, provided Lessee has the right to sublet or assign, subject only to reasonable limitations. See Paragraphs 12 and 36 for the limitations on assignment and subletting which limitations Lessee and Lessor agree are reasonable. Acts of maintenance or preservation, efforts to relet the Premises, or the appointment of a receiver to protect the Lessor's interest under the Lease, shall not constitute a termination of the Lessee's right to possession. (c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state wherein the Premises are located. (d) The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee's occupancy of the Premises. 13.3 Inducement Recapture In Event Of Breach. Any agreement by Lessor for free or abated rent or other charges applicable to the Premises, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee's entering into this Lease, all of which concessions are hereinafter referred to as "Inducement Provisions," shall be deemed conditioned upon Lessee's full and faithful performance of all of the terms, covenants and conditions of this Lease to be performed or observed by Lessee during the term hereof as the same may be extended. Upon the occurrence of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration therefore abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor, and recoverable by Lessor as additional rent due under this Lease, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this Paragraph shall not be deemed a waiver by Lessor of the provisions of this Paragraph unless specifically so stated in writing by Lessor at the time of such acceptance. 13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by the terms of any ground lease, mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or any other sum due from Lessee shall not be received by Lessor or Lessor's designee within five (5) days after receipt of notice from Lessor that such amount shall be due, then Lessee shall pay to Lessor a late charge equal to six percent (6%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's Default or Breach with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of Base Rent, then notwithstanding Paragraph 4.1 or any other provision of this Lease to the contrary, Base Rent shall, at Lessor's option. become due and payable quarterly in advance. 28 13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable time shall in no event be less than thirty (30) days after receipt by Lessor, and by the holders of any ground lease, mortgage or deed of trust covering the Premises whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed: provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days after such notice are reasonably required for its performance, then Lessor shall not be in breach of this Lease if performance is commenced within such thirty (30) day period and thereafter diligently pursued to completion. 14. Condemnation. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than ten percent (10%) of the floor area of the Premises, or more than twenty-five percent (25%) of the land area not occupied by any building, is taken by condemnation, Lessee may, at Lessee's option, to be exercised in writing within ten (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in the same proportion as the rentable floor area of the Premises taken bears to the total rentable floor area of the building located on the Premises. No reduction of Base Rent shall occur if the only portion of the Premises taken is land on which there is no building. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Lessee shall be entitled to any compensation, separately awarded to Lessee for Lessee's relocation and moving expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is not terminated by reason of such condemnation, Lessor shall to the extent of its net severance damages received, over and above the legal and other expenses incurred by Lessor in the condemnation matter, repair any damage to the Premises caused by such condemnation, except to the extent that Lessee has been reimbursed therefor by the condemning authority. Lessee shall be responsible for the payment of any amount in excess of such net severance damages required to complete such repair. 15. Broker's Fee. 15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this Lease. 15.2 Upon execution of this Lease by both Parties, Lessor shall pay to said Brokers jointly, or in such separate shares as they may mutually designate in writing, a fee as set forth in a separate written agreement between Lessor and said Brokers for brokerage services rendered by said Brokers to Lessor in this transaction. SECTIONS 15.3 AND 15.4 DELETED 15.5 Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any named in Paragraph 1.10) in connection with the negotiation of this Lease and/or the consummation of the transaction contemplated hereby, and that no broker or other person, firm or entity other than said named Brokers is entitled to any commission or finder's fee in connection with said transaction. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless 29 from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys' fees reasonably incurred with respect thereto. 15.6 Lessor and Lessee hereby consent to and approve all agency relationships, including any dual agencies, indicated in Paragraph 1.10. 16. Tenancy Statement. 16.1 Each Party (as "Responding Party") shall within ten (10) days after written notice from the other Party (the "Requesting Party") execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current "Tenancy Statement" form published by the American Industrial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party. 16.2 If Lessor desires to finance, refinance, or sell the Premises, any part thereof, or the building of which the Premises are a part, Lessee and all Guarantors of Lessee's performance hereunder shall deliver to any potential lender or purchaser designated by Lessor such financial statements of Lessee and such Guarantors as may be reasonably required by such lender or purchaser, including but not limited to Lessee's financial statements for the past three (3) years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. 17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the lessee's interest in the prior lease. In the event of a transfer of Lessor's title or interest in the Premises or in this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor at the time of such transfer or assignment. Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined. 18. Severability. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 19. Interest on Past-Due Obligations. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor within thirty (30) days following the date on which it was due, shall bear interest from the thirty-first (31st) day after it was due at the rate of 12% per annum, but not exceeding the maximum rate allowed by law, in addition to the late charge provided for in Paragraph 13.4. 20. Time of Essence. Time is of the essence with respect to the Performance of all obligations to be performed or observed by the Parties under this Lease. 21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms of this Lease are deemed to be rent. 22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to 30 this Lease and as to the nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party. 23. Notices. 23.1 All notices required or permitted by this Lease shall be in writing and may be delivered in person (by hand or by messenger or courier service) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease shall be that Party's address for delivery or mailing of notice purposes. Either Party may by written notice to the other specify a different address for notice purposes, except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for the purpose of mailing or delivering notices to Lessee. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by written notice to Lessee. 23.2 Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given forty-eight (48) hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantees next day delivery shall be deemed given twenty-four (24) hours after delivery of the same to the United States Postal Service or courier. If any notice is transmitted by facsimile transmission or similar means, the same shall be deemed served or delivered upon telephone confirmation of receipt of the transmission thereof, provided a copy is also delivered via delivery or mail. If notice is received on a Sunday or legal holiday, it shall be deemed received on the next business day. 24. Waivers. No waiver by either party of the Default or Breach of any term, covenant or condition hereof by either party, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by either party of the same or of any other term, covenant or condition hereof. Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. Regardless of Lessor's knowledge of a Default or Breach at the time of accepting rent, the acceptance of rent by Lessor shall not be a waiver of any preceding Default or Breach by Lessee of any provision hereof, other than the failure of Lessee to pay the particular rent so accepted. Any payment given Lessor by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment. 25. Recording. