10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2005

Or

o Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                     to

Commission File Number 0-11685

Radyne Corporation

formerly Radyne ComStream, Inc.
(Exact name of Registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	11-2569467 (I.R.S. Employer Identification No.)
3138 East Elwood Street, Phoenix, Arizona (Address of Principal Executive Offices)	85034 (Zip Code)

Registrant’s telephone number including area code: (602) 437-9620

     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 þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934. Yes þ No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes o No þ

     The number of shares of the registrant’s common stock, that were outstanding as of the close of business on November 1, 2005 was 17,091,029.

RADYNE CORPORATION

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2005

INDEX

	Page
Part I — Financial Information
Item 1. Financial Statements
A) Condensed Consolidated Balance Sheets		3
B) Condensed Consolidated Statements of Operations		4
C) Condensed Consolidated Statements of Cash Flows		5
D) Notes to Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations		10
Item 3. Quantitative and Qualitative Disclosures About Market Risk		15
Item 4. Controls and Procedures		15
Part II — Other Information
Item 1. Legal Proceedings		16
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		16
Item 3. Defaults Upon Senior Securities		16
Item 4. Submission of Matters to a Vote of Security Holders		16
Item 5. Other Information		16
Item 6. Exhibits		16
Signatures		17
EX-10.1
EX-10.2
EX-31.1
EX-31.2
EX-32

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Part I — FINANCIAL INFORMATION

Item 1. Financial Statements

Radyne Corporation

Condensed Consolidated Balance Sheets

(in thousands)

	September 30,		December 31,
	2005		2004
	Unaudited
Assets
Current assets:
Cash and cash equivalents	$	9,006	$	39,300
Accounts receivable — trade, net of allowance for doubtful accounts of $809 and $350, respectively		18,940		9,728
Inventories		18,296		8,132
Deferred tax assets		3,465		2,218
Prepaid expenses and other assets		890		846
Total current assets		50,597		60,224
Goodwill		29,060		—
Intangibles		6,990		—
Deferred tax assets, net		950		3,445
Property and equipment, net		3,956		1,593
Other assets		305		154
Total Assets	$	91,858	$	65,416
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	5,579	$	1,566
Accrued expenses		7,492		4,835
Customer advance payments		1,862		149
Bank loan		1,000		—
Income taxes payable		130		242
Total current liabilities		16,063		6,792
Bank loan, less current portion		3,750		—
Long-term obligations		923		284
Accrued stock option compensation		60		146
Total liabilities		20,796		7,222
Stockholders’ equity:
Common stock; $.001 par value — authorized, 50,000,000 shares; issued and outstanding, 17,053,181 shares and 16,232,999 shares, respectively		17		16
Additional paid-in capital		60,884		54,414
Retained earnings		10,160		3,764
Other comprehensive income		1		—
Total stockholders’ equity		71,062		58,194
Total Liabilities and Stockholders’ Equity	$	91,858	$	65,416

See Notes to Condensed Consolidated Financial Statements

3

Radyne Corporation

Condensed Consolidated Statements of Operations

Unaudited

(in thousands, except per share data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2005			2004			2005			2004
Net sales	$	32,146		$	12,707		$	66,468		$	39,800
Cost of sales		18,780			6,133			36,337			19,197
Gross profit		13,366			6,574			30,131			20,603
Operating expenses:
Selling, general and administrative		6,265			3,523			14,656			10,395
Research and development		2,727			1,411			6,058			3,964
Total operating expenses		8,992			4,934			20,714			14,359
Earnings from operations		4,374			1,640			9,417			6,244
Other (income) expense:
Interest expense		87			10			166			15
Interest and other income		(57	)		(133	)		(545	)		(305	)
Earnings before income taxes		4,344			1,763			9,796			6,534
Income tax expense (benefit)		1,464			(4,302	)		3,399			(3,990	)
Net earnings	$	2,880		$	6,065		$	6,397		$	10,524
Earnings per share:
Basic	$	0.17		$	0.37		$	0.38		$	0.64
Diluted	$	0.16		$	0.36		$	0.36		$	0.61
Weighted average number of common shares outstanding:
Basic		16,995			16,390			16,734			16,404
Diluted		17,927			16,911			17,533			17,159

See Notes to Condensed Consolidated Financial Statements

4

Radyne Corporation

Condensed Consolidated Statements of Cash Flows

Unaudited

(in thousands)

	Nine Months Ended September 30
	2005			2004
Cash flows from operating activities:
Net earnings	$	6,397		$	10,524
Adjustments to reconcile net earnings to net cash provided by operating activities:
Leasehold impairment charge		—			135
Loss/(gain) on disposal of property and equipment		(63	)		4
Decrease (increase) in allowance for doubtful accounts		50			(257	)
Deferred income taxes		1,233			(4,127	)
Depreciation and amortization		1,475			991
Tax benefit from disqualifying dispositions		566			80
Accrued stock option compensation		(87	)		(59	)
Increase (decrease) in cash, excluding effects of acquisition, resulting from changes in:
Accounts receivable		(3,771	)		1,556
Inventories		303			(1,181	)
Prepaids and other assets		1,550			(207	)
Accounts payable		(1,736	)		(1,084	)
Accrued expenses		159			450
Income taxes payable		(183	)		(25	)
Customer advance payments		(111	)		(411	)
Net cash provided by operating activities		5,782			6,389
Cash flows from investing activities:
Acquisition of Xicom, net of cash acquired		(43,526	)		—
Capital expenditures		(1,268	)		(671	)
Proceeds from sales of property and equipment		86			120
Net cash used in investing activities		(44,708	)		(551	)
Cash flows from financing activities:
Net borrowing from notes payable		4,750			—
Repurchase of common stock		—			(2,350	)
Exercise of stock options		895			1,530
Exercise of redeemable warrants		2,717			—
Net proceeds from sales of common stock to employees		274			230
Principal payments on capital lease obligations		(5	)		(12	)
Net cash provided by (used in) financing activities		8,631			(602	)
Effects of exchange rate changes on cash and cash equivalents		1			—
Net increase in cash and cash equivalents		(30,294	)		5,236
Cash and cash equivalents, beginning of year		39,300			30,130
Cash and cash equivalents, end of quarter	$	9,006		$	35,366
Supplemental disclosures of cash flow information:
Cash paid for interest	$	167		$	15
Cash paid for taxes	$	412		$	81
Non-cash investing activities:
Issuance of 219,709 shares of common stock in acquisition	$	2,018		$	—
Recognition of deferred tax assets and increase to additional paid-in capital for tax benefits related to stock option exercises	$	—		$	1,613

See Notes to Condensed Consolidated Financial Statements

5

Radyne Corporation

Notes to Condensed Consolidated Financial Statements

(Information for September 30, 2005 and 2004 is Unaudited)

1) Basis of Presentation

The unaudited condensed consolidated financial statements of Radyne Corporation (the “Company”) for the three and nine months ended September 30, 2005 and 2004 have been prepared in accordance with accounting principles generally accepted in the United States of America and the instructions to Form 10-Q and Article 10 of the Securities Exchange Commission (the “Commission”) promulgated by Regulation S-X. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments necessary, all of which are of a normal recurring nature, to present fairly the Company’s financial position, results of operations and cash flows. Interim results are not necessarily indicative of results for a full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. A copy of the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are available through the Commission’s website at www.sec.gov or through our website found at www.radn.com in the Investor Info section.

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions affect the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates and assumptions based upon historical experience and various other factors and circumstances. The Company believes that its estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions.

Certain reclassifications have been made to the prior years condensed consolidated financial statements to conform to the current year presentation.

2) Employee Stock Options

The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations in accounting for its employee stock options and to adopt the “disclosure only” alternative treatment under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123). Under SFAS 123, deferred compensation is recorded for the fair value of the stock option on the date of the option grant. The deferred compensation is amortized over the vesting period of the option.

The Company applies APB 25 in accounting for its employee stock options. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS 123, the Company’s net earnings and earnings per share would have been reduced to the pro forma amounts indicated below:

	Three Months Ended September 30,
	2005			2004
	(in thousands, except per share data)
Net earnings:
As reported	$	2,880		$	6,065
Fair value of stock options, after taxes		(588	)		(515	)
Pro forma	$	2,292		$	5,550
Earnings per share:
Basic — as reported	$	0.17		$	0.37
Basic — pro forma	$	0.13		$	0.34
Diluted — as reported	$	0.16		$	0.36
Diluted — pro forma	$	0.13		$	0.33

	Nine Months Ended September 30,
	2005			2004
	(in thousands, except per share data)
Net earnings:
As reported	$	6,397		$	10,524
Fair value of stock options, after taxes		(1,162	)		(1,137	)
Pro forma	$	5,235		$	9,387
Earnings per share:
Basic — as reported	$	0.38		$	0.64
Basic — pro forma	$	0.31		$	0.57
Diluted — as reported	$	0.36		$	0.61
Diluted — pro forma	$	0.30		$	0.55

The fair value of options granted was estimated on the date of grant with vesting periods ranging from one to three years using the Black-Scholes option-pricing model with the following weighted average assumptions used: no dividend yield, expected volatility of 59 percent – 80 percent, risk free interest rate of 3.5 percent — 4.25 percent and an expected life of four to five years. The per share weighted average fair value of stock options granted for the nine months ended September 30, 2005 and 2004 were $4.67 and $4.75, respectively, using the Black-Scholes option-pricing model and the assumptions listed above. The pretax value of the fair value of the stock options for the nine months ended September 30, 2005 and 2004 was $1.8 million and $1.4 million, respectively. The after tax amounts differ mainly due to the change in effective tax

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rates as further discussed in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The Company has not yet established the method of accounting that will be used in regards to SFAS 123(R). The impact of SFAS 123(R) may be material to the Company’s financial statements. For further information on the potential impact to the Company, see Recent Accounting Pronouncements.

3) Earnings Per Share

A reconciliation of the numerators and the denominators of the basic and diluted per share computations and a description and amount of potentially dilutive securities follows:

	Three Months Ended September 30,
	(in thousands, except per share data)
	2005		2004
Numerator:
Net earnings	$	2,880	$	6,065
Denominator:
Weighted average common shares for basic earnings per share		16,995		16,390
Net effect of dilutive stock options and warrants		932		521
Weighted average common shares for diluted earnings per share		17,927		16,911
Basic earnings per share:
Net earnings per basic share	$	0.17	$	0.37
Diluted earnings per share:
Net earnings per diluted share	$	0.16	$	0.36
Options and warrants excluded from earnings per share due to anit-dilution:
Stock options with exercise price greater than the average market price		663		505
Common stock warrants with $8.75 exercise price		—		2,144

	Nine Months Ended September 30,
	(in thousands, except per share data)
	2005		2004
Numerator:
Net earnings	$	6,397	$	10,524
Denominator:
Weighted average common shares for basic earnings per share		16,734		16,404
Net effect of dilutive stock options and warrants		799		755
Weighted average common shares for diluted earnings per share		17,533		17,159
Basic earnings per share:
Net earnings per basic share	$	0.38	$	0.64
Diluted earnings per share:
Net earnings per diluted share	$	0.36	$	0.61
Options and warrants excluded from earnings per share due to anit-dilution:
Stock options with exercise price greater than the average market price		763		485
Common stock warrants with $8.75 exercise price		—		2,144

4) Inventories

	September 30, 2005		December 31, 2004
	(in thousands)
Raw materials and components	$	12,565	$	5,659
Work-in-process		4,384		1,501
Finished goods		1,347		972
	$	18,296	$	8,132

5) Property and Equipment

	September 30, 2005			December 31, 2004
	(in thousands)
Machinery and equipment	$	6,165		$	4,498
Furniture and fixtures		901			1,463
Leasehold improvements		644			491
Demonstration units		1,996			1,113
Computers and software		1,889			795
		11,595			8,360
Less accumulated depreciation and amortization		(7,639	)		(6,767	)
	$	3,956		$	1,593

6) Accrued Expenses

	September 30, 2005		December 31, 2004
	(in thousands)
Wages, vacation and related payroll taxes	$	3,305	$	2,351
Professional fees		595		354
Warranty reserve		1,957		955
Restructuring costs		—		67
Commissions		659		489
Deferred rent		477		50
Other		499		569
	$	7,492	$	4,835

7) Concentrations of Risk

The Company did not have a customer that amounted to 10% of total accounts receivable at September 30, 2005 and at December 31, 2004. We had one customer that amounted to 12% of revenue for the nine month period ended September 30, 2005 and none for the nine month period ended September 30, 2004. For the three month period ended September 30, 2005, the Company had one customer that amounted to 14% of revenue and there was no customer for the three month period ended September 30, 2004.

8) Acquisition — Business Combination

The Company paid approximately $37.7 million in cash, $2.0 million in shares (219,708 shares) and assumed $5.0 million in debt for Xicom Technology, Inc. in May of 2005. The purchase price has increased over the quarter due to additional acquisition cost which is reflected in an increase to goodwill.

7

The purchase price recorded was calculated as follows:

Xicom Purchase Price
(in thousands)

Issuance of stock	$	2,018
Acquisition costs		1,081
Cash		37,704
Assumed debt		5,034
Total Purchase Price	$	45,837

The following unaudited pro forma summary of condensed combined financial information presents the Company’s combined results of operations as if the acquisition of Xicom had occurred at the beginning of each period presented.

Three months ended September 30, 2005 and 2004
(in thousands, except per share data)

	2005		2004
Net sales	$	29,819	$	24,333
Net income	$	2,432	$	6,156
Net income per share, basic	$	0.14	$	0.37
Net income per share, diluted	$	0.14	$	0.36

Nine months ended September 30, 2005 and 2004
(in thousands, except per share data)

	2005		2004
Net sales	$	77,203	$	72,974
Net income	$	4,831	$	10,208
Net income per share, basic	$	0.29	$	0.61
Net income per share, diluted	$	0.27	$	0.59

Pro forma amounts for the three and nine months-ended September 30, 2004 and 2005 have been computed from the unaudited Radyne condensed consolidated statement of income for the three and nine months-ended September 30, 2004 and 2005 combined with the unaudited results of operations for Xicom for the three and nine months-ended June 30, 2004 and 2005.

9) Segment Reporting

With the acquisition of Xicom the Company has been organized into two operating segments: 1) satellite, microwave, television, and cable communications which represent Radyne and Tiernan brand products and 2) power amplifiers which are Xicom products. Each segment is organized and managed separately for the purposes of making key decisions such as sales/marketing, product development and capital allocation. Ultimately, the chief operating decision maker evaluates and makes decisions, based on the financial information available, about these two segments. The chief operating decision maker for the Company is the CEO.

Below are the results of operations from these two operating segments. A comparable period is not shown because prior to the acquisition the Company operated as a single operating segment. For further discussion of these results of Financial Condition and Results of Operations, refer to Item 2. Management’s Discussion and Analysis.

Three months ended September 30, 2005
(in thousands)

	Radyne		Xicom		Unallocated			Total
Net sales	$	18,748	$	13,555	$	(157	)	$	32,146
Operating income		7,048		766		(3,440	)		4,374
Interest expense, net		—		—		30			30
Income before income tax	$	7,048	$	766	$	(3,470	)	$	4,344
Depreciation and amortization	$	228	$	617	$	—		$	845

Nine months ended September 30, 2005
(in thousands)

	Radyne		Xicom			Unallocated			Total
Net sales	$	48,113	$	18,556		$	(201	)	$	66,468
Operating income		18,100		1,058			(9,741	)		9,417
Interest (income), net		—		(16	)		(363	)		(379	)
Income before income tax	$	18,100	$	1,074		$	(9,378	)	$	9,796
Depreciation and amortization	$	684	$	788		$	—		$	1,472
Total assets	$	79,491	$	12,367		$	—		$	91,858

10) Financial Instruments

The Company currently has an outstanding balance on a note payable of $4.75 million with a remaining term of approximately 31 months. The Company made a principal payment of $250,000 during the quarter. The Company has an interest rate swap agreement to establish a fixed 5.61% interest rate on the term note for 18 months. The swap agreement has 13 months remaining. On expiration of the swap, the interest rate will revert to LIBOR plus 150 basis points. The fair value adjustment for the swap was not material for the three and nine months ended September 30, 2005.

11) Foreign Currency Translation

Xicom Technology Europe, Ltd (“XTEL”), a Xicom subsidiary, is located in the United Kingdom and uses Great Britain Pounds as its functional currency. Assets and liabilities are translated to U.S. dollars at the reporting period exchange rate, and the resulting gains and losses arising from the translation of net assets are recorded as other comprehensive income in equity on the Condensed Consolidated Balance Sheet. Elements of the consolidated statements of operations are translated at average exchange rates in effect during the period and foreign currency transaction gains and losses are included in the Condensed Consolidated Statements of Operations.

12) Intangibles

Goodwill increased over the quarter due to acquisition costs related to the Xicom acquisition, which were not recognized in prior periods. The Company has until one year after the

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acquisition date to adjust the purchase price for acquisition costs that become evident after closing.