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a short form memorandum of this Lease for recording purposes. The Party requesting recordation shall be responsible for payment of any fees or taxes applicable thereto. 26. No Right To Holdover. Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or earlier termination of this Lease. 27. Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 31 28. Covenants and Conditions. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. 29. Binding Effect; Choice of Law. This Lease shall be binding upon the parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located. 30. Subordination; Attornment; Non-Disturbance. 30.1 Subordination. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, "Security Device"), now or hereafter placed by Lessor upon the real property of which the Premises are a part, to any and all advances made on the security thereof, and to all renewals, modifications, consolidations, replacements and extensions thereof. Lessee agrees that the Lenders holding any such Security Device shall have no duty, liability or obligation to perform any of the obligations of Lessor under this Lease, but that in the event of Lessor's default with respect to any such obligation, Lessee will give any Lender whose name and address have been furnished Lessee in writing for such purpose notice of Lessor's default and allow such Lender thirty (30) days following receipt of such notice for the cure of said default before invoking any remedies Lessee may have by reason thereof. If any Lender shall elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device and shall give written notice thereof to Lessee, this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof. 30.2 Attornment. Subject to the non-disturbance provisions of Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who acquires ownership of the Premises by reason of a foreclosure of a Security Device, and that in the event of such foreclosure, such new owner shall not: (i) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership, (ii) be subject to any offsets or defenses which Lessee might have against any prior lessor, or (iii) be bound by prepayment of more than one month's rent. 30.3 Non-Disturbance. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee's subordination of this Lease shall be subject to receiving assurance (a "non-disturbance agreement") from the Lender that Lessee's possession and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. 30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or Lessee or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any such subordination or non-subordination, attornment and/or non-disturbance agreement as is provided for herein. 31. Attorney's Fees. If any Party or Broker brings an action or proceeding to enforce the terms hereof or declare rights hereunder, the Prevailing Party (as hereinafter defined) or Broker in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorney's fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term "Prevailing Party" shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorney's fee award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorney's fees reasonably 32 incurred. Lessor shall be entitled to attorney's fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, only if a legal action is subsequently commenced in connection with such Default or resulting Breach. 32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times for the purpose of showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises or to the building of which they are a part, as Lessor may reasonably deem necessary. Lessor may at any time place on or about the Premises or building any ordinary "For Sale" signs and Lessor may at any time during the last one hundred twenty (120) days of the term hereof place on or about the premises any ordinary "For Lease" signs. All such activities of Lessor shall be without abatement of rent or liability to Lessee. 33. Auctions. Lessee shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease, Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent. 34. Signs. Lessee shall not place any sign upon the Premises, except that Lessee may with Lessor's prior written consent, install (but not on the roof) such signs as are reasonably required to advertise Lessee's own business. The installation of any sign on the Premises by or for Lessee shall be subject to the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations). Unless otherwise expressly agreed herein, Lessor reserves all rights to the use of the roof and the right to install, and all revenues from the installation of, such advertising signs on the Premises, including the roof, as do not unreasonably interfere with the conduct of Lessee's business. 35. Termination; Merger. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, Lessor shall, in the event of any such surrender, termination or cancellation, have the option to continue any one or all of any existing subtenancies. Lessor's failure within ten (10) days following any such event to make a written election to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor's election to have such event constitute the termination of such interest. 36. Consents. (a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs and expenses (including but not limited to architects', attorneys', engineers' or other consultants' fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent pertaining to this Lease or the Premises, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor upon receipt of an invoice and supporting documentation therefor. Lessor's consent to any act, assignment of this Lease or subletting of the Premises by Lessee shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such Consent. 33 (b) The failure to specify herein any particular condition to Lessor's consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. 37. Guarantor. 37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11, the form of the guaranty to be executed by each such Guarantor shall be in the form most recently published by the American Industrial Real Estate Association, and each said Guarantor shall have the same obligations as Lessee under this Lease, including but not limited to the obligation to provide the Tenancy Statement and information called for by Paragraph 16. 37.2 It shall constitute a Default of the Lessee under this Lease if any such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a) evidence of the due execution of the guaranty called for by this Lease, including the authority of the Guarantor (and of the party signing on Guarantor's behalf) to obligate such Guarantor on said guaranty, and including in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, together with a certificate of incumbency showing the signatures of the persons authorized to sign on its behalf, (b) current financial statements of Guarantor as may from time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written confirmation that the guaranty is still in effect. 38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and the observance and performance of all of the covenants, conditions and provisions on Lessee's part to be observed and performed under this Lease, Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease. 39. Options. 39.1 Definition. As used in this Paragraph 39 the word "Option" has the following meaning: (a) the right to extend the term of this Lease or to renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal to lease the Premises or the right of first offer to lease the Premises or the right of first refusal to lease other property of Lessor or the right of first offer to lease other property of Lessor; (c) the right to purchase the Premises, or the right of first refusal to purchase the Premises, or the right of first offer to purchase the Premises, or the right to purchase other Property of Lessor, or the right of first refusal to purchase other property of Lessor, or the right of first offer to purchase other property of Lessor. 39.2 DELETED 39.3 Multiple Options. In the event that Lessee has any multiple Options to extend or renew this Lease, a later option cannot be exercised unless the prior Options to extend or renew this Lease have been validly exercised. 39.4 Effect of Default on Options. (a} Lessee shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary: (i) during the period commencing with the giving of any notice of Default under Paragraph 13.1 and continuing until the noticed Default is cured, or (ii) during the period of time any monetary obligation due Lessor from Lessee is unpaid, so long as notice thereof is given Lessee, or (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three (3) or more notices of Default under Paragraph 34 13.1, whether or not the Defaults are cured, during the twelve (12) month period immediately preceding the exercise of the Option and the defaults remain uncured. (b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee s inability to exercise an Option because of the provisions of Paragraph 39.41(a). (c) All rights of Lessee under the provisions of an Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and during the term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a period of thirty (30) days after such obligation becomes due (so long as notice thereof is given to Lessee), or {ii) Lessor gives to Lessee three or more notices of Default under Paragraph 13.1 during any twelve month period and the defaults remain uncured, or (iii) if Lessee commits a Breach of this Lease. 40. Multiple Buildings. If the Premises are part of a group of buildings controlled by Lessor, Lessee agrees that it will abide by, keep and observe all reasonable rules and regulations which Lessor may make from time to time for the management, safety, care, and cleanliness of the grounds, the parking and unloading of vehicles and the preservation of good order, as well as for the convenience of other occupants or tenants of such other buildings and their invitees, and that Lessee will pay its fair share of common expenses incurred in connection therewith. 41. Security Measures. Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties. 42. Reservations. Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions. 43. Performance Under Protest. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease. 44. Authority. If either Party hereto is a corporation, trust, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. If Lessee is a corporation, trust or partnership, Lessee shall, within thirty (30) days after request by Lessor, deliver to Lessor evidence satisfactory to Lessor of such authority. 45. Conflict. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions. 35 46. Offer. Preparation of this Lease by Lessor or Lessor's agent and submission of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is not intended to be binding until executed by all Parties hereto. 47. Amendments. This Lease may be modified only in writing, signed by the parties in interest at the time of the modification. The parties shall amend this Lease from time to time to reflect any adjustments that are made to the Base Rent or other rent payable under this Lease. As long as they do not materially change Lessee's obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by an institutional, insurance company, or pension plan Lender in connection with the obtaining of normal financing or refinancing of the property of which the Premises are a part. 48. Multiple Parties. Except as otherwise expressly provided herein, if more than one person or entity is named herein as either Lessor or Lessee, the obligations of such multiple parties shall be the joint and several responsibility of all persons or entities named herein as such Lessor or Lessee. LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED. The parties hereto have executed this Lease at the place on the dates specified above to their respective signatures. Executed at Mountain View, CA Executed at Mountain View, CA on 4/26/94 on April 26, 1994 by LESSOR: By LESSEE: PORTOLA LAND COMPANY, QUICKTURN DESIGN SYSTEMS, INC., a California limited partnership a Delaware corporation By /s/ William J. Hurwick By /s/ R. K. Ostby ------------------------------- ------------------------------- Name Printed: William J. Hurwick Name Printed: R. K. Ostby --------------------- --------------------- Title: Managing Partner Title: Vice President ---------------------------- ---------------------------- 36 NOTICE: These forms are often modified to meet changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: American Industrial Real Estate Association, 345 South Figueroa Street, Suite M-1, Los Angeles, CA 90071. (213) 687-6777. Fax No. (213) 687-8616. 37 ADDENDUM TO LEASE THIS ADDENDUM TO LEASE ("addendum") is dated for reference purposes only as of April 26, 1994, and is made between PORTOLA LAND COMPANY, a California limited partnership ("Lessor"), and QUICKTURN DESIGN SYSTEMS, INC., a Delaware corporation ("Lessee"), to be a part of that certain Standard Industrial/Commercial Single-Tenant Lease-Net of even date herewith between Lessor and Lessee (herein the "Lease") concerning 35,455 square feet of space (the "Premises") located in the two (2) buildings ("Buildings") located at 800 and 830 Maude Avenue, respectively, Mountain View, California. 1. Lessee Improvements: The parties acknowledge that, at Lessee's sole cost and expense, Lessee shall construct certain non-structural improvements (the "Lessee Improvements") in the Premises. The Lessee Improvements shall be constructed in accordance with Applicable Laws and in a good and workmanlike manner. Lessee shall provide Lessor with copies of all plans and specifications for the Lessee Improvements. In addition, the parties acknowledge that, upon expiration or earlier termination of the Lease, Lessee shall not be required to remove the Lessee Improvements or restore the Premises to its original condition immediately prior to construction of the Lessee Improvements except to the extent that Lessor requires removal of particular components of the Lessee Improvements or particular restoration by notifying Lessee in writing as to the identification of the particular removal or restoration within thirty (30) days after Lessor's receipt of the plans and specifications therefor. 2. Acceptance of Premises: Notwithstanding anything to the contrary in the Lease, as of the Commencement Date, or the date of Lessee's early occupancy of the Premises, whichever is earlier, the Premises shall be in "broom clean. condition, and the roof, roof membrane, all utilities, HVAC systems, plumbing, electrical systems (including, without limitation, outlets and lighting fixtures), and fire and landscape sprinkler systems ("Building Systems") shall be in good working order and repair. Lessor shall be responsible for all roof maintenance for the Premises (other than maintenance needed due to Lessee's negligence) for the period from June 1, 1994 through September 30, 1994. Lessee's acceptance of the Premises, or Lessee's submission of a "punch list. to Lessor with respect to any Building System requiring repair not later than sixty (60) days after the Commencement Date, shall not be deemed a waiver of Lessee's right to have latent defects in the Premises or the Building Systems (excluding the Lessee Improvements) repaired at Lessor's sole expense. Lessee shall give notice to Lessor whenever any latent defect (i.e., any defect that could not reasonably have been discovered by Lessee) becomes reasonably apparent, and Lessor shall repair such defect as soon as practicable. Lessor also hereby assigns to Lessee all warranties with respect to the Premises which would reduce Lessee's maintenance obligations hereunder and shall cooperate with Lessee to enforce all such warranties. 3. Compliance with Laws: As of the Commencement Date, the Premises shall conform to all Applicable Laws, including, without limitation, all Applicable Laws governing Hazardous Materials, as defined in the Lease. Lessee shall not be required to construct or to pay the cost of complying with any underwriter's requirements or Applicable Laws requiring construction of improvements in the Premises which are properly capitalized under generally accepted accounting principles, unless such compliance is necessitated solely because of Lessee's particular use of the Premises. Lessor represents and warrants that, to the best of its knowledge, there are no covenants, conditions, restrictions or encumbrances ("CC&R's") affecting the Buildings. 4. Use of Premises: If the Premises should become not reasonably suitable for Lessee's use as a consequence of (i) cessation of utilities or other services; (ii) interference with access to the Premises; or (iii) legal restrictions, so long as items (i) through (iii) do not result from the fault of, or are beyond the control of, Lessor and Lessee, or the presence of any Hazardous Material which does not result from Lessee's use, storage or disposal of such Hazardous Material 38 in or about the Premises in violation of Applicable Laws, and in any of the foregoing cases the interference with Lessee's use of the Premises persists or, in Lessee's reasonable judgment, is likely to persist for one hundred eighty (180) continuous days, then Lessee shall be entitled to terminate this Lease. 5. Alterations. Additions and Improvements: Notwithstanding anything to the contrary in the Lease: A. If Lessor has not consented to Lessee's request to construct alterations, utility installations, additions and improvements ("Alterations") in the Premises within five (5) business days after the date of Lessee's written request therefor, Lessor shall be deemed to have consented to the Alteration. B. Lessor shall have no lien or other interest whatsoever in any item of Lessee's trade fixtures and personal property located in the Premises, and shall execute any document reasonably necessary to waive any lien or interest in Lessee's trade fixtures and personal property located at the Premises. C. Upon request, Lessor shall advise Lessee in writing whether it reserves the right to require Lessee to remove any Alterations from the Premises upon expiration or earlier termination of the Lease. D. Alterations and Lessee's trade fixtures, furniture, equipment and other personal property installed in the Premises by Lessee ("Lessee's Property") and the Lessee Improvements (during the term of the Lease, as extended) shall at all times be and remain Lessee's Property, and Lessee shall be entitled to all depreciation, amortization and other tax benefits with respect thereto. Except for the Lessee Improvements and Alterations which cannot be removed without structural injury to the Premises, at any time during the Lease Term Lessee may remove Lessee's Property from the Premises, provided that Lessee repairs all damage caused by such removal. 