The Company contracted with a third party valuation expert to assist in the valuation of the tangible and intangible assets of Xicom and we believe the valuation accurately reflects the value of assets acquired on the acquisition date. The following intangible assets, for the three month period ended September 30, 2005, resulted from the valuation of the assets acquired in the Xicom merger.

	Amortization				Accumulated
(in thousands)	period — years		Cost		amortization		Net
Intangible assets subject to amortization:
Core Technologies		10	$	4,920	$	164	$	4,756
Customer Relationship		4		2,040		170		1,870
Covenant-not-to Compete		3		410		46		364
Goodwill				29,060		—		29,060
Total intangible assets and goodwill			$	36,430	$	380	$	36,050

Amortization expenses for the current quarter and the period from acquisition (May 2005) to September 30, 2005 were $285,000 and $380,000 respectively. Amortization expense for 2005 is expected to be $665,000, 2006 — $1.1 million, 2007 — $1.1 million, 2008 — $1.0, 2009 — $790,000, and thereafter — $2.7 million.

(13) Income Taxes

During the three months ended September 30, 2005, the Company booked tax expense of $1.5 million compared to a tax benefit of $(4.3) million during the same period of 2004. In the nine month period, the Company recorded tax expenses of $3.4 million compared to a tax benefit of $(4.0) million during the year to date period in 2004.

The variances were mainly due to the Company’s decision, during the quarter ended September 30, 2004, to reduce the valuation allowance related to its deferred tax assets. The reduction in the valuation allowance resulted in an income tax benefit of $4,127,000 and an increase in additional paid-in capital of $1,613,000 for the tax benefit related to stock option exercises. Management believed and continues to believe that it is more likely than not that current and projected profits support the recognition of the deferred tax assets and the reduction of the valuation allowance.

Ultimate realization of any or all of the deferred tax assets is not assured due to significant uncertainties associated with estimates of future taxable income during the carryforward periods and is subject to change depending on the tax laws in effect in the years in which the carryforwards are used. Management will continue to evaluate the recoverability of the deferred tax assets and will adjust the valuation allowance recorded against the deferred tax assets accordingly.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The management’s discussion and analysis that follows is designed to provide information that will assist readers in understanding our unaudited condensed consolidated financial statements, changes in certain items in those statements during the quarter and from year to year, the primary factors that caused those changes and how certain accounting principles, policies and estimates affect our financial statements. The following discussion should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and the related notes that appear elsewhere in this document as well as the Company’s 2004 Annual Report on Form 10-K for the year ended December 31, 2004.

     Except for the historical information contained herein, the following discussion includes statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”) and the Company claims the protection of the safe-harbor for forward-looking statements contained in the Reform Act. These forward-looking statements are often characterized by the terms “may,” “believes,“ “projects,” “expects,” or “anticipates,” and do not reflect historical facts. Forward-looking statements speak only as of the date the statement was made. The Company does not undertake and specifically declines any obligation to update any forward-looking statements. For other events they may affect the Company’s business, please see Factors That May Affect Radyne’s Business and Future Results.

Overview

     The Company operates primarily in North America and is headquartered in Phoenix, Arizona; with manufacturing facilities in Phoenix, Arizona; and Santa Clara and San Diego, California. Additionally, sales offices are located in Boca Raton, Florida, Singapore, Beijing, Jakarta, and the United Kingdom. The Company also contracts with representatives that provide sales and/or service centers in Rio de Janeiro, Bangalore, Shanghai and Moscow. The Company employs 315 people throughout the USA, Europe and Asia.

     The Company designs, manufactures, sells, integrates and installs products, systems and software used for the transmission and reception of data and video over satellite, over-the-horizon (troposcatter), microwave and cable communication networks. The Phoenix facility designs and manufactures satellite, troposcatter, and point-to-point modems and allied equipment under the Radyne brand name. The San Diego facility designs and manufactures audio and video (HDTV and standard definition) encoders and decoders, satellite modems and Internet over satellite hardware under the Tiernan brand. The Santa Clara facility, designs and manufactures Solid State Power Amplifiers (SSPAs), Traveling Wave Tube Amplifiers (TWTAs), and Klystron Power Amplifiers (KPAs) and other Radio Frequency (RF) products under the Xicom brand name. Through its network of international offices and service centers, the Company serves customers in over 90 countries, including customers in the television broadcast industry, international telecommunications companies, Internet service providers, private communications networks, network and cable television and the United States government.

     The following were some of the highlights and recent developments for the three months ended September 30, 2005:

• The Company recorded its tenth consecutive profitable quarter.

• For the quarter, the Company reported record sales of $32.1 million or 153% increase from the prior year quarter.

• Bookings (orders received) also were at a record high during the first nine months of 2005, an increase of 192% over the equivalent period of 2004 ($36.3 million in 2005 compared to $12.5 million in 2004).

• Earnings for the quarter were $2.9 million or $0.16 per fully diluted share.

Additional information on these and other operating results are described in detail below.

Results of Operations

The results of operations include those of Xicom which was acquired on May 27^th , 2005.

     Sales. Net sales generally consist of sales of products, net of returns and allowances. The following tables summarize the year-over-year comparison of our revenue for the periods indicated:

	Three months ended September 30,
			(in thousands)
	2005		2004		Change		%
Sales	$	32,146	$	12,707	$	19,439		153	%

     For the three months ended September 30, 2005 as compared to the three months ended September 30, 2004, our sales increased by 153%. The increase resulted from the addition of Xicom ($13.6 million) plus a net increase in sales of the Company’s satellite products ($5.8 million).

	Nine months ended September 30,
			(in thousands)
	2005		2004		Change		%
Sales	$	66,468	$	39,800	$	26,668		67	%

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     For the nine months ended September 30, 2005 as compared to the nine months ended September 30, 2004, our sales increased by 67%. Increases in sales were attributable to continued growth of our new satellite modem and video broadcast products ($8.2 million, net) and the acquisition of Xicom ($18.6 million).

     For the quarter and nine months year-to-date, the growth in satellite equipment sales resulted from growth in market demand, increased purchases from the US government and the introduction of new products. Although market demand trends are difficult to forecast, historic seasonal patterns and current sales backlog (see below) suggest that sales will remain at, or above, current levels through the remainder of the year. However, there is no assurance that future sales targets will be achieved.

     Cost of sales, gross profit and gross margin. Cost of sales generally consists of costs associated with components, outsourced manufacturing and in-house labor associated with assembly, testing, packaging, shipping, and quality assurance, depreciation of equipment and indirect manufacturing costs. Gross profit is the difference between net sales and cost of sales. Gross margin is gross profit stated as a percentage of net sales. The following tables summarize the year-over-year comparison of our cost of sales, gross profit and gross margin for the periods indicated:

	Three months ended September 30,
				(in thousands)
	2005			2004			Change			%
Cost of Sales	$	18,780		$	6,133		$	12,647			206	%
Gross Profit	$	13,366		$	6,574		$	6,792			103	%
Gross Margin %		42	%		52	%		-10	%

     Gross profit increased 103% compared to the same quarter of 2004. The increase was mainly due to the record sales from the Radyne business for the quarter and the additional sales from Xicom. The increase in cost of sales and related decline in gross margin resulted primarily from Xicom sales, which do not have the same level of margins as the Radyne and Tiernan products.

	Nine months ended September 30,
				(in thousands)
	2005			2004			Change			%
Cost of Sales	$	36,337		$	19,197		$	17,140			89	%
Gross Profit	$	30,131		$	20,603		$	9,528			46	%
Gross Margin %		45	%		52	%		-7	%

     For the first nine months of 2005, compared to the first nine months of 2004, gross profit increased 46%, cost of sales increased 89% while gross margin declined from 52% to 45%. The decline in margin is primarily due to the dilutive effect of Xicom’s lower margins, as discussed above.

     Management believes that the third quarter gross margins are representative of expected results in the future as potential improvements in Xicom margins may be offset by declines in satellite equipment margins resulting from recent large orders that are expected to ship during the last quarter of 2005. However, there can be no assurance that margins will remain at or above any level because other issues (such as pricing pressures, manufacturing efficiencies and other factors) could cause margins to be significantly reduced in future periods. During 2006, the implementation of SFAS-123(R) Share-Based Payments may have the effect of recognizing additional equity compensation expense that is likely to increase cost of sales and decrease gross profits and gross margins See Recent Accounting Pronouncements below.

     Selling, general and administrative. Sales and marketing expenses consist of salaries, commissions for marketing and support personnel, and travel. Executives and administrative expenses consist primarily of salaries and other personnel-related expenses of our finance, human resources, information systems, and other administrative personnel, as well as facilities, professional fees, depreciation and amortization and related expenses. The following tables summarize the year-over-year comparison of our selling, general and administrative expenses for the periods indicated:

	Three months ended September 30,
				(in thousands)
	2005			2004			Change			%
Selling, general & administrative	$	6,265		$	3,523		$	2,742			78	%
Percentage of sales		19	%		28	%		-9	%

     Selling, general and administrative expenses for the third quarter of 2005 increased 78% from the prior period of 2004. The increase resulted, in part, from increases in employee incentive expense ($566,000) and the inclusion of Xicom ($2.1 million).

	Nine months ended September 30,
				(in thousands)
	2005			2004			Change			%
Selling, general & administrative	$	14,656		$	10,395		$	4,261			41	%
Percentage of sales		22	%		26	%		-4	%

     Selling, general and administrative expenses for the first nine months of 2005 increased 41% from the equivalent period of 2004. The nine-month period the expense increase resulted, in part, from additional professional service expense ($701,000) related to the Company’s ongoing Sarbanes-Oxley (SOX) compliance program, increases in employee incentive expense ($398,000), increased commissions ($363,000), and Xicom expenses ($2.7 million).

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     Management believes the company will continue to incur additional expense as we work to obtain Xicom Sarbanes-Oxley Section 404 compliance. For the remainder of 2005, management believes that general and administrative expenses as a percentage of sales will trend lower as the Company enjoys economies of scale resulting from the larger sales base from the Xicom acquisition. Further, during 2004, the costs of compliance were concentrated in the fourth quarter. During 2005, management believes that the timing of the recognition of these expenses will not be as concentrated in the last quarter. During 2006, the implementation of SFAS-123(R) Share-Based Payments may have the effect of recognizing additional equity compensation expense that is likely to increase selling, general and administrative expense See Recent Accounting Pronouncements below

     Research and development. Research and development expenses consist primarily of salaries and personnel-related costs, development materials, and new and ongoing product development expenses. The following tables summarize the year-over-year comparison of our research and development expenses for the periods indicated:

	Three months ended September 30,
				(in thousands)
	2005			2004			Change			%
Research and development	$	2,727		$	1,411		$	1,316			93	%
Percentage of sales		8	%		11	%		-3	%

     Total research and development expenses increased 93% during the third quarter of 2005 compared to the comparable period of 2004. The increase is primarily due to new product development (including continued developmental costs for the troposcatter modem, a new HDTV decoder, a new audio broadcast receiver and additional enhancements to legacy Radyne products) and the addition of Xicom research and development expenses during the period.

	Nine months ended September 30,
				(in thousands)
	2005			2004			Change			%
Research and development	$	6,058		$	3,964		$	2,094			53	%
Percentage of sales		9	%		10	%		-1	%

     Total research and development expenses increased 53% during the first nine months of 2005 compared to the comparable period of 2004. This resulted from additional new product development (including the troposcatter modem, a new HDTV decoder and a new audio broadcast receiver) described above ($1.8 million) and the addition of research and development expense from Xicom ($1.4 million).

     These new product expenses are consistent with our strategy to invest in the Company’s future through research efforts that will result in new sales and returns to the Company well in excess of the current development expense. However, there can be no assurance that research efforts will result in new products that will be accepted by the market we address or, if accepted, that the profits on sales of the new products will be sufficient to cover costs expended. During 2006, the implementation of SFAS-123(R) Share-Based Payments may have the effect of recognizing additional equity compensation expense that is likely to increase research and development expense. See Recent Accounting Pronouncements below.

     Income Taxes. Income tax expense (benefit) consists of changes in deferred taxes and amounts recognized as payable to the federal government, states and foreign countries in which the Company does business.

	Three months ended September 30,
				(in thousands)
	2005			2004			Change			%
Income taxes	$	1,464			($4,302	)	$	5,766
Percentage of sales		5	%		-34	%		-39	%

     During the third quarter of 2005 our income tax expense increased compared to the equivalent period in 2004, as a result of an increase in taxable income and an increase in our expected effective tax rate from (244%) to 33.7%. The increase in taxable income resulted from the combination of increased sales and other factors described above. The increase in the tax rate resulted from the Company’s decision, at the end of the third quarter of 2004, to reduce our valuation allowance recorded against our deferred tax assets, which resulted primarily from the carryforward of losses from previous years. In the third quarter 2004, we determined that based on sustained prior profitable operations plus a forecast of continued profitability such valuation allowance was no longer required.

	Nine months ended September 30,
				(in thousands)
	2005			2004			Change			%
Income taxes	$	3,399			($3,990	)	$	7,389
Percentage of sales		5	%		-10	%		15	%

     During the first nine months of 2005, our income tax expense increased compared to the equivalent period in 2004, as a result of an increase in our taxable income and an increase in our expected effective tax rate from (61.1%) to 34.7%. The increase in taxable income resulted from the combination of increased sales and other factors described above. The increase in the tax rate resulted from the Company’s decision, at the end of the third quarter of 2004, to reduce our valuation allowance recorded against our deferred tax assets as described above.

     Management continues to believe that it is more likely than not that the deferred tax assets will be realized through the generation of future taxable income. Ultimate realization of

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any or all of the deferred tax assets is not assured due to significant uncertainties associated with estimates of future taxable income during the carryforward periods and is subject to change depending on the tax laws in effect in the years in which the carryforwards are used. Management will continue to evaluate the recoverability of the deferred tax assets and will adjust the valuation allowance recorded against the deferred tax assets as required. Management believes that, assuming the Company achieves current forecasts, the current tax rate is indicative of the tax rate for the remainder of the year.

     Net Earnings. Net earnings is the result of reducing gross profit by selling, general and administrative, research and development, other income and expense (including interest), and income taxes. The following tables summarize our net earnings and the earnings available to each fully diluted share of common stock:

	Three months ended September 30,
			(in thousands)
	2005		2004		Change			%
Net earnings	$	2,880	$	6,065		($3,185	)		-53	%
Diluted EPS	$	0.16	$	0.36		($0.20	)		-55	%

     Net earnings per fully diluted share decreased by 55% to $0.16 per fully diluted share for the quarter ended September 30, 2005 compared to $0.36 per fully diluted share for the quarter ended September 30, 2004. The decrease in earnings resulted primarily from a tax benefit taken in the third quarter of 2004 of $4.3 million and discussed above in Income Taxes.

	Nine months ended September 30,
			(in thousands)
	2005		2004		Change			%
Net earnings	$	6,397	$	10,524		($4,127	)		-39	%
Diluted EPS	$	0.36	$	0.61		($0.25	)		-41	%

     Net earnings per fully diluted share decreased to $0.36 per fully diluted share for the nine months ended September 30, 2005, compared to $0.61 per share for the third quarter of 2004. The decrease in earnings resulted primarily from a tax benefit taken in the third quarter of 2004 of $4.3 million and discussed above in Income Taxes.

     Although the effect of the 2004 tax benefit will result in reduced net earnings for 2005, management believes that the Company will continue to report profits from operations for the near future. The Company believes that current sales and expenses levels coupled with the addition of Xicom should result in profit levels at least equal to current performance. However, there is no assurance that profits will be produced in future periods.

     Bookings and Backlog. Bookings consist of orders taken while backlog is the total of these orders not yet shipped at the end of the period. The following tables summarize the year-over-year comparison of our Bookings (orders taken) and Backlog (orders to be shipped in future periods) for the periods indicated:

	Three months ended September 30,
			(in thousands)
	2005		2004		Change		%
Bookings	$	36,332	$	12,462	$	23,870		192	%
Ending Backlog	$	33,998	$	5,542	$	28,456		513	%

     During the third quarter of 2005 compared to the third quarter of 2004, bookings increased 192%. The increase resulted from continued market growth, strong acceptance of the Company’s new products, growth in US government sales (a total of $8.6 million) and the addition of bookings from Xicom ($15.3 million). Ending backlog increased primarily because of the addition of Xicom ($18.3 million) and increased orders for satellite equipment as described in the previous sentence.

	Nine months ended September 30,
			(in thousands)
	2005		2004		Change		%
Bookings	$	72,237	$	37,049	$	35,188		95	%
Ending Backlog	$	33,998	$	5,542	$	28,456		513	%

     During the first nine months of 2005, compared to the equivalent period of 2004, bookings increased 95%. The increase resulted from continued market growth, strong acceptance of the Company’s new products, growth in US government sales described in the previous paragraph ($17.2 million) and the addition of bookings from Xicom ($18.0 million). Ending backlog increased primarily as a result of the acquisition of Xicom ($18.3 million) and improved satellite equipment orders ($10.2 million). We believe that this order backlog is consistent with our sales budgets for the remainder of the year. Typically, both bookings and backlog drop, due to seasonal variations, at the end of the fourth and first quarters.