6. Expenses: As additional monthly rent for each calendar year (or portion thereof) of the Term, as extended, Lessee shall pay to Lessor, prorated on a monthly basis, Lessor's reasonable estimate of real property taxes, property insurance and landscape maintenance ("Operating Expenses") for the Premises. In addition, Lessee shall pay, directly to the provider, for HVAC maintenance and, commencing on October 1, 1994, roof maintenance for the Premises. Notwithstanding anything to the contrary in the Lease, in no event shall Lessee have any obligation to perform, to pay directly, or to reimburse Lessor for, all or any portion of the following repairs, maintenance, improvements, replacements, premiums, claims, losses, fees, commissions, charges, disbursements, attorneys' fees, experts' fees, costs and expenses (collectively "Costs"): A. Losses Caused By Others, Construction Defects and Failure to Build In Compliance With Law: Costs to correct any construction defect in the Premises (other than in the Lessee Improvements), or Costs arising out of a failure to construct the Premises or common areas in accordance with all Applicable Laws and private restrictions. B. Casualties. Condemnations and Insurance Costs: Costs occasioned by fire, acts of God, or other casualties or by the exercise of the power of eminent domain or Costs for insurance coverage not customarily paid by tenants of similar projects in the vicinity of the Premises and/or co-insurance payments. C. Capital Leases and Capital Improvements: Lease payments and other Costs to acquire, install or replace capital machinery and equipment (such as air conditioners, and the like), and Costs which would properly be capitalized under generally accepted accounting principles and which relate to repairs, alterations, improvements, equipment and tools to the extent that Lessee's 39 share of the total Cost of such capital item exceed (i) the reduction in other expenses payable by Lessee under the Lease which results from the capital repair or installation of the capital item; or (ii) in any year, the annual amortized cost of the item based on its useful life determined in accordance with generally accepted accounting principles. D. Structural Repairs: Costs relating to the replacement of the structural elements of the Premises. E. Reimbursable Expenses: Costs for which Lessor has a right of reimbursement from others or Costs which Lessee pays directly to a third person. F. Reserves: Depreciation, amortization or other expense reserves. G. Mortgages: Interest, charges and fees incurred on debt, payments on mortgages and rent under ground leases. H. Hazardous Materials: Costs incurred to investigate the presence of any Hazardous Material, Costs to respond to any claim of Hazardous Material contamination or damage, Costs to remove any Hazardous Material from the Project or to remediate any Hazardous Material contamination and any judgments or other Costs incurred in connection with any Hazardous Material exposure or release, except to the extent the Cost is caused by the storage, use, disposal or treatment of the Hazardous Material in question by Lessee in violation of Applicable Law. (Lessee shall have no liability to Lessor or any of its officers, agents, partners or tenants as a consequence of the presence of Hazardous Materials in or about the Premises that were not used, stored, treated or disposed of in or about the Premises in violation of Applicable Law by Lessee or Lessee's agents, employees or contractors.) I. Real Estate Taxes: Taxes, assessments, all other governmental levies, and any increases in the foregoing, occasioned by or relating to a voluntary or involuntary change of ownership or other conveyance of the Premises, or Lessor's estate, inheritance, income, gift or franchise taxes. Notwithstanding anything to the contrary contained in the Lease, at the commencement of each calendar year during the Term, as extended, Lessor shall provide Lessee with an itemized statement indicating actual Operating Expenses for the previous calendar year or portion thereof. Within thirty (30) days after receipt by Lessee of Lessor's statement, Lessee or its authorized representative shall have the right to inspect the books of Lessor during reasonable business hours at such location as Lessor reasonably specifies, for the purpose of verifying the information contained in the statement. If Lessee's inspection discloses that an overpayment was required by Lessee, Lessor promptly shall refund to Lessee the excess. If the inspection discloses an underpayment by Lessee, Lessee promptly shall pay to Lessor the additional amount owing. 7. Surrender: Notwithstanding anything to the contrary in the Lease, Lessee's obligations to surrender the Premises shall be fulfilled if Lessee surrenders possession of the Premises in the condition existing at the commencement of the Lease, except for ordinary wear and tear, acts of God, casualties, condemnation, Hazardous Materials (other than those stored, used or disposed of by Lessee in or about the Premises), and Lessee Improvements and Alterations concerning which Lessor has not reserved the right to require removal, or if it has reserved the right the require removal, it does not elect to have Lessee remove from the Premises at the end of the Term. 8. Indemnity: Notwithstanding anything to the contrary in the Lease, Lessor shall not be released from, and shall indemnify, defend, protect and hold harmless Lessee from, all 40 damages, liabilities, judgments, actions, claims, attorneys' fees, consultants' fees, payments, costs and expenses arising from the negligence or willful misconduct of Lessor or its employees, agents, contractors or invitees, Lessor's violation of Applicable Law, or a breach of Lessor's obligations or representations under this Lease. 9. Assignment and Subletting: Lessee may, without Lessor's prior written consent, sublet the Premises or assign the Lease to: (i) a subsidiary, affiliate, franchisee, division or corporation controlled by or under common control with Lessee; (ii) a successor corporation related to Lessee by merger, consolidation, non-bankruptcy reorganization, or government action; or (iii) a purchaser of substantially all of Lessee's assets located at the Premises, so long as the purchaser, at the time of the purchase, has a net worth substantially the same as that of Lessee as of the date of its execution of the Lease. For the purpose of the Lease, the sale of Lessee's capital stock through any public exchange shall not be deemed an assignment, subletting, or any other transfer of the Lease or the Premises requiring Lessor's consent. 10. Rules and Regulations: Lessor shall not require Lessee's compliance with any rule or regulation applicable to the Premises that unreasonably interferes with Lessee's use of the Premises or materially changes Lessee's rights under the Lease. 11. Default and Late Charge: Notwithstanding anything to the contrary in the Lease, Lessee shall not be deemed to be in default, Lessor shall not be entitled to cure any breach by Lessee under the Lease, nor shall any late charge or interest be imposed, on account of (i) Lessee's failure to pay money to Lessor, unless Lessee's failure to pay continues for five (5) days after Lessee's actual receipt of written notice of delinquency; or (ii) Lessee's failure to perform any covenant of this Lease (other than a covenant to pay money to Lessor), unless Lessee's failure to perform such covenant continues after Lessee's actual receipt of written notice for a period of thirty (30) days or such longer time as may reasonably be required to cure the default. Further, Lessee shall not be in default of this Lease solely because (a) it abandons or vacates the Premises; or (b) as a consequence of the filing of an involuntary bankruptcy petition, the appointment of a receiver, the attachment of any interest in the Lease or of Lessee's other assets or the exercise by any third party of any other remedy with respect to Lessee, Lessee's interest in this Lease or Lessee's other assets, unless the petition, receivership, attachment or other remedy is not discharged within sixty (60) days. 12. Lessor's Entry: Notwithstanding anything to the contrary in the Lease, Lessor and Lessor's agents, except in the case of emergency, shall provide Lessee with twenty-four (24) hours' notice prior to entry of the Premises. Such entry by Lessor and Lessor's agents shall not impair Lessee's operations more than reasonably necessary, and Lessor and Lessor's agents shall be accompanied at all times by an employee of Lessee. 13. Approvals: Whenever the Lease requires an approval, consent, designation, determination or judgment by either Lessor or Lessee, such approval, consent, designation, determination or judgment (including, without limiting the generality of the foregoing, those required in connection with assignment and subletting) shall not be unreasonably withheld or delayed and in exercising any right or remedy hereunder, each party shall at all times act reasonably and in good faith. 14. Reasonable Expenditures: Any expenditure by a party permitted or required under the Lease, for which such party is entitled to demand and does demand reimbursement from the other party, shall be limited to the fair market value of the goods and services involved, shall be reasonably incurred and shall be substantiated by documentary evidence available for inspection and review by the other party or its representative during normal business hours. 15. Option to Extend: Notwithstanding anything to the contrary in the Lease: 41 A. Grant of Option: Lessor hereby grants to Lessee one (1) option (the "Option") to extend the term of the Lease, for an additional term five (5) years, commencing on May 1, 2000, upon the terms and conditions set forth in this Paragraph 15. B. Exercise of Option: Lessee shall exercise such option by giving Lessor written notice of its intention not less than twelve (12) months prior to the expiration of the then-existing Term of the Lease. C. Extended Term Rent: If this Option is exercised, the basic rent for the Premises shall be ninety-five percent (95%) of the then-current fair market monthly rent ("Fair Market Rent") for the Premises as of the commencement date of the applicable extended term, as determined by the agreement of the parties, or, if the parties cannot agree, then the Fair Market Rent shall be determined by three brokers. Within fifteen (15) days after the parties have failed to agree to a determination of ninety-five (95%) percent of the then current fair market monthly rent for the Premises, Lessor and Lessee each shall appoint a person who is a licensed California real estate broker and who has been engaged full-time in the office brokerage business in the County of Santa Clara for at least the immediately preceding five (5) years . The two (2) brokers so appointed shall appoint a third broker, similarly qualified, within ten (10) days after the appointment of the last appointed broker, and shall notify the parties of the identity of the third broker. If the two brokers are unable to agree upon a third broker, either party may, upon not less than five (5) days' prior written notice to the other party, applied to the then President of the Santa Clara County Real Estate Board for the appointment of a third qualified broker. Within thirty (30) days after the selection of the third broker, a majority of the brokers shall set the fair market rent for the Option term. If a majority of the brokers is unable to set the fair market rent within the stipulated period of time, Lessor's broker shall arrange for simultaneous exchange of the written appraisals from each of the brokers and the three (3) appraisals shall be added together and their total divided by three (3); the resulting quotient shall be the fair market rental value for the Premises during the Option term. If, however, the low appraisal and/or the high appraisal are/is more than ten percent (10%) lower and/or higher than the middle appraisal, the low appraisal and/or the high appraisal shall be disregarded. If only one (1) appraisal is disregarded, the remaining two (2) appraisals shall be added together and their total divided by two (2); the resulting quotient shall be the fair market rent for the Premises during the Option term. If both the low appraisal and the high appraisal are disregarded as stated in this Paragraph, the middle appraisal shall be the fair market rent for the Premises during the Option term. After the fair market rent for the Option term has been set, the brokers immediately shall notify Lessor and Lessee, and Lessor and Lessee promptly shall execute an amendment to the Lease stating the fair market rent. All other terms and conditions contained in the Lease and this Addendum, as the same may be amended from time to time by the parties in accordance with the provisions of the Lease, shall remain in full force and effect and shall apply during the Option term. D. Rescission: Notwithstanding anything to the contrary contained in this Paragraph, if the basic rent during the Option term is determined by appraisal and if Lessee does not, in its sole discretion, approve the rental amount established by such appraisal, Lessee may rescind its exercise of the Option not later than six (6) months prior to the last day of the Term by giving Lessor written notice of such election to rescind. If Lessee timely rescinds its exercise of the Option, then Lessee shall pay all costs and expenses of the appraisal. 16. Damage and Destruction of Premises: Notwithstanding anything to the contrary contained in the Lease: A. Lessor shall not have the right to terminate the Lease if damage to or destruction of the Premises results from a casualty ordinarily covered by insurance required to be carried by Lessor under the Lease. 42 B. In the event of damaged to the Premises which is not required to be covered by insurance, and is not covered by insurance actually carried, Lessor shall not have the right to terminate the Lease (i) if the damage is relatively minor (e.g., repair or restoration would take fewer than sixty (60) days or it would cost less than ten percent (10%) of the replacement cost of the Premises); or (ii) if Lessee agrees to pay the cost of repair in excess of ten percent (10%) of the then-replacement cost of the Premises. C. If the Premises are damaged by any peril and Lessor does not elect to terminate the Lease or is not entitled to terminate the Lease pursuant to its terms, then as soon as reasonably practicable, Lessor shall furnish Lessee with a written opinion of Lessor's architect or construction consultant as to when the restoration work required of Lessor may be completed. Lessee shall have the option to terminate the Lease in the event any of the following occurs, which option may be exercised by delivery to Lessor of a written notice of election to terminate within thirty (30) days after Lessee receives from Lessor the estimate of the time needed to complete such restoration: (i) the Premises, with reasonable diligence, cannot be fully repaired by Lessor within one hundred twenty (120) days after the damage or destruction; or (ii) if the Premises are damaged by any peril within twelve (12) months of the last day of term, and cannot be substantially restored within sixty (60) days after the date of such damage. D. If the Lease is not terminated by Lessor or Lessee as provided herein, Lessor shall restore the Premises to the condition in which it existed immediately prior to the casualty. 17. Taxes and Assessments: Notwithstanding anything to the contrary contained in the Lease, if any assessments are levied against the Premises, Lessor may elect to either pay the assessment in full or allow the assessment to go to bond and pay it in installments. In either case, however, Lessee shall only be obligated to pay to Lessor, with regard to such assessment, a sum equal to that which would have been payable by Lessee with respect to installments of principal and interest which would have become due during the Lease Term had Lessor allowed the assessment to go to bond. 18. Lessee's Right to Bring Tax Proceeding: Lessee shall have the right to contest, in good faith, the validity or the amount of any tax or assessment levied against the entire Premises by such appellate or other proceedings as may be appropriate in the jurisdiction, and may defer payment of such obligation, pay same under protest, or take such steps as Lessee reasonably may deem appropriate. Lessor shall cooperate in the institution and prosecution of any such proceedings, including permitting the action to be brought in the name of Lessor, and will execute any documents required therefor. The expense of such proceedings shall be borne by Lessee and any refunds or rebates secured shall belong to Lessee. 