Liquidity and Capital Resources

     The Company had cash and cash equivalents totaling $9.0 million at September 30, 2005 compared to $39.3 million at December 31, 2004, a decrease of $30.3 million. The primary factor in the decrease was the cash consideration paid in connection with the acquisition of Xicom and other investing activities ($44.7 million), offset by cash provided by financing activities of $8.6 million and cash provided by operating activities of $5.8 million.

Operating Activities:

     Net cash provided by operating activities for the nine months of 2005 was $5.8 million as compared to $6.4 million for the nine months of 2004. Net cash provided by operating activities primarily resulted from net earnings of $6.4 million,

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depreciation and amortization of $1.5 million and deferred income taxes of $1.2 million, offset by an increase in accounts receivable of $3.8 million, a decrease in accounts payable of $1.7 and a decrease in prepaid expenses and other current assets of $1.6 million.

Investing Activities:

     Net cash used in investing activities for the nine months of 2005 was $44.7 million as compared to $551,000 for the nine months of 2004. The change was due to the acquisition of Xicom ($43.5 million) and capital expenditures of $1.3 million offset by $86,000 of proceeds from disposal of assets.

Financing Activities:

     Net cash provided by financing activities for the nine months of 2005 was $8.6 million as compared to $(602,000) for the nine months of 2004. The increase resulted from net borrowings of $4.8 million, the exercise of stock options for $895,000 and warrants of $2.7 million, and sales of stock to employees ($274,000).

Liquidity Analysis

     The Company maintains a credit arrangement with a bank for up to $15.0 million, based upon 75% of eligible accounts receivable plus cash. The amount of credit available to us under the credit agreement at September 30, 2005 was approximately $10.3. The Company paid approximately $50,000 representing a facility fee and bank costs for a two year commitment on the arrangement, whether or not any amounts are actually drawn on the line of credit.

     The credit agreement expires on May 1, 2008 and limits or prohibits mergers, consolidations, acquisitions, transfers of assets, liens, loans and investments in other entities and limits the use of proceeds, acquisitions of assets, indebtedness and capital expenditures without the bank’s consent. To be eligible to draw funds under the line of credit, the credit agreement requires us to maintain specific levels of tangible net worth, earnings and other ratios. We were in compliance with all covenants at September 30, 2005. The overall credit agreement specifies an interest rate between LIBOR plus 150 basis points and prime rate minus 50 basis points depending on terms and other conditions.

     Under this credit facility, we borrowed $5.0 million in the form of a term note with a three year maturity on May 2, 2005. These funds were used to provide working capital and to finance the acquisition of Xicom. We borrowed these funds and simultaneously entered into an interest rate swap agreement. During the quarter, the Company made payments in the amount of $250,000. See Notes to Condensed Consolidated Financial Statements (note 10 — Financial Instruments) for further detail.

     Contractual Obligations

     For a description of the Company’s Contractual Obligations and Commitments for the next five years and thereafter, see Item 7 in the Company’s Annual Report on Form 10-K.

     Off Balance Sheet Arrangements

     The Company does not have any off balance sheet arrangements as defined by Regulation S-K 229.303(a)(4) promulgated under the Securities Exchange Act of 1934.

Recent Accounting Pronouncements

     In November 2004, the FASB issued Statement No. 151, Inventory Costs (SFAS 151). SFAS 151 requires that abnormal amounts of idle facility expense, freight, handling costs, and spoilage be charged to expense in the period they are incurred rather than capitalized as a component of inventory costs. SFAS 151 is effective for inventory costs incurred in fiscal periods beginning after June 15, 2005. The adoption of this standard may result in higher expenses in periods where production levels are lower than normal ranges of production. We currently believe that the adoption of SFAS 151 will not have a material impact on our consolidated financial statements.

     In December 2004, FASB issued SFAS No. 123 (Revised 2004), Share-Based Payments. SFAS 123(R) requires an entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award with the cost to be recognized over the period during which an employee is required to provide service in exchange for the award. On April 14, 2005, the Commission amended the compliance date for SFAS 123(R) to the beginning of the next fiscal year that begins after June 15, 2005. Accordingly, the Company will adopt this revised SFAS 123(R) effective January 1, 2006. The impact of adoption SFAS 123(R) may be material to the Company’s results of operations.

     The Company is currently evaluating how it will adopt SFAS No. 123(R) and has not determined the method it will use to value equity-based payments. The Company is considering the use of alternative forms of equity compensation including equity grants and use of restricted stock units. Management believes the use of certain alternatives would reduce the need to analyze and calculate option valuations through the use of models such as Lattice or Black-Scholes. Rather, outright stock grants, for instance, would be valued at the actual market value of the Company’s common stock on the date of grant or employee acceptance. In any case, assuming the Company continues to grant equity based compensation, the net effect will be to reduce future net earnings.

Factors That May Affect Radyne’s Business and Future Results

     Forward-looking statements involve risks, uncertainties and other factors, which may cause our actual results,

14

performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Factors that could affect our results and cause them to materially differ from those contained in the forward-looking statements include:

• our ability to successfully integrate acquisitions, including, in particular, the Xicom acquisition;

• adequacy of our inventory, receivables and other reserves;

• the effects that acts of international terrorism may have on our ability to ship products abroad;

• the potential effects of an earthquake or other natural disaster at our manufacturing facilities;

• availability of future taxable income to be able to realize the deferred tax assets;

• loss of, and failure to replace, any significant customers;

• timing and success of new product introductions;

• new accounting rules;

• product developments, introductions and pricing of competitors;

• timing of substantial customer orders;

• availability of qualified personnel;

• the impact of local, political and economic conditions and foreign exchange fluctuations on international sales;

• performance of suppliers and subcontractors;

• decreasing or stagnant market demand and industry and general economic or business conditions;

• availability, cost and terms of capital;

• our level of success in effectuating our strategic plan; and

• other “Risk Factors” set forth in Exhibit 99.1, which is an exhibit to the Annual Report on Form 10-K; and other factors that the Company is currently unable to identify or quantify, but may arise or become known in the future.

     We may make additional written or oral forward-looking statements from time to time in filings with the Securities and Exchange Commission or in public news releases. Such additional statements may include, but not be limited to, projections of revenues, income or loss, capital expenditures, acquisitions, plans for future operations, financing needs or plans, the impact of inflation and plans relating to our products or services, as well as assumptions relating to the foregoing.

     Statements in this Report on Form 10-Q, including those set forth in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” may be considered “forward looking statements” within the meaning of Section 21E of the Securities Act of 1934.

     Forward-looking statements contained in this Report on Form 10-Q speak only as of the date of this report or, in the case of any document incorporated by reference, the date of that document. We do not undertake, and we specifically disclaim any obligation, to publicly update or revise any forward-looking statement contained in this Report on Form 10-Q or in any document incorporated herein by reference to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     The Company is exposed to certain market risks in the ordinary course of our business. These risks result primarily from changes in interest rates. In addition, our international operations are subject to risks related to differing economic conditions, changes in political climate, differing tax structures and other regulations and restrictions.

     The Company is exposed to market risk on our financial instruments from changes in interest rates. As of September 30, 2005, a change in interest rates of 10% over a year’s period would not have a material impact on our interest earnings. On May 2, 2005, we entered into an interest swap arrangement in order to fix the rate of interest on a term loan. The arrangement has an 18-month term while the term loan has a 36-month term. On the expiration of the swap agreement, the loan will revert to a variable interest rate as described above in Liquidity Analysis and Notes to Condensed Consolidated Financial Statements (note 10 — Financial Instruments).

Item 4. Controls and Procedures

     The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its periodic reports filed with the Commission is recorded, processed, summarized and reported, within the time periods specified in rules and forms of the Commission and that such information is accumulated and communicated to its management. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

     On May 27, 2005, the Company acquired Xicom Technology, Inc. Certain disclosure controls and procedures within Xicom may need to be modified to maintain effectiveness. Management will evaluate each modification as the integration of Xicom into Radyne’s operations continues.

     The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2005. Based upon such review, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) are effective.

     During the quarterly period ended September 30, 2005, the Company filed a Current Report on Form 8-K/A two days late in order to accurately determine a deferred tax asset related to the Xicom acquisition. The Company also filed a Form 12B-25 — Notice of Late Filing for its second quarter Form 10-Q.

15

This was due to complexities in the purchase accounting related to the Xicom acquisition.

     There were not any significant changes in internal controls or in other factors that could significantly affect these internal controls subsequent to the date of their most recent evaluation.

Part II — OTHER INFORMATION

Item 1. Legal Proceedings

     None.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Sales of Equity Securities

     None.

Issuer Purchases of Equity Securities

     None.

Item 3. Defaults Upon Senior Securities

     None.

Item 4. Submission of Matters to a Vote of Security Holders

     None.

Item 5. Other Information

Item 6. Exhibits

     See Exhibit Index.

16

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.

RADYNE CORPORATION
By:	/s/ Malcolm C. Persen
	Malcolm C. Persen, Vice President and Chief Financial Officer (Principal Financial Officer)

Dated: November 9th, 2005

17

EXHIBIT INDEX

Exhibit No.	Exhibit
10.1*	Lease Agreement dated April 7th, 2000 by Xicom Technology, Inc. and Mission West Properties L.P. III.
10.2*	Lease Agreement dated November 8th, 2004 by Radyne ComStream and RREEF AMERICA REIT II CORP., JJ.
31.1*	Certification of the Principal Executive Officer Pursuant to Rule 13-14(a) Under the Securities Exchange Act of 1934
31.2*	Certification of the Principal Financial Officer Pursuant to Rule 13-14(a) Under the Securities Exchange Act of 1934
32**	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*	filed herewith
**	furnished herewith

18

EX-10.1

Exhibit 10.1

Parties: This Lease, executed in duplicate at Cupertino, California, on April 7 , 2000, by and between Mission West Properties L.P. III, a Delaware Limited Partnership, and Xicom Technology, Inc., a California Corporation, hereinafter called respectively Lessor and Lessee, without regard to number or gender.

Use: Witnesseth: That Lessor hereby leases to Lessee, and Lessee hires from Lessor, for the purpose of conducting therein office, research and development, light manufacturing, and warehouse activities, and any other legal activity; and for no other purpose without obtaining the prior written consent of Lessor.

Premises: The real property with appurtenances as shown on Exhibit A (the “Premises”) situated in the City of Santa Clara, County of Santa Clara, State of California, and more particularly described as follows:

The Premises includes 47,480 square feet of building, including all improvements thereto, as shown on Exhibit A.1 including the right to use up to 180 unreserved parking spaces. The address for the Premises is 3550 Bassett, Santa Clara, California. Lessee’s pro-rata share of the Premises is 100%.

Term: The term shall be for eighty four (84) months unless extended pursuant to Section 35 of this Lease (the “Lease Term”), commencing on the Commencement Date as defined in Section 1 and ending eighty four (84) months thereafter.

Rent: Base rent shall be payable in monthly installments as follows:

	Base rent		Estimated CAC*		Total
Months 1 through 12	$	71,220	$	9,970	$	81,190

Monthly base rent to increase by 4% on the annual anniversary of the Commencement Date each year during the Lease Term over the prior year’s rent.

* CAC charges to be adjusted per Common Area Charges Section below.

Base rent and CAC as scheduled above shall be payable in advance on or before the first day of each calendar month during the Lease Term. The term “Rent,” as used herein, shall be deemed to be and to mean the base monthly rent and all other sums required to be paid by Lessee pursuant to the terms of this Lease. Rent shall be paid in lawful money of the United States of America, without offset or deduction, and shall be paid to Lessor at such place or places as may be designated from time to time by Lessor. Rent for any period less than a calendar month shall be a pro rata portion of the monthly installment. Upon execution of this Lease, Lessee shall deposit with Lessor the first month’s rent.

Security Deposit: Lessee shall deposit with Lessor the sum of Eighty One Thousand One Hundred Ninety Dollars ($81,190) (the “Security Deposit”). The Security Deposit shall be held by Lessor as security for the faithful performance by Lessee of all of the terms, covenants, and conditions of this Lease applicable to Lessee. If Lessee commits a default as provided for herein, including but not limited to a default with respect to the provisions contained herein relating to the condition of the Premises, Lessor may (but shall not be required to) use, apply or retain all or any part of the Security Deposit for the payment of any amount which Lessor may spend by reason of default by Lessee. If any portion of the Security Deposit is so used or applied, Lessee shall, within ten days after written demand therefor, deposit cash with Lessor in an amount sufficient to restore the Security Deposit to its original amount. Lessee’s failure to do so shall be a default by Lessee. Any attempt by Lessee to transfer or encumber its interest in the Security Deposit shall be null and void. Upon execution of this Lease, Lessee shall deposit with Lessor the Security Deposit.

Common Area Charges: Lessee shall pay to Lessor, as additional Rent, an amount equal to Lessee’s pro-rate share of the total common area charges of the Premises as defined below (the common area charges for the Premises is referred to herein as (“CAC”). Lessee shall pay to Lessor as Rent, on or before the first day of each calendar month during the Lease Term, subject to adjustment and reconciliation as

provided hereinbelow, the sum of Nine Thousand Nine Hundred Seventy Dollars ($9,970), said sum representing Lessee’s estimated monthly payment of Lessee’s percentage share of CAC. It is understood and agreed that Lessee’s obligation under this paragraph shall be prorated to reflect the Commencement Date and the end of the Lease Term. Upon execution of this Lease, Lessee shall deposit with Lessor the first month’s estimated CAC.

Lessee’s estimated monthly payment of CAC payable by Lessee during the calendar year in which the Lease commences is set forth above. At or prior to the commencement of each succeeding calendar year term (or as soon as practical thereafter), Lessor shall provide Lessee with Lessee’s estimated monthly payment for CAC which Lessee shall pay to Lessor as Rent. Within 120 days of the end of the calendar year and the end of the Lease Term, Lessor shall provide Lessee a statement of actual CAC incurred including capital reserves for the preceding year or other applicable period in the case of a termination year. If such statement shows that Lessee has paid less than its actual percentage, then Lessee shall on demand pay to Lessor the amount of such deficiency. If such statement shows that Lessee has paid more than its actual percentage, then Lessor shall, at its option, promptly refund such excess to Lessee or credit the amount thereof to the Rent next becoming due from Lessee. Lessor reserves the right to revise any estimate of CAC if the actual or projected CAC show an increase or decrease in excess of 10% from an earlier estimate for the same period. In such event, Lessor shall provide a revised estimate to Lessee, together with an explanation of the reasons therefor, and Lessee shall revise its monthly payments accordingly. Lessor’s and Lessee’s obligation with respect to adjustments at the end of the Lease Term or earlier expiration of this Lease shall survive the Lease Term or earlier expiration.

As used in this Lease, CAC shall include but is not limited to: (i) items as specified in Sections 5(b), 6, 16 and 31; (ii) all costs and expenses including but not limited to supplies, materials, equipment and tools used or required in connection with the operation and maintenance of the Premises; (iii) licenses, permits and inspection fees; (iv) all other costs incurred by Lessor in maintaining and operating the Premises; (v) all reserves for capital replacements and government regulations imposed on the Premises not related to Lessee’s use and occupancy of the Premises; and (vi) an amount equal to one and one-half percent (1.5%) of total rent including CAC, as compensation for Lessor’s accounting and processing services. Lessee shall have the right to review the basis and computation analysis used to derive the CAC applicable to this Lease annually.

Late Charges: Lessee hereby acknowledges that a late payment made by Lessee to Lessor of Rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges, which may be imposed on Lessor according to the terms of any mortgage or trust deed covering the Premises. Accordingly, if any installment of Rent or any other sum due from Lessee is not received by Lessor or Lessor’s designee within five (5) days after such amount is due, Lessee shall pay to Lessor a late charge equal to five (5%) percent 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 payments made by Lessee. Acceptance of such late charges by Lessor shall in no event constitute a waiver of Lessee’s default with respect to such overdue amount, nor shall it prevent Lessor from exercising any of the other rights and remedies granted hereunder.

Quiet Enjoyment: Lessor covenants and agrees with Lessee that upon Lessee paying Rent and performing its covenants and conditions under this Lease, Lessee shall and may peaceably and quietly have, hold and enjoy the Premises for the Lease Term, subject, however, to the rights reserved by Lessor hereunder.