19. Lessor's Representations: To the best of Lessor's knowledge: (i) the Premises and the operations conducted thereon prior to the Commencement Date have been and are in compliance with all Applicable Laws regarding Hazardous Materials; and (ii) any handling, transportation, storage, treatment, disposal, release or use of Hazardous Materials that has occurred on or about the Premises, or the soil, groundwater or surface water thereof, prior to the Commencement Date have been in compliance with all Applicable Laws. Also to the best of Lessor's knowledge, no litigation has been brought or threatened, nor any settlements reached with any governmental or private party, concerning the actual or alleged presence or Hazardous Materials on or about the Premises, or the soil, groundwater or surface water thereof, nor has Lessor received any notice of any violation or alleged violation of any Applicable Laws, pending claims or pending investigations with respect to the presence of Hazardous Materials on or about the Premises, or the soil, groundwater or surface water thereof. Notwithstanding anything to the contrary in the Lease, and except to the extent that the Hazardous Material in question was stored, 43 used, disposed of or treated by Lessee or its agents, employees or contractors in violation of Applicable Law, Lessee, its agents, employees, contractors, officers, directors, shareholders, successors or assigns shall not be responsible for, and Lessor shall indemnify, defend with counsel reasonably acceptable to Lessee and hold Lessee harmless from and against (i) any claim, remediation obligation, investigation obligation, liability, cause of action, penalty, attorneys' fee, consultants' cost, expense or damage owing or alleged to be owing with respect to any Hazardous Material present on or about the Premises, or the soil, groundwater or surface water thereof; or (ii) the removal, investigation, monitoring or remediation of any Hazardous Material present on or about the Premises, or the soil, groundwater or surface water thereof, and in any of the foregoing cases without regard to whether the Hazardous Materials were present as of the Commencement Date or whether the presence of the Hazardous Materials was caused by any person other than Landlord. Lessor's representations and indemnification under this Paragraph shall survive the termination of the Lease. 20. Security Deposit: The parties acknowledge that, within five (5) days after execution of the Lease by Lessor, Lessee shall deliver to Lessor a stand-by Letter of Credit in the amount of _______________________to serve as the Security Deposit described in Section 5 of the Lease. Upon the expiration or earlier termination of the Lease, Lessor shall return the Letter of Credit to Lessee and cooperate with Lessee in notifying the issuer of the termination thereof, or, if Lessor has drawn down against the Letter of Credit in compliance with the provisions of Section 5 of the Lease and the terms of the Letter of Credit, Lessor shall return so much of the balance thereof not used or applied by Lessor. 21. Subordination: Lessor shall use its reasonable efforts to obtain from any Lenders of the Premises a written agreement in form reasonably satisfactory to Lessee providing for recognition of Lessee's interest under the Lease in the event of a foreclosure of the Lender's security interest. Further, as a condition of Lessee's obligation to subordinate its leasehold interest to an instrument of security, Lessor shall use its reasonable efforts to obtain from the Lender(s) a written recognition agreement in form reasonably satisfactory to Lessee providing that Lessee's rights of occupancy shall not be disturbed in the event of a foreclosure, and that, in the event of foreclosure, Lessee shall receive all the services provided for under the Lease. 22. Capital Improvements: Any replacement or repair by Lessor of any items of a capital nature located within the Premises shall be of substantially the same quality as the item to be repaired or replaced. 23. Excess Rents: Notwithstanding anything to the contrary in the Lease, if Lessee enters a permissible assignment or sublet pursuant to the Lease as amended by Paragraph 9 of this Addendum, Lessee shall deliver to Lessor fifty percent (50%) of any consideration payable to Lessee thereunder in excess of the Rent payable by Lessee under the Lease, after deducting therefrom all reasonable costs necessary to effect the assignment or sublet, including, without limitation, brokerage and attorneys' fees, advertising costs, redecorating costs, and the cost to Lessee of the installation of the Lessee Improvements in the Premises. 24. Early Termination: Lessee shall have two options(s) to terminate the Lease, the first to be effective as of the end of the thirty-sixth (36th) month of the Lease Term, and the second, if the first option is not exercised, to be effective as of the end of the fifty-fourth (54th) month of the Lease Term. Lessee shall exercise the first option by providing Lessor with written notice of termination not later than six (6) months prior to the termination date, together with a termination payment equal to two (2) months' Base Rent calculated pursuant to Section 1.5 of the Lease. Lessee shall exercise the second option by providing Lessor with written notice of termination not later than six (6) months prior to the termination date, together with a termination payment equal to one (1) month's Base Rent. 44 25. Effect of Second Addendum: In the event of any inconsistency between this Addendum and/or the Exhibits hereto and the Lease, and any of the other addenda, riders, exhibits, rules, regulations, covenants, attachments, conditions and restrictions referred to in the Lease, the terms of this Addendum and the Exhibits hereto shall prevail. As used herein, the term "Lease" shall mean the Lease, this Addendum and all addenda, riders, exhibits, rules, regulations, covenants, conditions and restrictions referred to in the Lease or this Addendum. LESSOR: LESSEE: PORTOLA LAND COMPANY, QUICKTURN DESIGN SYSTEMS, INC. a California limited partnership a Delaware corporation By: /s/ William J. Hurwick By: /s/ R. K. Ostby ------------------------------- ------------------------------- Printed Printed Name: William J. Hurwick Name: R. K. Ostby ------------------------------- ------------------------------- Title: Managing Partner Title: Vice President ------------------------------ ------------------------------ Date: 4/26/94 Date: April 26, 1994 ------------------------------- ------------------------------- EX-10.20 3 SUB-SUBLEASE AGREEMENT DATED SEPTEMBER 1997 1 EXHIBIT 10.20 SUB-SUBLEASE 1. PARTIES. This Sub-Sublease is made and effective this 11th day of September, 1997 ("Effective Date") by and among Quickturn Design Systems, Inc., a Delaware corporation ("Sublessor"), Microcide Pharmaceuticals, Inc., a Delaware corporation ("Sub-Sublessor"), Alpha Blox Corporation ("Sub-Sublessee"), and Portola Land Company, a California limited partnership ("Master Lessor"). 2. PREMISES. Sub-Sublessor hereby leases to Sub-Sublessee and Sub-Sublessee hereby sub-subleases from Sub-Sublessor for the Term (as defined below in Section 3), at the Rent set forth in Section 4 below, and upon all of the conditions set forth herein, that certain property situated in the County of Santa Clara, State of California, commonly known as 800 Maude Avenue and 830 Maude Avenue, Mountain View, CA 94040 and described as one (1) freestanding building consisting of approximately eighteen thousand forty (18,040) rentable square feet. (See attached Exhibit A for further description.) 3. TERM: 3.1 TERM. The term of this Sub-Sublease shall be for approximately one (1) year (the "Term") commencing on or about November 1, 1997 ("Commencement Date") and ending on October 31, 1998, unless sooner terminated pursuant to any provision herein ("Termination Date"). Sub-Sublessee shall, at its option, have the right to extend the term of the Sub-Sublease for two (2) three (3) month extension periods. Sub-Sublessee must notify Sub-Sublessor in writing of its intention to exercise the first three (3) month extension no later than October 1, 1998. Sub-Sublessee must also notify Sublessor in writing of its intention to exercise the second three (3) month extension no later than December 1, 1998. 3.2 DELAY IN COMMENCEMENT. If for any reason Sub-Sublessor cannot deliver possession of the Premises to Sub-Sublessee on November 1, 1997, Sub-Sublessor shall not be subject to any liability therefore, nor shall such failure affect the validity of this Lease or the obligations of Sub-Sublessee hereunder or extend the term of this Sub-Sublease. Notwithstanding the foregoing, Sub-Sublessee shall not be obligated to pay rent until Sub-Sublessor tenders possession of the Premises to Sub-Sublessee. If Sub-Sublessor has not delivered possession of the Premises by December 1, 1997, Sub-Sublessee may, at its option, notify Sub-Sublessor in writing on or before December 10, 1997, that Sub-Sublessee intends to cancel this Sub-Sublease. In the event of such cancellation, the parties shall be discharged from all obligations hereunder. 3.3 EARLY COMMENCEMENT. If Sub-Sublessee occupies the Premises prior to November 1, 1997, such occupancy shall be subject to all provisions of this Sub-Sublease, such occupancy shall not advance the Termination Date and Sub-Sublessee shall pay rent for such period at the initial monthly rates set forth below. 4. RENT; OPERATING EXPENSES AND REAL ESTATE TAXES. 4.1 RENT FOR PREMISES. The Rent is calculated for the Premises as follows: 800 Maude Avenue: 11/1/97 through 10/31/98 $1.95/sq.ft./month NNN Sub-Sublessee shall pay to Sub-Sublessor as rent for the Premises equal monthly payments of Thirty Five Thousand One Hundred Seventy Eight Dollars $35,178.00), in advance, on the first day of each month for months one (1) through twelve (12) of the Term (collectively, Page 1 2 the "Rent"). Sub-Sublessee shall pay to Sub-Sublessor on the Effective Date the sum of Thirty Five Thousand One Hundred Seventy Eight Dollars ($35,178.00) as payment for the first month's Rent. Sub-Sublessor shall apply any partial Rent payments made by Sub-Sublessee on a pro-rata basis toward the monthly Rent then due. Rent shall be payable in lawful money of the United States to Sub-Sublessor at the address stated herein or to such other persons or at such other places as Sub-Sublessor may designate in writing. 4.2 OPERATING EXPENSES; REAL ESTATE TAXES. This Sub-Sublease is a "Triple Net" or "NNN" Sub-Sublease and Sub-Sublessee shall be responsible for paying directly for services such as utilities, janitorial costs, all operating expenses and annual increases (including without limitation building and common area maintenance such as parking, landscaping and lighting), costs of insurance, repairs, operations and real property taxes. Sub-Sublessee shall have the right to verify all operating expenses. 5. SECURITY DEPOSIT. Sub-Sublessee shall deposit with Sub-Sublessor on the effective Date the sum of Thirty Five Thousand One Hundred Seventy Eight Dollars ($35,178.00), as security for Sub-Sublessee's faithful performance of its obligations hereunder (the "Security Deposit"). If Sub-Sublessee fails to pay Rent or other charges due hereunder, or otherwise defaults with respect to any provision of this Sub-Sublease, Sub-Sublessor may use, apply or retain all or any portion of the Security Deposit for the payment of any Rent or other charge in default or for the payment of any other sum to which Sub-Sublessor may become obligated by reason of Sub-Sublessee's default, or to compensate Sub-Sublessor for any loss or damage which Sub-Sublessor may suffer thereby. If Sub-Sublessor so uses or applies all or any portion of the Security Deposit, Sub-Sublessee shall, within ten (10) days after its receipt of Sub-Sublessor's written demand, deposit cash with Sub-Sublessor in an amount sufficient to restore the Security Deposit to the full amount set forth above. Sub-Sublessee's failure to do so shall be a material breach of this Sub-Sublease. Sub-Sublessor shall not be required to keep the Security Deposit separate from its general accounts. If Sub-Sublessee performs all of its obligations hereunder, following the Termination Date and after Sub-Sublessee has vacated the Premises, Sub-Sublessor shall return the Security Deposit (or the portion thereof which has not been applied by Sub-Sublessor) to Sub-Sublessee (or at Sub-Sublessor's option, to the last assignee, if any, of Sub-Sublessee's interest in the Sub-Sublease). No trust relationship is created herein between Sub-Sublessor and Sub-Sublessee with respect to the Security Deposit. No payment of interest or other incremental charge shall be payable to Sub-Sublessee for Sub-Sublessor's use of the Security Deposit. 6. USE. 6.1 USE. The Premises shall be used and occupied by Sub-Sublessee only for research and development, office and administration, storage and other legal uses approved by the City of Mountain View. 6.2 COMPLIANCE WITH LAW. (a) SUB-SUBLESSOR'S WARRANTY RE: COMPLIANCE. As of the Commencement Date, Sub-Sublessor warrants to Sub-Sublessee that, to the best of Sub-Sublessor's knowledge and without independent investigation, the Premises, in their existing state, do not violate any applicable building code regulation or ordinance; provided, however, Sub-Sublessor's warranty is given without regard to the use for which Sub-Sublessee intends to use the Premises. Sub-Sublessor shall rectify promptly, at its sole cost and expense, any violation of such warranty, after written notice from Sub-Sublessee. Notwithstanding the foregoing, the Premises may not meet all requirements of the Americans with Disabilities Act ("ADA") and Sub-Sublessor makes no warranty nor assumes any liability with respect to ADA compliance. It shall be conclusively deeded that no violation of Sub-Sublessor's warranty Page 2 3 existed unless written notice to the contrary is received by Sub-Sublessor prior to the first anniversary of the Commencement Date. (b) SUB-SUBLESSEE'S COMPLIANCE. Except as provided in Section 6.2(a), Sub-Sublessee shall, at its sole expense, comply promptly with all applicable statutes, ordinances, rules, regulations, orders, restrictions of record, and requirements in effect during the Term regulating Sub-Sublessee's use of the Premises. Sub-Sublessee shall not use or permit the use of the Premises in any manner that will tend to (i) create waste or a nuisance; or (ii) to disturb other tenants of the Premises, if there are multiple tenants in the building containing the Premises. 6.3 CONDITION OF PREMISES; IMPROVEMENTS. (a) "AS IS" CONDITION OF PREMISES. Sub-Sublessor shall provide Sub-Sublessee with sufficient opportunity to conduct its own review of all operating systems prior to the Commencement date. Operating systems will be in good condition on commencement of Sub-Sublease. Except as expressly provided in Section 6.2(a) and this Section 6.3, Sub-Sublessee hereby accepts (a) the Premises "AS IS' in their condition existing as of the Commencement Date, subject to all applicable zoning, municipal, county and state laws, ordinances, and regulations governing and regulating the use of the Premises; (b) this Sub-Sublease subject thereto; and (c) all matters disclosed thereby and in any exhibits attached to this Sub-Sublease. Notwithstanding the foregoing, prior to the Commencement Date, Sub-Sublessor shall clean the carpets and floors at the Premises and replace defective ceiling tiles and light bulbs. All other improvements shall be at Sub-Sublessee's sole expense. Sub-Sublessee acknowledges that neither Sub-Sublessor nor Sub-Sublessor's agents have made any representation or warranty as to the suitability of the Premises for the conduct of Sub-Sublessee's business. (b) IMPROVEMENTS BY SUB-SUBLESSEE: Sub-Sublessee shall have the right to modify the building interiors of the Premises with Sub-Sublessor's, Sublessor's and Master Lessor's prior written consent, subject to the appropriate provisions of the Master Lease. Sub-Sublessor makes no representation as to the condition of these systems. To the best of Sub-Sublessor's knowledge, there are no permit violations of existing building improvements. Sub-Sublessee shall sublease the premises on an "as is" basis. Sub-Sublessee shall be allowed to make improvements to the premises at its sole cost and expense. 6.4 SUB-SUBLESSEE'S INDEMNIFICATION RE: HAZARDOUS SUBSTANCES. Sub-Sublessee shall indemnify, defend and hold Sub-Sublessor, Sublessor and Master Lessor, and each of their agents, employees and lenders, harmless from and against any and all losses, costs, claims, damages, liabilities and causes of action (including attorney's fees and costs and consultants' fees) arising out of or in any way connected with any hazardous substance located on the Premises immediately subsequent to the Commencement Date or any subsequent presence of hazardous substances on or about the Premises, including the soils and ground waters thereof, caused or permitted by Sub-Sublessee. Sub-Sublessee's obligations under this provision shall survive and expiration or termination of the Sub-Sublease. 7. MASTER LEASE. 7.1 SUBLEASE, MASTER LEASE; CONFLICTS; DEFINITIONS. Sub-Sublessor is the Sublessee of the Premises by virtue of a sublease by and between Sub-Sublessor and Sublessor dated as of July 27, 1997 (the "Sublease"), a copy of which is attached hereto as Exhibit B-1 and incorporated herein by reference. Sublessor is the lessee of the Premises by virtue of a lease by and between Sublessor and Master Lessor dated April 26, 1994, as amended by that certain Addendum to Master Lease dated April 26, 1994 (collectively the "Master Lease"), a copy of which is attached hereto as Exhibit B-2 and incorporated herein by reference. This Page 3 4 Sub-Sublease is and shall be at all times subject and subordinate to the Sublease and the Master Lease. The terms, conditions and respective obligation of Sub-Sublessor and Sublessee to each other under this Sub-Sublease shall be the terms and conditions of the Sublease and the Master Lease except for those provisions of the Sublease and / or Master Lease which are expressly changed by this Sub-Sublease. In the event of any conflict between the terms of this Sub-Sublease and the terms of the Sublease and / or Master Lease, the terms of this Sub-Sublease shall control over the Sublease, and the terms of the Sublease shall control over the Master Lease. The term "Sublessor" in the Sublease shall be deemed in this Sub-Sublease to refer to the " Sub-Sublessor". The term "Sublessee" in the Sublease shall be deemed in this Sub-Sublease to refer to the " Sub- Sublessee ". The term "Lessor" in the Master Lease shall be deemed in this Sub-Sublease to refer to the "Sublessor". The term "Lessee" in the Master Lease shall be deemed in this Sub-Sublease to refer to the "Sublessee". Any capitalized terms not defined in this Sub-Sublease shall have the meaning ascribed to them by the Sublease and / or the Master Lease. 