It Is Further Mutually Agreed Between The Parties As Follows:

1. Possession: Possession shall be deemed tendered and the term shall commence May 1, 2000. (the “Commencement Date”)

2.0 Acceptance Of Premises And Covenants To Surrender: Lessee accepts the Premises in an “AS IS” condition and “AS IS” state of repair, subject to Lessor’s representation that the Premises are in good order and repair, and comply with all requirements for occupancy as of the Commencement Date. Lessee agrees on the last day of the Lease Term, or on the sooner termination of this Lease, to surrender the Premises to Lessor in Good Condition and Repair. “Good Condition and Repair” shall generally mean that the Premiese are in the condition that one would expect the Premises to be in, if throughout the Lease Term Lessee (i) uses and maintains the Premises in a commercially reasonable manner and in an accordance with the requirements of this Lease and (ii) makes all Required Replacements. “Required Replacements” are the replacements to worn-out equipment, fixtures, and improvements that a commercially reasonable owner-

user would make. All of the following shall be in Good Condition and Repair: (i) the interior walls and floors of all offices and other interior areas, (ii) all suspended ceilings and any carpeting shall be clean and in good condition, (iii) all glazing, windows, doors and door closures, plate glass, and (iv) all electrical systems including light fixtures and ballasts, plumbing, and temperature control systems. Lessee, on or before the end of the Lease Term or sooner termination of this Lease, shall remove all its personal property and trade fixtures from the Premises, and all such property not so removed shall be deemed to be abandoned by Lessee. Lessee shall reimburse Lessor for all disposition costs incurred by Lessor relative to Lessee’s abandoned property. If the Premises are not surrendered at the end of the Lease Term or earlier termination of this Lease, Lessee shall indemnify Lessor against loss or liability resulting from any delay caused by Lessee in surrendering the Premises including, without limitation, any claims made by any succeeding Lessee founded on such delay.

3. Uses Prohibited: Lessee shall not commit, or suffer to be committed, any waste upon the Premises, or any nuisance, or other act or thing which may disturb the quiet enjoyment of any other tenant in or around the buildings in which the subject Premises are located or allow any sale by auction upon the Premises, or allow the Premises to be used for any improper, immoral, unlawful or objectionable purpose, or place any loads upon the floor, walls, or ceiling which may endanger the structure, or use any machinery or apparatus which will in any manner vibrate or shake the Premises or the building of which it is a part, or place any harmful liquids in the drainage system of the building. No waste materials or refuse shall be dumped upon or permitted to remain upon any part of the Premises outside of the building proper. No materials, supplies, equipment, finished products or semi-finished products, raw materials or articles of any nature shall be stored upon or permitted to remain on any portion of the Premises outside of the building structure, unless approved by the local, state federal or other applicable governing authority. Lessor consents to Lessee’s use of materials which are incidental to the normal, day-to-day operations of any office user, such as copier fluids, cleaning materials, etc., but this does not relieve Lessee of any of its obligations not to contaminate the Premises and related real property or violate any Hazardous Materials Laws.

4. Alterations And Additions: Lessee shall not make, or suffer to be made, any alteration or addition to said Premises, or any part thereof, without the express, advance written consent of Lessor; any addition or alteration to said Premises, except movable furniture and trade fixtures, shall become at once a part of the realty and belong to Lessor at the end of the Lease Term or earlier termination of this Lease. Alterations and additions which are not deemed as trade fixtures shall include HVAC systems, lighting systems, electrical systems, partitioning, carpeting, or any other installation which has become an integral part of the Premises. Lessee agrees that it will not proceed to make such alterations or additions until all required government permits have been obtained and after having obtained consent from Lessor to do so, until five (5) days from the receipt of such consent, so that Lessor may post appropriate notices to avoid any liability to contractors or material suppliers for payment for Lessee’s improvements. Lessee shall at all times permit such notices to be posted and to remain posted until the completion of work. At the end of the Lease Term or earlier termination of this Lease, Lessee shall remove and shall be required to remove its special tenant improvements, all related equipment, and any additions or alterations installed by Lessee at or during the Lease Term and Lessee shall return the Premises to the condition that existed before the installation of the tenant improvements. Notwithstanding the above, Lessor agrees to allow any reasonable alterations and improvements and will use its best efforts to notify Lessee at the time of approval if such improvements or alterations are to be removed at the end of the Lease Term or earlier termination of this Lease.

5. Maintenance Of Premises:

(a) Lessee shall at its sole cost and expense keep, repair, and maintain the interior of the Premises in Good Condition and Repair, including, but not limited to, the interior walls and floors of all offices and other interior areas, doors and door closures, all lighting systems, temperature control systems, and plumbing systems, including any Required Replacements. Lessee shall provide interior and exterior window washing as needed.

(b) Lessor shall, at Lessee’s expense, keep, repair, and maintain in Good Condition and Repair including replacements (based on a pro-rata share of (i) costs based on square footage or (ii) costs directly related to Lessee’s use of the Premises) the following, which shall be included in the monthly CAC:

1. The exterior of the building, any appurtenances and every part thereof, including but not limited to, glazing, sidewalks, parking areas, electrical systems, and painting of exterior walls. The parking lot to receive a finish coat every five to seven years.

2. The HVAC by a service contract with a licensed air conditioning and heating contractor which contract shall provide for a minimum of quarterly maintenance of all air conditioning and heating equipment at the Premises including HVAC repairs or replacements which are either excluded from such service contract or any existing equipment warranties.

3. The landscaping by a landscape contractor to water, maintain, trim and replace, when necessary, any shrubbery, irrigation parts, and landscaping at the Premises.

4. The roof membrane by a service contract with a licensed reputable roofing contractor which contract shall provide for a minimum of semi-annual maintenance, cleaning of storm gutters, drains, removing of debris, and trimming overhanging trees, repair of the roof and application of a finish coat every five years to the building at the Premises.

5. Exterior pest control.

6. Fire monitoring services.

7. Parking lot sweeping.

These Monthly CAC expenses breakdown approximately as listed below:

Property Tax	$	.10
HVAC maintenance/repair	$	.03
Roof Replacement/Repair	$	.018
Exterior/Parking Lot	$	.008
Landscape Maintenance	$	.018
Fire Monitoring	$	.002
Insurance	$	.01
Management Fee	$	.024
Total	$.21 per sq. ft. per month

(c) Lessee hereby waives any and all rights to make repairs at the expense of Lessor as provided in Section 1942 of the Civil Code of the State of California, and all rights provided for by Section 1941 of said Civil Code.

(d) Lessor shall be responsible for the repair of any structural defects in the Premises including the roof structure (not membrane), exterior walls and foundation during the Lease Term.

6. Insurance:

A) Hazard Insurance: Lessee shall not use, or permit said Premises, or any part thereof, to be used, for any purpose other than that for which the Premises are hereby leased; and no use shall be made or permitted to be made of the Premises, nor acts done, which may cause a cancellation of any insurance policy covering the Premises, or any part thereof, nor shall Lessee sell or permit to be kept, used or sold, in or about said Premises, any article which may be prohibited by a fire and extended coverage insurance policy. Lessee shall comply with any and all requirements, pertaining to said Premises, of any insurance organization or company, necessary for the maintenance of reasonable fire and extended coverage insurance, covering the Premises. Lessor shall, at Lessee’s sole cost and expense, purchase and keep in force fire and extended coverage insurance, covering loss or damage to the Premises in an amount equal to the full replacement cost of the Premises, as determined by Lessor, with proceeds payable to Lessor. In the event of a loss per the insurance provisions of this paragraph, Lessee shall be responsible for deductibles up to a maximum of $5,000 per occurrence. Lessee acknowledges that the insurance referenced in this paragraph does not include coverage for Lessee’s personal property.

B) Loss of Rents Insurance: Lessor shall, at Lessee’s sole cost and expense, purchase and maintain in full force and effect, a policy of rental loss insurance, in an amount equal to the amount of Rent payable by Lessee commencing within sixty (60) days of the date of the loss or on the date of loss if reasonably available for the next ensuing one (1) year, as reasonably determined by Lessor with proceeds payable to Lessor (“Loss of Rents Insurance”).

C) Liability and Property Damage Insurance: Lessee, as a material part of the consideration to be rendered to Lessor, hereby waives all claims against Lessor and Lessor’s Agents for damages to goods, wares and merchandise, and all other personal property in,

upon, or about the Premises, and for injuries to persons in, upon, or about the Premises, from any cause arising at any time, and Lessee will hold Lessor and Lessor’s Agents exempt and harmless from any damage or injury to any person, or to the goods, wares, and merchandise and all other personal property of any person, arising from the use or occupancy of the Premises by Lessee, or from the failure of Lessee to keep the Premises in Good Condition and Repair, as herein provided. Lessee shall, at Lessee’s sole cost and expense, purchase and keep in force a standard policy of commercial general liability insurance and property damage policy covering the Premises and all related areas insuring the Lessee having a combined single limit for both bodily injury, death and property damage in an amount not less than four million dollars ($4,000,000.00) and Lessee’s insurance shall be primary. The limits of said insurance shall not, however, limit the liability of Lessee hereunder. Lessee shall, at its sole cost and expense, comply with all of the insurance requirements of all local, municipal, state and federal authorities now in force, or which may hereafter be in force, pertaining to Lessee’s use and occupancy of the said Premises.

D) Personal Property Insurance: Lessee shall obtain, at Lessee’s sole cost and expense, a policy of fire and extended coverage insurance including coverage for direct physical loss special form insuring the personal property of Lessee. The proceeds from any personal property damage policy shall be payable to Lessee.

All insurance policies required in 6 C) and 6 D) above shall: (i) provide for a certificate of insurance evidencing the insurance required herein, being deposited with Lessor ten (10) days prior to the Commencement Date, and upon each renewal, such certificates shall be provided 30 days prior to the expiration date of such coverage, (ii) be in a form reasonably satisfactory to Lessor and shall provide the coverage required by Lessee in this Lease, (iii) be carried with companies with a Best Rating of A minimum, (iv) specifically provide that such policies shall not be subject to cancellation, reduction of coverage, or other change except after 30 days prior written notice to Lessor, (v) name Lessor, Lessor’s lender, and any other party with an insurable interest in the Premises as additional insureds by endorsement to policy, and (vi) shall be primary.

Lessee agrees to pay to Lessor, as additional Rent, on demand, the full cost of the insurance polices referenced in 6 A) and 6 B) above as evidenced by insurance billings to Lessor which shall be included in the CAC. If Lessee does not occupy the entire Premises, the insurance premiums shall be allocated to the portion of the Premises occupied by Lessee on a pro-rata square footage or other equitable basis, as determined by Lessor. It is agreed that Lessee’s obligation under this paragraph shall be prorated to the reflect the Commencement Date and the end of the Lease Term.

Lessor and Lessee hereby waive any rights each may have against the other related to any loss or damage caused to Lessor or Lessee as the case may be, or to the Premises or its contents, and which may arise from any risk covered by fire and extended coverage insurance and those risks required to be covered under Lessee’s personal property insurance. The parties shall provide that their respective insurance policies insuring the property or the personal property include a waiver of any right of subrogation which said insurance company may have against Lessor or Lessee, as the case may be.

7. Abandonment: Lessee shall not vacate or abandon the Premises at any time during the Lease Term; and if Lessee shall abandon, vacate or surrender said Premises, or be dispossessed by process of law, or otherwise, any personal property belonging to Lessee and left on the Premises shall be deemed to be abandoned, at the option of Lessor. Notwithstanding the above, the Premises shall not be considered vacated or abandoned if Lessee maintains the Premises in Good Condition and Repair, provides security and is not in default.

8. Free From Liens: Lessee shall keep the subject Premises and the property in which the subject Premises are situated, free from any and all liens including but not limited to liens arising out of any work performed, materials furnished, or obligations incurred by Lessee. However, the Lessor shall allow Lessee to contest a lien claim, so long as the claim is discharged prior to any foreclosure proceeding being initiated against the property and provided Lessee provides Lessor a bond if the lien exceeds $5,000.

9. Compliance With Governmental Regulations: Lessee shall, at its sole cost and expense, comply with all of the requirements of all local, municipal, state and federal authorities now in force, or which may hereafter be in force, pertaining to the Premises, and shall faithfully observe in the use and occupancy of the Premises all local and municipal ordinances and state and federal statutes now in force or which may hereafter be in force.

10. Intentionally Omitted.

11. Advertisements And Signs: Lessee shall not place or permit to be placed, in, upon or about the Premises any unusual or extraordinary signs, or any signs not approved by the city, local, state, federal or other applicable governing authority. Lessee shall not place, or permit to be placed upon the Premises, any signs, advertisements or notices without the written consent of the Lessor, and such consent shall not be unreasonably withheld. A sign so placed on the Premises shall be so placed upon the understanding and agreement that Lessee will remove same at the end of the Lease Term or earlier termination of this Lease and repair any damage or injury to the Premises caused thereby, and if not so removed by Lessee, then Lessor may have the same removed at Lessee’s expense.

12. Utilities: Lessee shall pay for all water, gas, heat, light, power, telephone and other utilities supplied to the Premises. Any charges for sewer usage, Silicon Valley Power and telephone site service or related fees shall be the obligation of Lessee and paid for by Lessee. If any such services are not separately metered to Lessee, Lessee shall pay a reasonable proportion of all charges which are jointly metered, the determination to be made by Lessor acting reasonably and on any equitable basis. Lessor and Lessee agree that Lessor shall not be liable to Lessee for any disruption in any of the utility services to the Premises.

13. Attorney’s Fees: In case suit should be brought for the possession of the Premises, for the recovery of any sum due hereunder, because of the breach of any other covenant herein, or to enforce, protect, or establish any term, conditions, or covenant of this Lease or the right of either party hereunder, the losing party shall pay to the Prevailing Party reasonable attorney’s fees which shall be deemed to have accrued on the commencement of such action and shall be enforceable whether or not such action is prosecuted to judgment. The term “Prevailing Party” shall mean the party that received substantially the relief requested, whether by settlement, dismissal, summary judgment, judgment, or otherwise.

14.1 Default: The occurrence of any of the following shall constitute a default and breach of this Lease by Lessee: a) Any failure by Lessee to pay Rent or to make any other payment required to be made by Lessee hereunder when due if not cured within ten (10) days after written notice thereof by Lessor to Lessee; b) The abandonment or vacation of the Premises by Lessee except as provided in Section 7; c) A failure by Lessee to observe and perform any other provision of this Lease to be observed or performed by Lessee, where such failure continues for thirty days after written notice thereof by Lessor to Lessee; provided, however, that if the nature of such default is such that the same cannot be reasonably cured within such thirty (30) day period, Lessee shall not be deemed to be in default if Lessee shall, within such period, commence such cure and thereafter diligently prosecute the same to completion; d) The making by Lessee of any general assignment for the benefit of creditors; the filing by or against Lessee of a petition to have Lessee adjudged a bankrupt or of a petition for reorganization or arrangement under any law relating to bankruptcy; e) the appointment of a trustee or receiver to take possession of substantially all of Lessee’s assets or Lessee’s interest in this Lease, or 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.

14.2 Surrender Of Lease: In the event of any such default by Lessee, then in addition to any other remedies available to Lessor at law or in equity, Lessor shall have the immediate option to terminate this Lease before the end of the Lease Term and all rights of Lessee hereunder, by giving written notice of such intention to terminate. In the event that Lessor terminates this Lease due to a default of Lessee, then Lessor may recover from Lessee: a) the worth at the time of award of any unpaid Rent which had been earned at the time of such termination; plus b) the worth at the time of award of unpaid Rent which would have been earned after termination until the time of award exceeding the amount of such rental loss that the Lessee proves could have been reasonably avoided; plus c) the worth at the time of award of the amount by which the unpaid Rent for the balance of the Lease Term after the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; plus d) any other amount necessary to compensate Lessor for all the detriment proximately caused by Lessee’s failure to perform his obligations under this Lease or which in the ordinary course of things would be likely to result therefrom; and e) at Lessor’s election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable California law. As used in (a) and (b) above, the “worth at the time of award” is computed by allowing interest at the rate of Wells Fargo’s prime rate plus two percent (2%) per annum. As used in (c) above, the “worth at the time of award” is 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 (1%).

14.3 Right of Entry and Removal: In the event of any such default by Lessee, Lessor shall also have the right, with or without terminating this Lease, to re-enter the Premises and remove all persons and property from the Premises; such property may be removed and stored in a public warehouse or elsewhere at the cost of and for the account of Lessee.

14.4 Abandonment: In the event of the vacation or abandonment, except as provided in Section 7, of the Premises by Lessee or in the event that Lessor shall elect to re-enter as provided in paragraph 14.3 above or shall take possession of the Premises pursuant to legal proceeding or pursuant to any notice provided by law, and Lessor does not elect to terminate this Lease as provided in Section 14.2 above, then Lessor may from time to time, without terminating this Lease, either recover all Rent as it becomes due or relet the Premises or any part thereof for such term or terms and at such rental rates and upon such other terms and conditions as Lessor, in its sole discretion, may deem advisable with the right to make alterations and repairs to the Premises. In the event that Lessor elects to relet the Premises, then Rent received by Lessor from such reletting shall be applied; first, to the payment of any indebtedness other than Rent due hereunder from Lessee to Lessor; second, to the payment of any cost of such reletting; third, to the payment of the cost of any alterations and repairs to the Premises; fourth, to the payment of Rent due and unpaid hereunder; and the residue, if any, shall be held by Lessor and applied to the payment of future Rent as the same may become due and payable hereunder. Should that portion of such Rent received from such reletting during any month, which is applied by the payment of Rent hereunder according to the application procedure outlined above, be less than the Rent payable during that month by Lessee hereunder, then Lessee shall pay such deficiency to Lessor immediately upon demand therefor by Lessor. Such deficiency shall be calculated and paid monthly. Lessee shall also pay to Lessor, as soon as ascertained, any costs and expenses incurred by Lessor in such reletting or in making such alterations and repairs not covered by the rentals received from such reletting.

14.5 No Implied Termination: No re-entry or taking possession of the Premises by Lessor pursuant to Section 14.3 or Section 14.4 of this Lease shall be construed as an election to terminate this Lease unless a written notice of such intention is given to Lessee or unless the termination thereof is decreed by a court of competent jurisdiction. Notwithstanding any reletting without termination by Lessor because of any default by Lessee, Lessor may at any time after such reletting elect to terminate this Lease for any such default.

15. Surrender Of Lease: The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, shall not work a merger, and shall, at the option of Lessor, terminate all or any existing subleases or sub tenancies, or may, at the option of Lessor, operate as an assignment to him of any or all such subleases or sub tenancies.

16. Taxes: Lessee shall pay and discharge punctually and when the same shall become due and payable without penalty, all real estate taxes, personal property taxes, taxes based on vehicles utilizing parking areas in the Premises, taxes computed or based on rental income (other than federal, state and municipal net income taxes), environmental surcharges, privilege taxes, excise taxes, business and occupation taxes, school fees or surcharges, gross receipts taxes, sales and/or use taxes, employee taxes, occupational license taxes, water and sewer taxes, assessments (including, but not limited to, assessments for public improvements or benefit), assessments for local improvement and maintenance districts, and all other governmental impositions and charges of every kind and nature whatsoever, regardless of whether now customary or within the contemplation of the parties hereto and regardless of whether resulting from increased rate and/or valuation, or whether extraordinary or ordinary, general or special, unforeseen or foreseen, or similar or dissimilar to any of the foregoing (all of the foregoing being hereinafter collectively called “Tax” or “Taxes”) which, at any time during the Lease Term, shall be applicable or against the Premises, or shall become due and payable and a lien or charge upon the Premises under or by virtue of any present or future laws, statutes, ordinances, regulations, or other requirements of any governmental authority whatsoever. The term “Environmental Surcharge” shall include any and all expenses, taxes, charges or penalties imposed by the Federal Department of Energy, Federal Environmental Protection Agency, the Federal Clean Air Act, or any regulations promulgated thereunder, or any other local, state or federal governmental agency or entity now or hereafter vested with the power to impose taxes, assessments or other types of surcharges as a means of controlling or abating environmental pollution or the use of energy in regard to the use, operation or occupancy of the Premises. The term “Tax” shall include, without limitation, all taxes, assessments, levies, fees, impositions or charges levied, imposed, assessed, measured, or based in any manner whatsoever (i) in whole or in part on the Rent payable by Lessee under this Lease, (ii) upon or with respect to the use, possession, occupancy, leasing, operation or management of the Premises, (iii) upon this transaction or any document to which Lessee is a party creating or transferring an interest or an estate in the Premises, (iv) upon Lessee’s business operations conducted at the Premises, (v) upon, measured by or reasonably attributable to the cost or value of Lessee’s equipment, furniture, fixtures and other personal property located on the Premises or the cost or value of any leasehold improvements made in or to the Premises by or for Lessee, regardless of whether title to

such improvements shall be in Lessor or Lessee, or (vi) in lieu of or equivalent to any Tax set forth in this Section 16. In the event any such Taxes are payable by Lessor and it shall not be lawful for Lessee to reimburse Lessor for such Taxes, then the Rent payable thereunder shall be increased to net Lessor the same net rent after imposition of any such Tax upon Lessor as would have been payable to Lessor prior to the imposition of any such Tax. It is the intention of the parties that Lessor shall be free from all such Taxes and all other governmental impositions and charges of every kind and nature whatsoever. However, nothing contained in this Section 16 shall require Lessee to pay any Federal or State income, franchise, estate, inheritance, succession, transfer or excess profits tax imposed upon Lessor. If any general or special assessment is levied and assessed against the Premises, Lessor agrees to use its best reasonable efforts to cause the assessment to become a lien on the Premises securing repayment of a bond sold to finance the improvements to which the assessment relates which is payable in installments of principal and interest over the maximum term allowed by law. It is understood and agreed that Lessee’s obligation under this paragraph will be prorated to reflect the Commencement Date and the end of the Lease Term. It is further understood that if Taxes cover the Premises and Lessee does not occupy the entire Premises, the Taxes will be allocated to the portion of the Premises occupied by Lessee based on a pro-rata square footage or other equitable basis, as determined by Lessor. Taxes billed by Lessor to Lessee shall be included in the monthly CAC.

Subject to any limitations or restrictions imposed by any deeds of trust or mortgages now or hereafter covering or affecting the Premises, Lessee shall have the right to contest or review the amount or validity of any Tax by appropriate legal proceedings but which is not to be deemed or construed in any way as relieving, modifying or extending Lessee’s covenant to pay such Tax at the time and in the manner as provided in this Section 16. However, as a condition of Lessee’s right to contest, if such contested Tax is not paid before such contest and if the legal proceedings shall not operate to prevent or stay the collection of the Tax so contested, Lessee shall, before instituting any such proceeding, protect the Premises and the interest of Lessor and of the beneficiary of a deed of trust or the mortgagee of a mortgage affecting the Premises against any lien upon the Premises by a surety bond, issued by an insurance company acceptable to Lessor and in an amount equal to one and one-half (1 1/2) times the amount contested or, at Lessor’s option, the amount of the contested Tax and the interest and penalties in connection therewith. Any contest as to the validity or amount of any Tax, whether before or after payment, shall be made by Lessee in Lessee’s own name, or if required by law, in the name of Lessor or both Lessor and Lessee. Lessee shall defend, indemnify and hold harmless Lessor from and against any and all costs or expenses, including attorneys’ fees, in connection with any such proceedings brought by Lessee, whether in its own name or not. Lessee shall be entitled to retain any refund of any such contested Tax and penalties or interest thereon which have been paid by Lessee. Nothing contained herein shall be construed as affecting or limiting Lessor’s right to contest any Tax at Lessor’s expense.

17. Notices: Unless otherwise provided for in this Lease, any and all written notices or other communication (the “Communication”) to be given in connection with this Lease shall be given in writing and shall be given by personal delivery, facsimile transmission or by mailing by registered or certified mail with postage thereon or recognized overnight courier, fully prepaid, in a sealed envelope addressed to the intended recipient as follows:

(a)	to the Lessor at:	10050 Bandley Drive
		Cupertino, California 95014
		Attention: Carl E. Berg
		Fax No: (408) 725-1626
(b)	to the Lessee at:
		3550 Bassett Street
		Santa Clara, CA
		attn: Walt Wood

or such other addresses, facsimile number or individual as may be designated by a Communication given by a party to the other parties as aforesaid. Any Communication given by personal delivery shall be conclusively deemed to have been given and received on a date it is so delivered at such address provided that such date is a business day, otherwise on the first business day following its receipt, and if given by registered or certified mail, on the day on which delivery is made or refused or if given by recognized overnight courier, on the first business day following deposit with such overnight courier and if given by facsimile transmission, on the day on which it was transmitted provided such day is a business day, failing which, on the next business day thereafter.

18. Entry By Lessor: Lessee shall permit Lessor and its agents to enter into and upon said Premises at all reasonable times using the minimum amount of interference and inconvenience to Lessee and Lessee’s business, subject to any security regulations of Lessee, for the purpose of inspecting the same or for the purpose of maintaining the building in which said Premises are situated, or for the purpose of making repairs, alterations or additions to any other portion of said building, including the erection and maintenance of such scaffolding, canopies, fences and props as may be required, without any rebate of Rent and without any liability to Lessee for any loss of occupation or quiet enjoyment of the Premises; and shall permit Lessor and his agents, at any time within ninety (90) days prior to the end of the Lease Term, to place upon said Premises any usual or ordinary “For Sale” or “For Lease” signs and exhibit the Premises to prospective tenants at reasonable hours.

19. Destruction Of Premises: In the event of a partial destruction of the said Premises during the Lease Term from any cause which is covered by Lessor’s property insurance, Lessor shall forthwith repair the same, provided such repairs can be made within one hundred eighty (180) days after receipt of building permit under the laws and regulations of State, Federal, County, or Municipal authorities, but such partial destruction shall in no way annul or void this Lease, except that Lessee shall be entitled to a proportionate reduction of Rent while such repairs are being made to the extent of payments received by Lessor under its Loss of Rents Insurance coverage. With respect to any partial destruction which Lessor is obligated to repair or may elect to repair under the terms of this paragraph, the provision of Section 1932, Subdivision 2, and of Section 1933, Subdivision 4, of the Civil Code of the State of California are waived by Lessee. In the event that the building in which the subject Premises may be situated is destroyed to an extent greater than thirty-three and one-third percent (33 1/3%) of the replacement cost thereof, Lessor may, at its sole option, elect to terminate this Lease, whether the subject Premises is insured or not. A total destruction of the building in which the subject Premises are situated shall terminate this Lease. Notwithstanding the above, Lessor is only obligated to repair or rebuild to the extent of available insurance proceeds including any deductible amount paid by Lessee. Should Lessor determine that insufficient or no insurance proceeds are available for repair or reconstruction of Premises, Lessor, at its sole option, may terminate the Lease. Lessee shall have the option of continuing this Lease by agreeing to pay all repair costs to the subject Premises.

20. Assignment And Subletting: Lessee shall not assign this Lease, or any interest therein, and shall not sublet the said Premises or any part thereof, or any right or privilege appurtenant thereto, or cause any other person or entity (a bona fide subsidiary or affiliate of Lessee excepted) to occupy or use the Premises, or any portion thereof, without the advance written consent of Lessor. Any such assignment or subletting without such consent shall be void, and shall, at the option of the Lessor, terminate this Lease. This Lease shall not, or shall any interest therein, be assignable, as to the interest of Lessee, by operation of law, without the written consent of Lessor. Notwithstanding Lessor’s obligation to provide reasonable approval, Lessor reserves the right to withhold its consent for any proposed sublessee or assignee of Lessee if the proposed sublessee or assignee is a user or generator of Hazardous Materials. If Lessee desires to assign its rights under this Lease or to sublet, all or a portion of the subject Premises to a party other than a bona fide subsidiary or affiliate of Lessee, Lessee shall first notify Lessor of the proposed terms and conditions of such assignment or subletting. Lessor shall have the right of first refusal to enter into a direct Lessor-lessee relationship with such party under such proposed terms and conditions, in which event Lessee shall be relieved of its obligations hereunder to the extent of the Lessor-lessee relationship entered into between Lessor and such third party. Notwithstanding the foregoing, Lessee may assign this Lease to a successor in interest, whether by merger or acquisition, provided there is no substantial reduction in the net worth of the resulting entity and the resulting entity is not a user or generator of Hazardous Materials. Whether or not Lessor’s consent to a sublease or assignment is required, in the event of any sublease or assignment, Lessee shall be and shall remain primarily liable for the performance of all conditions, covenants, and obligations of Lessee hereunder and, in the event of a default by an assignee or sublessee, Lessor may proceed directly against the original Lessee hereunder and/or any other predecessor of such assignee or sublessee without the necessity of exhausting remedies against said assignee or sublessee. Notwithstanding the above, Xicom may sublet space to Intevac without written consent of Lessor.

21. Condemnation: If any part of the Premises shall be taken for any public or quasi-public use, under any statute or by right of eminent domain or private purchase in lieu thereof, and a part thereof remains which is susceptible of occupation hereunder, this Lease shall as to the part so taken, terminate as of the date title vests in the condemnor or purchaser, and the Rent payable hereunder shall be adjusted so that the Lessee shall be required to pay for the remainder of the Lease Term only that portion of Rent as the value of the part remaining. The rental adjustment resulting will be computed at the same Rental rate for the remaining part not taken; however, Lessor shall have the option to terminate this Lease as of the date when title to the part so taken vests in the condemnor or purchaser. If all of the Premises, or such part

thereof be taken so that there does not remain a portion susceptible for occupation hereunder, this Lease shall thereupon terminate. If a part or all of the Premises be taken, all compensation awarded upon such taking shall be payable to the Lessor. Lessee may file a separate claim and be entitled to any award granted to Lessee.

22. Effects Of Conveyance: The term “Lessor” as used in this Lease, means only the owner for the time being of the land and building constituting the Premises, so that, in the event of any sale of said land or building, or in the event of a Lease of said building, Lessor shall be and hereby is entirely freed and relieved of all covenants and obligations of Lessor hereunder, and it shall be deemed and construed, without further agreement between the parties and the purchaser of any such sale, or the Lessor of the building, that the purchaser or lessor of the building has assumed and agreed to carry out any and all covenants and obligations of the Lessor hereunder. If any security is given by Lessee to secure the faithful performance of all or any of the covenants of this Lease on the part of Lessee, Lessor may transfer and deliver the security, as such, to the purchaser at any such sale of the building, and thereupon the Lessor shall be discharged from any further liability.

23. Subordination: This Lease, in the event Lessor notifies Lessee in writing, shall be subordinate to any ground lease, deed of trust, or other hypothecation for security now or hereafter placed upon the real property at which the Premises are a part and to any and all advances made on the security thereof and to renewals, modifications, replacements and extensions thereof. Lessee agrees to promptly execute any documents which may be required to effectuate such subordination. Notwithstanding such subordination, if Lessee is not in default and so long as Lessee shall pay the Rent and observe and perform all of the provisions and covenants required under this Lease, Lessee’s right to quiet possession of the Premises shall not be disturbed or effected by any subordination.

24. Waiver: The waiver by Lessor or Lessee of any breach of any term, covenant or condition, herein contained shall not be construed to be a waiver of such term, covenant or condition or any subsequent breach of the same or any other term, covenant or condition therein contained. The subsequent acceptance of Rent hereunder by Lessor shall not be deemed to be a waiver of Lessee’s breach of any term, covenant, or condition of the Lease.

25. Holding Over: Any holding over after the end of the Lease Term requires Lessor’s written approval prior to the end of the Lease Term, which, notwithstanding any other provisions of this Lease, Lessor may withhold. Such holding over shall be construed to be a tenancy at sufferance from month to month. Lessee shall pay to Lessor monthly base rent equal to one and one-half (1.5) times the monthly base rent installment due in the last month of the Lease Term and all other additional rent and all other terms and conditions of the Lease shall apply, so far as applicable. Holding over by Lessee without written approval of Lessor shall subject Lessee to the liabilities and obligations provided for in this Lease and by law., including, but not limited to those in Section 2.0 of this Lease. Lessee shall indemnify and hold Lessor harmless against any loss or liability resulting from any delay caused by Lessee in surrendering the Premises, including without limitation, any claims made or penalties incurred by any succeeding lessee or by Lessor. No holding over shall be deemed or construed to exercise any option to extend or renew this Lease in lieu of full and timely exercise of any such option as required hereunder.

26. Lessor’s Liability: If Lessee should recover a money judgment against Lessor arising in connection with this Lease, the judgment shall be satisfied only out of the Lessor’s interest in the Premises and neither Lessor or any of its partners shall be liable personally for any deficiency.

27. Estoppel Certificates: Lessee shall at any time during the Lease Term, upon not less than ten (10) days prior written notice from Lessor, execute and deliver to Lessor a statement in writing certifying that, this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification) and the dates to which the Rent and other charges have been paid in advance, if any, and acknowledging that there are not, to Lessee’s knowledge, any uncured defaults on the part of Lessor hereunder or specifying such defaults if they are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises. Lessee’s failure to deliver such a statement within such time shall be conclusive upon the Lessee that (a) this Lease is in full force and effect, without modification except as may be represented by Lessor; (b) there are no uncured defaults in Lessor’s performance.

28. Time: Time is of the essence of the Lease.

29. Captions: The headings on titles to the paragraphs of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part thereof. This instrument contains all of the agreements and conditions made between the parties hereto and may not be modified orally or in any other manner than by an agreement in writing signed by all of the parties hereto or their respective successors in interest.

30. Party Names: Landlord and Tenant may be used in various places in this Lease as a substitute for Lessor and Lessee respectively.

31. Earthquake Insurance: As a condition of Lessor agreeing to waive the requirement for earthquake insurance, Lessee agrees that it will pay, as additional Rent, which shall be included in the monthly CAC, an amount not to exceed Eighteen Thousand Eight Hundred Dollars ($18,800) per year for earthquake insurance if Lessor desires to obtain some form of earthquake insurance in the future, if and when available, on terms acceptable to Lessor as determined in the sole and absolute discretion of Lessor.

32. Habitual Default: Notwithstanding anything to the contrary contained in Section 14 herein, Lessor and Lessee agree that if Lessee shall have defaulted in the payment of Rent for two or more times during any twelve month period during the Lease Term, then such conduct shall, at the option of the Lessor, represent a separate event of default which cannot be cured by Lessee. Lessee acknowledges that the purpose of this provision is to prevent repetitive defaults by the Lessee under the Lease, which constitute a hardship to the Lessor and deprive the Lessor of the timely performance by the Lessee hereunder.