7.2 SUB-SUBLESSEE'S ASSUMPTION OF OBLIGATIONS. During the term and for all periods subsequent with respect to obligations which have arisen prior to the Termination Date, Sub-Sublessee does hereby expressly assume and agree to perform and comply with, for the benefit of Sub-Sublessor, Sublessor, and Master Lessor, each and every obligation of Sub-Sublessor under the Sublease ("Sub-Sublessee's Assumed Obligations"). Sub-Sublessee shall hold Sub-Sublessor free and harmless of and from all liability, judgments, costs, damages, claims or demands, including reasonable attorney's fees, arising out of Sub-Sublessee's failure to comply with or perform Sub-Sublessee's Assumed Obligations. 7.3 SUB-SUBLESSOR'S COMPLIANCE WITH MASTER LEASE. Sub-Sublessor represents to Sub-Sublessee that as of the effective date the Sublease and Master Lease is in full force and effect and that no default exists on the part of any party to the Sublease or the Master Lease. 8. ASSIGNMENT OF SUB-SUBLEASE AND DEFAULT. 8.1 ASSIGNMENT TO MASTER LESSOR. Sub-Sublessor hereby assigns and transfers to Sublessor its interest in this Sub-Sublease and all Rents (with the exception of fifty percent (50%) of the "Excess Rent"), subject however to terms of Paragraph 8.2 hereof. Sub-Sublessor retains all right, title and interest in and to fifty percent (50%) of the Excess Rent. "Excess Rent" is defined in Section 23 of the Addendum to the Master Lease as "any consideration payable to Lessee, after deducting therefrom all reasonable costs necessary to effect the assignment or sublet, including, without limitation, brokerage and attorneys' fees, advertising costs, redecorating costs, and the cost of Lessee of the installation of the Lessee Improvements in the Premises." 8.2 DEFAULTS BY SUB-SUBLESSOR. Sublessor and Master Lessor agree that unless and until Sub-Sublessor materially defaults on the Sublease, Sub-Sublessor may receive, collect and enjoy the rents accruing under this Sublease. However, if Sub-Sublessor defaults in the performance of its obligations to Sublessor, then Sublessor may, at its option, receive and collect, directly from Sub-Sublessee, all rent owing and to be owed under this Sub-Sublease; provided, however, Sublessor agrees that it shall only be entitled to fifty percent (50%) of the Excess Rent. Sublessor shall not, by reason of this assignment of the Sub-Sublease, nor by reason of the collection of the rents from the Sub-Sublessee, be deemed liable to Sub-Sublessee for any failure of the Sub-Sublessor to perform and comply with its obligations hereunder. 8.3 SUB-SUBLESSEE'S PAYMENT TO SUB-SUBLESSOR. Sub-Sublessor hereby irrevocably authorizes and directs Sub-Sublessee, upon receipt of any written notice from the Sublessor stating that a default exists in the performance of Sub-Sublessor under the Sublease to pay to Page 4 5 Sublessor the rents due and to become due under the Sub-Sublease. Sub-Sublessor agrees that Sub-Sublessee shall have the right to rely upon any such statement and request from Sublessor, and that Sub-Sublessee shall pay such rents to Sublessor without any obligation or right to inquire as to whether such default exists and notwithstanding any notice from or claim from Sub-Sublessor to the contrary. Sub-Sublessor agrees that it shall have no right or claim against Sub-Sublessee for any such rents so paid by Sub-Sublessee. 8.4 NO MODIFICATIONS WITHOUT SUBLESSOR'S AND MASTER LESSOR'S CONSENT. No changes or modifications shall be made to this Sub-Sublease without the consent of Sublessor and Master Lessor. 9. CONSENT OF MASTER LESSOR, SUBLESSOR TO SUB-SUBLEASE. 9.1 CONSENT. By executing this Sub-Sublease, Master Lessor and Sublessor hereby consent to the terms and conditions of this Sub-Sublease. Such consent will not release Sub-Sublessor from its obligation to pay rent and perform and comply with all of its obligations under the Sublease. 9.2 NO WAIVER. The acceptance of rent by Sublessor from Sub-Sublessee or any one else liable under the Sub-Sublease shall not be deemed a waiver by Sublessor of any provisions of the Sublease. The consent to this Sub-Sublease shall not constitute a consent to any subsequent subletting or assignment. In the event of any default of Sub-Sublessor under the Sublease, Sublessor may proceed directly against Sub-Sublessor or any one else liable under the Sublease or this Sub-Sublease without first exhausting Master Lessor's remedies against any other person or entity liable thereon to Sublessor. 9.3 CONSENTS TO ADDITIONAL SUBLETTING. Master Lessor and Sublessor may consent to subsequent sublettings and assignments of the Master Lease, Sublease or this Sub-Sublease or any amendments or modifications thereto. Master Lessor and Sublessor shall promptly notify Sub-Sublessor of such proposed sublettings or assignments in writing. 9.4 ATTORNMENT. In the event that Sub-Sublessor defaults in its obligations under the Sublease, then Sublessor and / or Master Lessor, at its option and without being obligated to do so, may require Sub-Sublessee to attorn to Sublessor and / or Master Lessor. In such event, Sublessor and / or Master Lessor shall undertake the obligations of Sub-Sublessor under this Sub-Sublease from the time of the exercise of said option until the termination date. Notwithstanding the foregoing, Master Lessor nor Sublessor shall not be liable for any prepaid rents nor any security deposit paid by Sub-Sublessee, nor shall it be liable for any other defaults of the Sub-Sublessor under the Sub-Sublease. 9.5 MASTER LEASE IN GOOD STANDING. Master Lessor acknowledges that, to the best of Master Lessor's knowledge, no default presently exists under the Master Lease of obligations to be performed by Sublessor and that the Master Lease is in full force and effect. Sublessor acknowledges that, to the best of Sublessor's knowledge, no default presently exists under the Sublease of obligations to be performed by Sub-Sublessor and that the Sublease is in full force and effect. 9.6 COPIES OF DEFAULT NOTICES TO SUB-SUBLESSEE. In the event that Sub-Sublessor defaults under its obligations to be performed under the Sublease, Sublessor agrees to deliver to Sub-Sublessee a copy of any such notice of default. Sub-Sublessee shall have the right to cure any default of Sub-Sublessor described in any notice of default within ten (10) days after service of such notice of default on Sub-Sublessee. If such default is cured by Sub-Sublessee then Sub-Sublessee shall have the right of reimbursement and offset from and against Sub-Sublessor. Page 5 6 IN WITNESS WHEREOF, the authorized representatives of each of the parties duly execute this Sub-Sublease in the county of Santa Clara, California, as of the date first written above. SUBLESSOR: QUICKTURN DESIGN SYSTEMS, INC. By: /s/ R. K. OSTBY - ------------------------------------------------ Title: Vice-President SUB-SUBLESSOR: MICROCIDE PHARMACEUTICALS, INC. By: /s/ MATTHEW J. HOGAN - ------------------------------------------------ Title: Chief Financial Officer SUB-SUBLESSEE: ALPHA BLOX CORPORATION By: /s/ JEREMY BROWN - ------------------------------------------------ Title: Vice-President / Chief Financial Officer MASTER LESSOR: PORTOLA LAND COMPANY, A CALIFORNIA LIMITED PARTNERSHIP By: /s/ WILLIAM HURWICK - ------------------------------------------------ Title: Managing Partner Page 6 7 EXHIBIT A This exhibit is of a drawing that depicts the Site Plan for the Premises 800-850 Maude Avenue, Mountain View, California. EXHIBIT B-1 See Microcide's exhibit 10.19 as filed with the Securities and Exchange Commission. EXHIBIT B-2 See Microcide's exhibit 10.19 as filed with the Securities and Exchange Commission. Page 7 EX-11.1 4 CALCULATION OF NET LOSS PER SHARE 1 EXHIBIT 11.1 CALCULATION OF NET LOSS PER SHARE (In thousands, except per share amounts)
Three Months Ended Nine Months Ended September 30, September 30, ---------------------- ---------------------- 1997 1996 1997 1996 -------- -------- -------- -------- Net loss $ (1,381) $ (633) $ (3,593) $ (527) ======== ======== ======== ======== Weighted average shares of common stock outstanding 10,843 10,677 10,800 5,812 Net effect of dilutive stock options and warrants using the treasury stock method -- -- -- -- Shares related to staff accounting bulletin topic 4D: Stock options -- -- -- 107 Preferred stock (1) -- -- -- 382 -------- -------- -------- -------- Shares used in calculating net loss per share 10,843 10,677 10,800 6,301 ======== ======== ======== ======== Net loss per share $ (0.17) $ (0.06) $ (0.33) $ (0.08) ======== ======== ======== ======== Calculation of shares outstanding for computing pro forma net loss per share: Shares used in computing net loss per share 10,677 6,301 Adjusted to reflect the effect of the assumed conversion of preferred stock from the date of issuance (2) -- 3,033 -------- -------- Shares used in computing pro forma net loss per share 10,677 9,334 ======== ======== Pro forma net loss per share $ (0.06) $ (0.06) ======== ========
- ------------ (1) Series D and E shares (2) Series A, B and C shares (2) Series A, B, and C, shares -14- EX-27.1 5 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1997 JUL-01-1997 SEP-30-1997 6,849 34,770 0 0 0 42,985 15,062 5,960 52,660 4,598 0 0 0 64,229 1,041 52,660 0 4,078 0 6,083 0 0 41 (1,381) 0 (1,381) 0 0 0 (1,381) (0.13) (0.13)
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