33. Hazardous Materials

33.1 Definitions: As used in this Lease, the following terms shall have the following meaning:

a. The term “Hazardous Materials” shall mean (i) polychlorinated biphenyls; (ii) radioactive materials and (iii) any chemical, material or substance now or hereafter defined as or included in the definitions of “hazardous substance” “hazardous water”, “hazardous material”, “extremely hazardous waste”, “restricted hazardous waste” under Section 25115, 25117 or 15122.7, or listed pursuant to Section 25140 of the California Health and Safety Code, Division 20, Chapter 6.5 (Hazardous Waste Control Law), (ii) defined as “hazardous substance” under Section 25316 of the California Health and Safety Code, Division 20, Chapter 6.8 (Carpenter-Presley-Tanner Hazardous Substances Account Act), (iii) defined as “hazardous material”, “hazardous substance”, or “hazardous waste” under Section 25501 of the California Health and Safety Code, Division 20, Chapter 6.95 (Hazardous Materials Release, Response, Plans and Inventory), (iv) defined as a “hazardous substance” under Section 25181 of the California Health and Safety Code, Division 20l, Chapter 6.7 (Underground Storage of Hazardous Substances), (v) petroleum, (vi) asbestos, (vii) listed under Article 9 or defined as “hazardous” or “extremely hazardous” pursuant to Article II of Title 22 of the California Administrative Code, Division 4, Chapter 20, (viii) defined as “hazardous substance” pursuant to Section 311 of the Federal Water Pollution Control Act, 33 U.S.C. 1251 et seq. or listed pursuant to Section 1004 of the Federal Water Pollution Control Act (33 U.S.C. 1317), (ix) defined as a “hazardous waste”, pursuant to Section 1004 of the Federal Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq., (x) defined as “hazardous substance” pursuant to Section 101 of the Comprehensive Environmental Responsibility Compensations, and Liability Act, 42 U.S.C. 9601 et seq., or (xi) regulated under the Toxic Substances Control Act, 156 U.S.C. 2601 et seq.

b. The term “Hazardous Materials Laws” shall mean any local, state and federal laws, rules, regulations, or ordinances relating to the use, generation, transportation, analysis, manufacture, installation, release, discharge, storage or disposal of Hazardous Material.

c. The term “Lessor’s Agents” shall mean Lessor’s agents, representatives, employees, contractors, subcontractors, directors, officers and partners.

d. The term “Lessee’s Agents” shall mean Lessee’s agents, representatives, employees, contractors, subcontractors, directors, officers, partners, invitees or any other person in or about the Premises.

33.2 Lessee’s Right to Investigate: Lessee shall be entitled to cause such inspection, soils and ground water tests, and other evaluations to be made of the Premises as Lessee deems necessary regarding (i) the presence and use of Hazardous Materials in or about the Premises, and (ii) the potential for exposure to Lessee’s employees and other persons to any Hazardous Materials used and stored by previous occupants in or about the Premises. Lessee shall provide Lessor with copies of all inspections, tests and evaluations. Lessee shall indemnify, defend and hold Lessor harmless from any cost, claim or expense arising from such entry by Lessee or from the performance of any such investigation by such Lessee.

33.3 Lessor’s Representations: Lessor hereby represents and warrants to the best of Lessor’s knowledge that the Premises are, as of the date of this Lease, in compliance with all Hazardous Material Laws.

33.4 Lessee’s Obligation to Indemnify: Lessee, at its sole cost and expense, shall indemnify, defend, protect and hold Lessor and Lessor’s Agents harmless from and against any and all cost or expenses, including those described under subparagraphs i, ii and iii herein below set forth, arising from or caused in whole or in part, directly or indirectly by:

a. Lessee’s or Lessee’s Agents’ use, analysis, storage, transportation, disposal, release, threatened release, discharge or generation of Hazardous Material to, in, on, under, about or from the Premises; or

b. Lessee’s or Lessee’s Agents failure to comply with Hazardous Material laws; or

c. Any release of Hazardous Material to, in, on, under, about, from or onto the Premises caused by or occurring as a result of acts or omissions of Lessee or Lessee’s Agents or occurring during the Lease Term, except ground water contamination from other parcels where the source is from off the Premises not arising from or caused by Lessee or Lessee’s Agents.

The cost and expenses indemnified against include, but are not limited to the following:

i. Any and all claims, actions, suits, proceedings, losses, damages, liabilities, deficiencies, forfeitures, penalties, fines, punitive damages, cost or expenses;

ii. Any claim, action, suit or proceeding for personal injury (including sickness, disease, or death), tangible or intangible property damage, compensation for lost wages, business income, profits or other economic loss, damage to the natural resources of the environment, nuisance, pollution, contamination, leaks, spills, release or other adverse effects on the environment;

iii. The cost of any repair, clean-up, treatment or detoxification of the Premises necessary to bring the Premises into compliance with all Hazardous Material Laws, including the preparation and implementation of any closure, disposal, remedial action, or other actions with regard to the Premises, and expenses (including, without limitation, reasonable attorney’s fees and consultants fees, investigation and laboratory fees, court cost and litigation expenses).

33.5 Lessee’s Obligation to Remediate Contamination: Lessee shall, at its sole cost and expense, promptly take any and all action necessary to remediate contamination of the Premises by Hazardous Materials during the Lease Term as a result of acts or omissions by Lessee or Lessee’s Agents.

33.6 Obligation to Notify: Lessor and Lessee shall each give written notice to the other as soon as reasonably practical of (i) any communication received from any governmental authority concerning Hazardous Material which related to the Premises and (ii) any contamination of the Premises by Hazardous Materials which constitutes a violation of any Hazardous Material Laws.

33.7 Survival: The obligations of Lessee under this Section 33 shall survive the Lease Term or earlier termination of this Lease.

33.8 Certification and Closure: On or before the end of the Lease Term or earlier termination of this Lease, Lessee shall deliver to Lessor a certification executed by Lessee stating that, to the best of Lessee’s knowledge, there exists no violation of Hazardous Material Laws resulting from Lessee’s obligation in Paragraph 33. If pursuant to local ordinance, state or federal law, Lessee is required, at the expiration of the Lease Term, to submit a closure plan for the Premises to a local, state or federal agency, then Lessee shall comply at its sole cost and expense with the requirements of the closure plan and furnish to Lessor a copy of such plan.

33.9 Prior Hazardous Materials: Lessee shall have no obligation to clean up or to hold Lessor harmless with respect to any Hazardous Material or wastes discovered on the Premises, except as a result of Environmental Surcharges, which were not introduced into, in, on, about, from or under the Premises during the Lease Term or ground water contamination from other parcels where the source is from off the Premises not arising from or caused by Lessee or Lessee’s Agents.

34. Brokers: Lessor and Lessee represent that they have not utilized or contacted a real estate broker or finder with respect to this Lease. Lessee agrees to indemnify and hold Lessor harmless against any claim, cost, liability or cause of action asserted by any broker or finder claiming through Lessee. Lessor represents and warrants that it has not utilized or contacted a real estate broker or finder with respect to this Lease. Lessor agrees to indemnify and hold Lessee harmless against any claim, cost, liability or cause of action asserted by any broker or finder claiming through Lessor.

35. Option to Extend

A. Option: Lessor hereby grants to Lessee one (1) option to extend the Lease Term, with the extended term to be for a period of five (5) years, on the following terms and conditions:

(i) Lessee shall give Lessor written notice of its exercise of its option to extend no earlier than twelve (12) , nor later than six (6) calendar months before the Lease Term would end but for said exercise. If Lessee and Lessor have not agreed to rental terms in writing, Lessee may withdraw its notice of exercise of an extension option prior to six (6) months before the Lease Term would end but for said exercise. Lessor shall provide Lessee with Lessor’s proposed base monthly rent for the option period within twenty (20) days of Lessee’s written request. However, once Lessee delivers a notice of exercise of an option to extend the Lease Term it may not be withdrawn except as provided for herein and subject to the provisions of this Section 35, such notice shall operate to extend the Lease Term. Upon any extension of the Lease Term pursuant to this Section 35, the term “Lease Term” as used in this Lease shall thereafter include the then extended term. Time is of the essence.

(ii) Lessee may not extend the Lease Term pursuant to any option granted by this Section 35 if Lessee is in default as of the date of the exercise of its option. If Lessee has committed a default by Lessee as defined in Section 14 or 32 that has not been cured or waived by Lessor in writing by the date that any extended term is to commence, then Lessor may elect not to allow the Lease Term to be extended, notwithstanding any notice given by Lessee of an exercise of this option to extend.

(iii) All terms and conditions of this Lease shall apply during the extended term, except that the base rent and rental increases for each extended term shall be determined as provided in Section 35 (B) below

(iv) The option rights of Xicom Technology, Inc. granted under this Section 35 are granted for Xicom Technology, Inc.’s personal benefit and may not be assigned or transferred by Xicom Technology, Inc. or exercised if Xicom Technology, Inc. is not occupying the Premises at the time of exercise.

B. Extended Term Rent — Option Period: The monthly Rent for the Premises during the extended term shall equal the fair market monthly Rent for the Premises as of the commencement date of the extended term, but in no case, less than the Rent during the last month of the prior Lease term. Promptly upon Lessee’s exercise of the option to extend, Lessee and Lessor shall meet and attempt to agree on the fair market monthly Rent for the Premises as of the commencement date of the extended term. In the event the parties fail to agree upon the amount of the monthly Rent for the extended term prior to commencement thereof, the monthly Rent for the extended term shall be determined by appraisal in the manner hereafter set forth; provided, however, that in no event shall the monthly Rent for the extended term be less than in the immediate preceding period. Annual base rent increases during the extended term shall be four percent (4%) per year. In the event it becomes necessary under this paragraph to determine the fair market monthly Rent of the Premises by appraisal, Lessor and Lessee each shall appoint a real estate appraiser who shall be a member of the American Institute of Real Estate Appraiser (“AIREA”) and such appraisers shall each determine the fair market monthly Rent for the Premises taking into account the value of the Premises and the amenities provided by the outside areas, the common areas, and the Building, and prevailing comparable Rentals in the area. Such appraisers shall, within twenty (20) business days after their appointment, complete their appraisals and submit their appraisal reports to Lessor and Lessee. If the fair market monthly Rent of the Premises established in the two (2) appraisals varies by five percent (5%) or less of the higher Rent, the average of the two shall be controlling. If said fair market monthly Rent varies by more than five percent (5%) of the higher Rental, said appraisers, within ten (10) days after submission of the last appraisal, shall appoint a third appraiser who shall be a member of the AIREA and who shall also be experienced in the appraisal of Rent values and adjustment practices for commercial properties in the vicinity of the Premises. Such third appraiser shall, within twenty (20) business days after his appointment, determine by appraisal the fair market monthly Rent of the Premises taking into account the same factors referred to above, and submit his appraisal report to Lessor and Lessee. The fair market monthly Rent determined by the third appraiser for the Premises shall be controlling, unless it is less than that set forth in the lower appraisal previously obtained, in which case the value set forth in said lower appraisal shall be controlling, or unless it is greater than that set forth in the higher appraisal previously obtained in which case the Rent set for in said higher appraisal shall be controlling. If either Lessor or Lessee fails to appoint an appraiser, or if an appraiser appointed by either of them fails,

after his appointment to submit his appraisal within the required period in accordance with the foregoing, the appraisal submitted by the appraiser properly appointed and timely submitting his appraisal shall be controlling. If the two appraisers appointed by Lessor and Lessee are unable to agree upon a third appraiser within the required period in accordance with the foregoing, application shall be made within twenty (20) days thereafter by either Lessor or Lessee to AIREA, which shall appoint a member of said institute willing to serve as appraiser. The cost of all appraisals under this subparagraph shall be borne equally be Lessor and Lessee.

36. Approvals: Whenever in this Lease the Lessor’s or Lessee’s consent is required, such consent shall not be unreasonably or arbitrarily withheld or delayed. In the event that the Lessor or Lessee does not respond to a request for any consents which may be required of it in this Lease within ten business days of the request of such consent in writing by the Lessee or Lessor, such consent shall be deemed to have been given by the Lessor or Lessee.

37. Authority: Each party executing this Lease represents and warrants that he or she is duly authorized to execute and deliver the Lease. If executed on behalf of a corporation, that the Lease is executed in accordance with the by-laws of said corporation (or a partnership that the Lease is executed in accordance with the partnership agreement of such partnership), that no other party’s approval or consent to such execution and delivery is required, and that the Lease is binding upon said individual, corporation (or partnership) as the case may be in accordance with its terms.

38. Indemnification of Lessor: Except to the extent caused by the sole negligence or willful misconduct of Lessor or Lessor’s Agents, Lessee shall defend, indemnify and hold Lessor harmless from and against any and all obligations, losses, costs, expenses, claims, demands, attorney’s fees, investigation costs or liabilities on account of, or arising out of the use, condition or occupancy of the Premises or any act or omission to act of Lessee or Lessee’s Agents or any occurrence in, upon, about or at the Premises, including, without limitation, any of the foregoing provisions arising out of the use, generation, manufacture, installation, release, discharge, storage, or disposal of Hazardous Materials by Lessee or Lessee’s Agents. It is understood that Lessee is and shall be in control and possession of the Premises and that Lessor shall in no event be responsible or liable for any injury or damage or injury to any person whatsoever, happening on, in, about, or in connection with the Premises, or for any injury or damage to the Premises or any part thereof. This Lease is entered into on the express condition that Lessor shall not be liable for, or suffer loss by reason of injury to person or property, from whatever cause, which in any way may be connected with the use, condition or occupancy of the Premises or personal property located herein. The provisions of this Lease permitting Lessor to enter and inspect the Premises are for the purpose of enabling Lessor to become informed as to whether Lessee is complying with the terms of this Lease and Lessor shall be under no duty to enter, inspect or to perform any of Lessee’s covenants set forth in this Lease. Lessee shall further indemnify, defend and hold harmless Lessor from and against any and all claims arising from any breach or default in the performance of any obligation to Lessee’s part to be performed under the terms of this Lease. The provisions of Section 38 shall survive the Lease Term or earlier termination of this Lease with respect to any damage, injury or death occurring during the Lease Term.

39. Successors And Assigns: The covenants and conditions herein contained shall, subject to the provisions as to assignment, apply to and bind the heirs, successors, executors, administrators and assigns of all of the parties hereto; and all of the parties hereto shall be jointly and severally liable hereunder.

40. Miscellaneous Provisions: All rights and remedies hereunder are cumulative and not alternative to the extent permitted by law and are in addition to all other rights or remedies in law and in equity.

41. Choice of Law: This lease shall be construed and enforced in accordance with the substantive laws of the State of California. The language of all parts of this lease shall in all cases be construed as a whole according to its fair meaning and not strictly for or against either Lessor or Lessee.

42. Entire Agreement: This Lease is the entire agreement between the parties, and there are no agreements or representations between the parties except as expressed herein. Except as otherwise provided for herein, no subsequent change or addition to this Lease shall be binding unless in writing and signed by the parties hereto.

In Witness Whereof, Lessor and Lessee have executed this Lease, the day and year first above written.

Lessor		Lessee
Mission West Properties LP		Xicom Technology, Inc.
By:	Mission West Properties, Inc., G.P.
	/s/ Carl E. Berg	By:	/s/ Walt C Wood
signature of authorized representative		signature of authorized representative
Carl E. Berg		Walt C Wood
printed name		printed name
		President
title		title
April, 7, 2000		April 7, 2000
date		date

EX-10.2

Exhibit 10.2

10/31/01 MTIN

Revised 9/03

CALIFORNIA FORM

MULTI-TENANT INDUSTRIAL LEASE

RREEF AMERICA REIT II CORP., JJ,
A MARYLAND CORPORATION,
Landlord,

and

RADYNE COMSTREAM, INC.,
A DELAWARE CORPORATION,
Tenant

TRADE CENTER

7330 TRADE STREET

SAN DIEGO, CA 92121

MULTI-TENANT INDUSTRIAL NET LEASE

REFERENCE PAGES

PROJECT	Trade Center is a multi Tenant Industrial / R&D Project consisting of three buildings totaling 120,932 square feet located at 7328, 7330 and 7340 Trade Street, San Diego, CA 92121
BUILDING:	Single tenant building located in the Project consisting of 26,304 square feet and has the following address: 7330 Trade Street, San Diego, CA 92121
LANDLORD:	RREEF America REIT II Corp., JJ, a Maryland corporation
LANDLORD’S ADDRESS:	9833 Pacific Heights Blvd., Suite C San Diego, CA 92121
WIRE INSTRUCTIONS AND/OR ADDRESS FOR RENT PAYMENT:	Trade Center Dept. LA 22224 Pasadena, California 91185-2224
LEASE REFERENCE DATE:	September 28, 2004
TENANT:	Radyne Comstream, Inc., a Delaware corporation
TENANT’S NOTICE ADDRESS:
(a) As of beginning of Term:	7330 Trade Street, San Diego, CA 92121
	With copies to:
	3138 East Elwood, Phoenix, Arizona 85034
(b) Prior to beginning of Term (if different):
PREMISES ADDRESS:	7330 Trade Street, San Diego, CA 92121
PREMISES RENTABLE AREA:	Approximately 26,304 sq. ft. (for outline of Premises see Exhibit A)
USE:	The Premises shall be used for any permitted use, including, but not limited to, general business, office and light manufacturing use, conference and training facilities, client demonstration areas, electronics testing laboratory, dining areas and any other legally permitted use consistent with the character of a similar type building.
[SCHEDULED] COMMENCEMENT DATE:	February 1, 2005
TERM OF LEASE:	Approximately Five (5) years, beginning on the Rent Commencement Date and ending on the Termination Date. [The period from the Commencement Date to the last day of the same month is the “Commencement Month.”]

[SCHEDULED] TERMINATION DATE:	June 30, 2010
[SCHEDULED]RENT COMMENCEMENT DATE	July 1, 2005
OPTION TO RENEW	Two (2), five (5) — Lease Year options (Article 31)
RIGHT OF FIRST OFFER	For the first twelve (12) months of the Initial Term, Tenant is granted a right of first offer to lease space in the Project (Article 41)

ANNUAL RENT and MONTHLY INSTALLMENT OF
RENT(Article 3):

Period			Rentable Square		Annual Rent				Monthly Installment
from	through		Footage		Per Square Foot		Annual Rent		of Rent
2/1/2005		6/30/2005		26,304	$	0.00	$	0.00	$	0.00
7/1/2005		6/30/2006		26,304	$	9.00	$	236,736.00	$	19,728.00
7/1/2006		6/30/2007		26,304	$	9.27	$	243,838.08	$	20,319.84
7/1/2007		6/30/2008		26,304	$	9.46	$	248,835.84	$	20,736.32
7/1/2008		6/30/2009		26,304	$	9.74	$	256,200.96	$	21,350.08
7/1/2009		6/30/2010		26,304	$	10.03	$	263,829.12	$	21,985.76

INITIAL ESTIMATED MONTHLY INSTALLMENT OF RENT ADJUSTMENTS (Article 4)	$5,592.00 ($.2125 per square foot per month). All controllable expenses (excluding Taxes and Insurance) shall be capped at an increase of five percent (5%) per annum
TENANT’S PROPORTIONATE SHARE:	21.75 % 26,304 SF / 120,932 SF
SECURITY DEPOSIT:	$0.00
PARKING	Seventy-eight (78) spaces (Article 42)
ASSIGNMENT/SUBLETTING FEE	$0.00
REAL ESTATE BROKER DUE COMMISSION:	CB Richard Ellis and Colliers International Mid City Partners
TENANT’S SIC CODE:
AMORTIZATION RATE:	9%

The Reference Pages information is incorporated into and made a part of the Lease. In the event of any conflict between any Reference Pages information and the Lease, the Lease shall control. This Lease includes Exhibits A through D, all of which are made a part of this Lease.

LANDLORD:		TENANT:
RREEF AMERICA REIT II CORP., JJ,		RADYNE COMSTREAM, INC.,
a Maryland corporation		a Delaware corporation
By:	RREEF Management Company, a
	Delaware corporation, Its Authorized
	Agent

By: /s/ Peter Lloyd	By: /s/ Brian Duggan
Name: Peter Lloyd	Name: Brian Duggan
Title: Vice President — Regional Director	Title: President and COO
Dated: 11/8/04	Dated: November 2nd 2004
	By:
	Name:
	Title:
	Dated:

LEASE

     By this Lease Landlord leases to Tenant and Tenant leases from Landlord the Premises which consists of the entire Building as set forth and described on the Reference Pages. The Premises are depicted on the floor plan attached hereto as Exhibit A, and the Project and Building are depicted on the site plan attached hereto as Exhibit A-1. The Reference Pages, including all terms defined thereon, are incorporated as part of this Lease.

1. USE AND RESTRICTIONS ON USE.

     1.1 The Premises are to be used solely for the purposes set forth on the Reference Pages. Tenant shall not do or permit anything to be done in or about the Premises which will in any way obstruct or interfere with the rights of other tenants or occupants of the Building or injure, annoy, or disturb them, or allow the Premises to be used for any improper, immoral, unlawful, or objectionable purpose, or commit any waste. Tenant shall not do, permit or suffer in, on, or about the Premises the sale of any alcoholic liquor without the written consent of Landlord first obtained. Tenant shall comply with all governmental laws, ordinances and regulations applicable to the use of the Premises and its occupancy and shall promptly comply with all governmental orders and directions for the correction, prevention and abatement of any violations in the Project or appurtenant land, caused or permitted by, or resulting from the specific use by, Tenant, or in or upon, or in connection with, the Premises, all at Tenant’s sole expense. Notwithstanding the foregoing, during the term hereof (and any extended term) Tenant will not have any obligation to make any structural changes or improvements to the Premises to bring the Premises into compliance with applicable governmental laws except as resulting from the specific use by Tenant. Tenant shall not do or permit anything to be done on or about the Premises or bring or keep anything into the Premises which will in any way increase the rate of, invalidate or prevent the procuring of any insurance protecting against loss or damage to the Premises or any of its contents by fire or other casualty or against liability for damage to property or injury to persons in or about the Project or any part thereof.

     1.2 Tenant shall not, and shall not direct, suffer or permit any of its agents, contractors, employees, licensees or invitees (collectively, the “Tenant Entities”) to at any time handle, use, manufacture, store or dispose of in or about the Premises or the Project any (collectively “Hazardous Materials”) flammables, explosives, radioactive materials, hazardous wastes or materials, toxic wastes or materials, or other similar substances, petroleum products or derivatives or any substance subject to regulation by or under any federal, state and local laws and ordinances relating to the protection of the environment or the keeping, use or disposition of environmentally hazardous materials, substances, or wastes, presently in effect or hereafter adopted, all amendments to any of them, and all rules and regulations issued pursuant to any of such laws or ordinances (collectively “Environmental Laws”), nor shall Tenant suffer or permit any Hazardous Materials to be used in any manner not fully in compliance with all Environmental Laws, in the Premises or the Project and appurtenant land or allow the environment to become contaminated with any Hazardous Materials. Notwithstanding the foregoing, Tenant may handle, store, use or dispose of products containing small quantities of Hazardous Materials (such as aerosol cans containing insecticides, toner for copiers, paints, paint remover and the like) to the extent customary and necessary for the use of the Premises for general office purposes; provided that Tenant shall always handle, store, use, and dispose of any such Hazardous Materials in a safe and lawful manner and never allow such Hazardous Materials to contaminate the Premises, Project and appurtenant land or the environment. Tenant shall protect, defend, indemnify and hold each and all of the Landlord Entities (as defined in Article 32) harmless from and against any and all loss, claims, liability or costs (including court costs and attorney’s fees) incurred by reason of any actual or asserted failure of Tenant to fully comply with all applicable Environmental Laws, or the presence, handling, use or disposition in or from the Premises of any Hazardous Materials by Tenant or any Tenant Entity (even though permissible under all applicable Environmental Laws or the provisions of this Lease), or by reason of any actual or asserted failure of Tenant to keep, observe, or perform any provision of this Section 1.2.

     1.3 Tenant and the Tenant Entities will be entitled to the non-exclusive use of the common areas of the Project as they exist from time to time during the Term, including the parking facilities, subject to Landlord’s rules and regulations regarding such use. However, in no event will Tenant or the Tenant Entities park more vehicles in the parking facilities than Tenant’s Proportionate Share of the total parking spaces available for common use.

     1.4 Tenant shall have access to the Building (Premises) twenty-four (24) hours per day, seven days per week. However, as a condition for such use, Tenant will contract for, maintain and pay (without offset against the Rent) a security system that will control access to the Premises in a manner conducive to the proper use of the Premises but with security provided to protect the interests of both Landlord and Tenant.

2. TERM.

     2.1 The Term of this Lease shall begin on the date (“Commencement Date”) which shall be the later of the Scheduled Commencement Date as shown on the Reference Pages and the date that Landlord shall tender possession of the Premises to Tenant, and shall terminate on the date as shown on the Reference Pages (“Termination Date”), unless sooner terminated by the provisions of this Lease. Landlord shall tender possession of the Premises with all the work, if any, to be performed by Landlord pursuant to Exhibit B to this Lease substantially completed. Tenant shall deliver a punch list of items not completed within thirty (30) days after Landlord tenders possession of the Premises and Landlord agrees to proceed with due diligence to perform its obligations regarding such items. Tenant shall, at Landlord’s request, execute and deliver a memorandum agreement provided by Landlord in the form of Exhibit C attached hereto, setting forth the actual Commencement Date, Termination Date and, if necessary, a revised rent schedule. Should Tenant fail to do so within thirty (30) days after Landlord’s request, the information set forth in such memorandum provided by Landlord shall be conclusively presumed to be agreed and correct.

     2.2 Tenant agrees that in the event of the inability of Landlord to deliver possession of the Premises within thirty (30) days after the Scheduled Commencement Date for any reason, Landlord shall be liable for liquidated damages in the amount of $1,433.00 per day (which shall be credited against the Monthly Installment of Rent) resulting from such inability, but Tenant shall not be liable for any rent until the time when Landlord can, after notice to Tenant, deliver possession of the Premises to Tenant. No such failure to give possession on the Scheduled Commencement Date shall affect the other obligations of Tenant under this Lease, except that if Landlord is unable to deliver possession of the Premises within ninety (90) days after the Scheduled Commencement Date (other than as a result of labor dispute, strikes, lockout, fire, unavailability or shortages of materials, unseasonably severe weather, acts of God, riots, insurrection, war or other casualty or events of a similar nature, holdover tenancies or similar matters beyond the reasonable control of Landlord (and any other party required to perform) and Tenant is notified by Landlord in writing as to such delay), Tenant shall have the option to terminate this Lease unless said delay is a result of a “Tenant Delay” as defined in Exhibit B. If any delay is the result of a Tenant Delay, the Commencement Date and the payment of rent under this Lease shall be accelerated by the number of days of such Tenant Delay. Notwithstanding the above, if Landlord does not deliver possession of the Premises by the Scheduled Commencement Date, (i) the implementation of the Rent Commencement Date set forth in the Reference Pages shall be delayed, day-for-day, until possession of the Premises is turned over to Tenant and (ii) the Scheduled Commencement Date and the Termination Date also shall be delayed, day-for-day, until possession of the Premises is turned over to Tenant. In conjunction therewith, a revised Rent schedule shall be set forth in the Commencement Date Memorandum (Exhibit C).

     2.3 Subject to Exhibit B, In the event Landlord permits Tenant, or any agent, employee or contractor of Tenant, to enter, use or occupy the Premises prior to the Commencement Date for the sole purpose of installing in the Premises its furniture, fixtures and equipment (including, without limitation, telephones and telecommunications systems, cabling, wiring, etc.) or any purposes provided for in Exhibit B, such entry, use or occupancy shall be subject to all the provisions of this Lease and Exhibit B other than the payment of rent, including, without limitation, Tenant’s compliance with the insurance requirements of Article 11. Said early possession shall not advance the Termination Date. Notwithstanding anything to the contrary contained in this Lease, Tenant covenants and agrees that Tenant and Tenant’s contractor shall coordinate any of Tenant’s work with any reasonable construction schedule for Landlord’s Work, and that the performance of Tenant’s work shall not unreasonably interfere with Landlord’s construction activities.

3. RENT.

     3.1 Tenant agrees to pay to Landlord the Annual Rent in effect from time to time by paying the Monthly Installment of Rent then in effect on or before the first day of each full calendar month during the Term for which the Installment of Rent is owing, except that the first full month’s rent owing for June, 2005, shall be paid upon the execution of this Lease. The Monthly Installment of Rent in effect at any time shall be one-twelfth (1/12) of the Annual Rent in effect at such time. Rent for any period during the Term which is less than a full month shall be a prorated portion of the Monthly Installment of Rent based upon the number of days in such month. Said rent shall be paid to Landlord, without deduction or offset and without notice or demand, at the Rent Payment Address, as set forth on the Reference Pages, or to such other person or at such other place as Landlord may from time to time designate in writing. If an Event of Default occurs two or more times within any twelve month period, Landlord may require by notice to Tenant that all subsequent rent payments be made by an automatic payment from Tenant’s bank account to Landlord’s account, without cost to Landlord. Tenant must implement such automatic payment system prior to the next scheduled rent payment or within ten (10) days after Landlord’s notice, whichever is later. Unless specified in this Lease to the contrary, all amounts and sums payable by Tenant to Landlord pursuant to this Lease shall be deemed additional rent.

     3.2 Tenant recognizes that late payment of any rent or other sum due under this Lease will result in administrative expense to Landlord, the extent of which additional expense is extremely difficult and economically

impractical to ascertain. Tenant therefore agrees that if rent or any other sum is not paid when due and payable pursuant to this Lease, a late charge shall be imposed in an amount equal to the greater of: (a) Fifty Dollars ($50.00), or (b) six percent (6%) of the unpaid rent or other payment. The amount of the late charge to be paid by Tenant shall be reassessed and added to Tenant’s obligation for each successive month until paid. The provisions of this Section 3.2 in no way relieve Tenant of the obligation to pay rent or other payments on or before the date on which they are due, nor do the terms of this Section 3.2 in any way affect Landlord’s remedies pursuant to Article 19 of this Lease in the event said rent or other payment is unpaid after date due.

4. RENT ADJUSTMENTS.

     4.1 For the purpose of this Article 4, the following terms are defined as follows:

          4.1.1 Lease Year: Each fiscal year (as determined by Landlord from time to time) falling partly or wholly within the Term.

          4.1.2 Expenses: All costs of operation, maintenance, repair, replacement and management of the Project (including the amount of any credits which Landlord may grant to particular tenants of the Project in lieu of providing any standard services or paying any standard costs described in this Section 4.1.2 for similar tenants), as determined in accordance with generally accepted accounting principles, including the following costs by way of illustration, but not limitation: water and sewer charges; insurance charges of or relating to all insurance policies and endorsements deemed by Landlord to be reasonably necessary or desirable and relating in any manner to the protection, preservation, or operation of the Project or any part thereof; utility costs, including, but not limited to, the cost of heat, light, power, steam, gas; waste disposal; the cost of janitorial services; the cost of security and alarm services (including any central station signaling system); costs of cleaning, repairing, replacing and maintaining the common areas, including parking and landscaping, window cleaning costs; labor costs; costs and expenses of managing the Project including management and/or administrative fees; air conditioning maintenance costs; elevator maintenance fees and supplies; material costs; equipment costs including the cost of maintenance, repair and service agreements and rental and leasing costs; purchase costs of equipment; current rental and leasing costs of items which would be capital items if purchased; tool costs; licenses, permits and inspection fees; wages and salaries; employee benefits and payroll taxes; accounting and legal fees; any sales, use or service taxes incurred in connection therewith. In addition, Landlord shall be entitled to recover, as additional rent (which, along with any other capital expenditures constituting Expenses, Landlord may either include in Expenses or cause to be billed to Tenant along with Expenses and Taxes but as a separate item), Tenant’s Proportionate Share of: (i) an allocable portion of the cost of capital improvement items which are reasonably calculated to reduce operating expenses; (ii) the cost of fire sprinklers and suppression systems and other life safety systems; and (iii) other capital expenses which are required under any governmental laws, regulations or ordinances which were not applicable to the Project at the time it was constructed; but the costs described in this sentence shall be amortized over the reasonable life of such expenditures in accordance with such reasonable life and amortization schedules as shall be determined by Landlord in accordance with generally accepted accounting principles, with interest on the unamortized amount at one percent (1%) in excess of the Wall Street Journal prime lending rate announced from time to time. Expenses shall not include depreciation or amortization of the Project or equipment at the Project except as provided herein, loan principal payments, costs of alterations of tenants’ premises, leasing commissions, interest expenses on long-term borrowings, advertising costs or janitorial services rendered within spaces leased in the Project to tenants other than Tenant herein.

     Notwithstanding anything in Section 4.1.2 to the contrary, “Expenses” shall not include: (i) legal fees, space planners’ fees, permits, license and inspection costs, real estate brokers’ leasing commission, and advertising/promotional expenses incurred in connection with the leasing of the Project or future leasing of the Project; (ii) costs associated with the operation of the business of the partnership or entity which constitutes the Landlord, as the same are distinguished from the costs of operation of the Project, including partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee (except as the actions of Tenant may be in issue and are a violation of the Lease), costs of selling, syndicating, financing, mortgaging or hypothecating any of Landlord’s interest in the Project, costs (including attorneys’ fees and costs of settlement judgments and payments in lieu thereof) arising from claims, disputes or potential disputes in connection with potential or actual claims, litigation or arbitrations pertaining to Landlord and/or Project and/or the site upon which the Project is situated; (iii) the wages and benefits of any employee who does not devote substantially all of his or her time to the Project unless such wages and benefits are prorated to reflect time spent on operating and managing the Project vis-à-vis time spent on matters unrelated to operating and managing the Project; (iv) fines, penalties, and interest; (v) Intentionally deleted; (vi) costs incurred by Landlord with respect to goods and services (including utilities sold and supplied to tenants and occupants of the Project) to the extent that Landlord is reimbursed or would be entitled to reimbursement for such costs if incurred by other tenants or by Tenant pursuant to this lease; (vii) costs of any capital improvements except costs for improvement made to the Project which, although capital in nature, are expected to reduce the normal operating costs (including all utility costs) of the Project, as amortized using a commercially reasonable interest rate over the time period

reasonably estimated by Landlord to recover the costs thereof taking into consideration the anticipated cost savings, as determined by Landlord using its good faith, commercially reasonable judgment, as well as capital improvements made in order to comply with any Law hereafter promulgated by any governmental authority or any interpretation hereafter rendered with respect to any existing Law, as amortized using a commercially reasonable interest rate over the useful economic life of such improvements as determined by landlord in its reasonable discretion; (viii) payments to Landlord or to subsidiaries or affiliates of Landlord for comparable services in the Project (including Project Management) to the extent the same exceeds the costs of such services rendered by unaffiliated comparable third parties on a competitive basis; (ix) all items and services for which Tenant or any other tenant in the Project reimburses Landlord or which Landlord provides selectively to one or more tenants (other than Tenant) without reimbursement; (x) electric power costs for which any tenant directly contracts with the local public service company; (xi) costs arising from latent defects in the Project or, shell or core of the Project or improvements installed by Landlord or repair thereof; (xii) costs, other than those incurred in ordinary maintenance, for sculpture or paintings; (xiii) tax or other penalties incurred as a result of Landlord’s negligence, inability or unwillingness to make payments when due; (xiv) costs arising from the gross negligence or willful misconduct of Landlord or its agents, or any vendors, contractors, or providers of materials or services selected, hired or engaged by Landlord or its agents including, without limitation, the selection of Project materials; (xv) costs incurred by Landlord due to the violation by Landlord or any tenant of the terms and conditions of any lease of space in the Project; (xvi) any cost to repair, restore or rebuild any portion of the Project after casualty loss or any taking by eminent domain or condemnation (except any deductible less than $10,000 payable in connection therewith); (xvii) any costs of acquisition or maintenance of signs in or on the Project (other than the Project directory and any other common areas signs) identifying the owner of the Project or other tenants; (xviii) any reserves of any kind, including, without limitation, replacement reserves, operating reserves, reserves required by lenders or partners, reserves for bad debt or lost rent or any similar charge; (xix) any costs or expenses incurred by Landlord in connection with satellite dishes or similar specialized communications equipment of Landlord (except if such dishes or equipment are for the benefit of all tenants in the Project) or of other persons, tenants or occupants in or about the Project; (xx) any and all costs of Landlord in complying with laws regarding Hazardous Materials including, but not limited to, the costs and expenses of clean-up, remediation, environmental surveys/assessments, compliance with environmental Laws, consulting fees, treatment and monitoring charges, transportation expenses and disposal fees, except if such costs are a result of Tenant’s use of or activities in or on the Project; and (xxi) costs incurred in connection with upgrading the Project to comply with the current interpretation of disability, life, fire and safety codes, ordinances, statutes, or other laws in effect prior to the Commencement Date, including, without limitation, the Americans With Disabilities Act of 1990 (and any amendments thereto), including penalties or damages incurred due to such non-compliance. Expenses shall be reduced by all cash discounts, trade discounts or quantity discounts received by Landlord or Landlord’s managing agent in the purchase of any goods, utilities, or services in connection with the operation of the Projec t. Landlord shall make payments for goods, utilities or services in a timely manner to obtain the maximum possible discount. In the calculation of any expenses hereunder, no expense shall be charges more than once, Landlord shall not collect in any fiscal year more than 100% of the Expenses actually paid by Landlord during such fiscal year and Landlord shall not make any profit from its collection of Expenses

          4.1.3 Taxes: Real estate taxes and any other taxes, charges and assessments which are levied with respect to the Project or the land appurtenant to the Project, or with respect to any improvements, fixtures and equipment or other property of Landlord, real or personal, located in the Project and used in connection with the operation of the Project and said land, any payments to any ground lessor in reimbursement of tax payments made by such lessor; and all fees, expenses and costs incurred by Landlord in investigating, protesting, contesting or in any way seeking to reduce or avoid increase in any assessments, levies or the tax rate pertaining to any Taxes to be paid by Landlord in any Lease Year. Taxes shall not include any corporate franchise, or estate, inheritance or net income tax, or tax imposed upon any transfer by Landlord of its interest in this Lease or the Building or the Project or any taxes to be paid by Tenant pursuant to Article 28.

     4.2 Tenant shall pay as additional rent for each Lease Year Tenant’s Proportionate Share of Expenses and Taxes incurred for such Lease Year.

     4.3 The annual determination of Expenses shall be made by Landlord and shall be binding upon Landlord and Tenant, subject to the provisions of this Section 4.3. During the Term, Tenant may review, at Tenant’s sole cost and expense, the books and records supporting such determination in an office of Landlord, or Landlord’s agent, during normal business hours, upon giving Landlord five (5) days advance written notice within sixty (60) days after receipt of such determination, but in no event more often than once in any one (1) year period, subject to execution of a confidentiality agreement acceptable to Landlord, and provided that if Tenant utilizes an independent accountant to perform such review it shall be one of national standing which is reasonably acceptable to Landlord, is not compensated on a contingency basis and is also subject to such confidentiality agreement. If Tenant fails to object to Landlord’s determination of Expenses within ninety (90) days after receipt, or if any such objection fails to state with specificity the reason for the objection, Tenant shall be deemed to have approved such determination and shall have no further right to object to or contest such determination. In the event that during all or any portion of any Lease Year or Base Year, the Project is not fully rented and occupied Landlord shall make an appropriate adjustment in occupancy-related Expenses for such year for the purpose of avoiding distortion of the amount of such Expenses to be attributed to Tenant by reason of variation in total occupancy of the Project, by employing

consistent and sound accounting and management principles to determine Expenses that would have been paid or incurred by Landlord had the Project been at least ninety-five percent (95%) rented and occupied, and the amount so determined shall be deemed to have been Expenses for such Lease Year.

     4.4 Prior to the actual determination thereof for a Lease Year, Landlord may from time to time estimate Tenant’s liability for Expenses and/or Taxes under Section 4.2, Article 6 and Article 28 for the Lease Year or portion thereof. Landlord will give Tenant written notification of the amount of such estimate and Tenant agrees that it will pay, by increase of its Monthly Installments of Rent due in such Lease Year, additional rent in the amount of such estimate. Any such increased rate of Monthly Installments of Rent pursuant to this Section 4.4 shall remain in effect until further written notification to Tenant pursuant hereto All Expenses (excluding Taxes and Insurance) shall be capped at an increase not to exceed five percent (5%) per Lease Year.

     4.5 When the above mentioned actual determination of Tenant’s liability for Expenses and/or Taxes is made for any Lease Year and when Tenant is so notified in writing, then:

          4.5.1 If the total additional rent Tenant actually paid pursuant to Section 4.3 on account of Expenses and/or Taxes for the Lease Year is less than Tenant’s liability for Expenses and/or Taxes, then Tenant shall pay such deficiency to Landlord as additional rent in one lump sum within thirty (30) days of receipt of Landlord’s bill therefor; and

          4.5.2 If the total additional rent Tenant actually paid pursuant to Section 4.3 on account of Expenses and/or Taxes for the Lease Year is more than Tenant’s liability for Expenses and/or Taxes, then Landlord shall credit the difference against the then next due payments to be made by Tenant under this Article 4, or, if the Lease has terminated, refund the difference in cash.

     4.6 If the Commencement Date is other than January 1 or if the Termination Date is other than December 31, Tenant’s liability for Expenses and Taxes for the Lease Year in which said Date occurs shall be prorated based upon a three hundred sixty-five (365) day year.

5. SECURITY DEPOSIT. Tenant shall deposit the Security Deposit with Landlord upon the execution of this Lease. Said sum shall be held by Landlord as security for the faithful performance by Tenant of all the terms, covenants and conditions of this Lease to be kept and performed by Tenant and not as an advance rental deposit or as a measure of Landlord’s damage in case of Tenant’s default. If Tenant defaults with respect to any provision of this Lease, Landlord may use any part of the Security Deposit for the payment of any rent or any other sum in default, or for the payment of any amount which Landlord may spend or become obligated to spend by reason of Tenant’s default, or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant’s default. If any portion is so used, Tenant shall within five (5) days after written demand therefor, deposit with Landlord an amount sufficient to restore the Security Deposit to its original amount and Tenant’s failure to do so shall be a material breach of this Lease. Except to such extent, if any, as shall be required by law, Landlord shall not be required to keep the Security Deposit separate from its general funds, and Tenant shall not be entitled to interest on such deposit. If Tenant shall fully and faithfully perform every provision of this Lease to be performed by it, the Security Deposit or any balance thereof shall be returned to Tenant at such time after termination of this Lease when Landlord shall have determined that all of Tenant’s obligations under this Lease have been fulfilled. Notwithstanding anything to the contrary contained herein or in Article 23 hereof, Tenant hereby waives the provisions of Section 1950.7 of the California Civil Code, or any similar or successor Regulations or other laws now or hereinafter in effect.

6. ALTERATIONS.

     6.1 Except for those, if any, specifically provided for in Exhibit B to this Lease, Tenant shall not make or suffer to be made any alterations, additions, or improvements, including, but not limited to, the attachment of any fixtures or equipment in, on, or to the Premises or any part thereof or the making of any improvements as required by Article 7, without the prior written consent of Landlord. When applying for such consent, Tenant shall, if requested by Landlord, furnish complete plans and specifications for such alterations, additions and improvements. Landlord’s consent shall not be unreasonably withheld with respect to alterations which (i) are not structural in nature, (ii) are not visible from the exterior of the Premises, (iii) do not affect or require modification of the Premises’ electrical, mechanical, plumbing, HVAC or other systems, and (iv) in aggregate do not cost more than $5.00 per rentable square foot of that portion of the Premises affected by the alterations in question.

     6.2 In the event Landlord consents to the making of any such alteration, addition or improvement by Tenant, the same shall be made by using either Landlord’s contractor or a contractor reasonably approved by Landlord, in either event at Tenant’s sole cost and expense. If Tenant shall employ any contractor other than Landlord’s contractor and such

other contractor or any subcontractor of such other contractor shall employ any non-union labor or supplier, Tenant shall be responsible for and hold Landlord harmless from any and all delays, damages and extra costs suffered by Landlord as a result of any dispute with any labor unions concerning the wage, hours, terms or conditions of the employment of any such labor. In any event Landlord may charge Tenant a construction management fee not to exceed five percent (5%) of the cost of such work to cover its overhead as it relates to such proposed work, plus third-party costs actually incurred by Landlord in connection with the proposed work and the design thereof if the cost of such work does not exceed One Hundred Thousand Dollars ($100,000.00), or if the cost of such work (plus third-party costs actually incurred by Landlord in connection with the proposed work and the design thereof) exceeds One Hundred Thousand Dollars ($100,000.00) the management fee shall not exceed three percent (3%) of the cost of such work, with all such amounts being due five (5) days after Landlord’s demand. Notwithstanding the foregoing, Landlord’s charging Tenant a construction management fee is applicable only if Landlord is actually managing the proposed work.

     6.3 All alterations, additions or improvements proposed by Tenant shall be constructed in accordance with all government laws, ordinances, rules and regulations, using Building standard materials where applicable, and Tenant shall, prior to construction, provide the additional insurance required under Article 11 in such case, and also all such assurances to Landlord as Landlord shall reasonably require to assure payment of the costs thereof, including but not limited to, notices of non-responsibility, waivers of lien, surety company performance bonds and funded construction escrows and to protect Landlord and the Building and the Project and appurtenant land against any loss from any mechanic’s, materialmen’s or other liens. Tenant shall pay in addition to any sums due pursuant to Article 4, any increase in real estate taxes attributable to any such alteration, addition or improvement for so long, during the Term, as such increase is ascertainable; at Landlord’s election said sums shall be paid in the same way as sums due under Article 4. Landlord may, as a condition to its consent to any particular alterations or improvements, require Tenant to deposit with Landlord the amount reasonably estimated by Landlord as sufficient to cover the cost of removing such alterations or improvements and restoring the Premises, to the extent required under Section 26.2

     6.4 In conjunction with any approved work as hereinabove described to be performed by Tenant or its contractors, Tenant shall give written notice to Landlord of the scheduled commencement of construction so that Landlord can post and record Landlord’s notice of non-responsibility to contractors, suppliers and laborers.

7. REPAIR.

     7.1 Landlord shall have no obligation to alter, remodel, improve, repair, decorate or paint the Premises, except as specified in Exhibit B if attached to this Lease and except that Landlord shall repair and maintain the structural portions of the roof, foundation and walls of the Premises. Landlord shall maintain the common areas of the Project in a manner consistent with other similar class buildings in the Miramar and Sorrento Mesa sub market with the Project is located. By taking possession of the Premises, Tenant accepts them as being in good order, condition and repair and in the condition in which Landlord is obligated to deliver them, except as set forth in the punch list to be delivered pursuant to Section 2.1, and subject to any latent and/or structural defects, and any violations of governmental laws applicable to the Premises as of the Commencement Date. It is hereby understood and agreed that no representations respecting the condition of the Premises have been made by Landlord to Tenant, except as specifically set forth in this Lease. Landlord shall not be liable for any failure to make any repairs or to perform any maintenance unless such failure shall persist for an unreasonable time after written notice of the need of such repairs or maintenance is given to Landlord by Tenant. Except as otherwise provided in the Lease, Tenant is not responsible for bringing the Premises into compliance with applicable governmental laws.

     7.2 Tenant shall at its own cost and expense keep and maintain all parts of the Premises (including areas within the Premises which might otherwise be deemed to be common areas) in good condition, promptly making all necessary repairs and replacements, whether ordinary or extraordinary, with materials and workmanship of the same character, kind and quality as the original (including, but not limited to, repair and replacement of all fixtures installed by Tenant, water heaters serving the Premises, windows, glass and plate glass, doors, exterior stairs, skylights, any special office entries, interior walls and finish work, floors and floor coverings, heating and air conditioning systems serving the Premises, electrical systems and fixtures, sprinkler systems, dock boards, truck doors, dock bumpers, plumbing work and fixtures, and performance of regular removal of trash and debris). Tenant as part of its obligations hereunder shall keep the Premises in a clean and sanitary condition. Tenant will, as far as possible keep all such parts of the Premises from deterioration due to ordinary wear and from falling temporarily out of repair, and upon termination of this Lease in any way Tenant will yield up the Premises to Landlord in good condition and repair, loss by fire or other casualty excepted (but not excepting any damage to glass). Tenant also shall, at its own cost and expense, repair any damage to the Premises resulting from and/or caused in whole or in part by the negligence or misconduct of Tenant, its agents, employees, contractors, invitees, or any other person entering upon the Premises as a result of Tenant’s business activities or caused by Tenant’s default hereunder.

     7.3 Except as provided in Article 22, there shall be no abatement of rent and no liability of Landlord by reason of any injury to or interference with Tenant’s business arising from the making of any repairs, alterations or improvements in or to any portion of the Project or the Premises or to fixtures, appurtenances and equipment in the Premises. Tenant hereby waives any and all rights under and benefits of subsection 1 of Section 1932 and Sections 1941 and 1942 of the California Civil Code, or any similar or successor Regulations or other laws now or hereinafter in effect. Notwithstanding the foregoing, if Landlord fails to make any repairs or to perform any maintenance required of Landlord hereunder and within Landlord’s reasonable control, and such failure shall persist for an unreasonable time (not less than thirty (30) days) after written notice of the need of such repairs or maintenance is given to Landlord and any mortgagee by Tenant, and such mortgagee is afforded an additional reasonable opportunity (not less than thirty (30) days) to effect such repairs, and unless Landlord or such mortgagee has commenced such repairs or maintenance during such period and is diligently pursuing the same, Tenant may (but shall not be required to) perform such repairs or maintenance and Landlord shall reimburse Tenant for all reasonable costs and expenses therefore within thirty (30) days after presentation of appropriate bills and back-up documentation.

     7.4 Tenant shall, at its own cost and expense, enter into a regularly scheduled preventive maintenance/service contract with a maintenance contractor approved by Landlord for servicing all heating and air conditioning systems and equipment serving the Premises (and a copy thereof shall be furnished to Landlord). The service contract must include all services suggested by the equipment manufacturer in the operation/maintenance manual and must become effective within thirty (30) days of the date Tenant takes possession of the Premises. Should Tenant fail to do so, Landlord may, upon notice to Tenant, enter into such a maintenance/ service contract on behalf of Tenant or perform the work and in either case, charge Tenant the cost thereof along with a reasonable amount for Landlord’s overhead.

     7.5 Tenant shall, at its own cost and expense, have in effect at all times a janitorial services agreement (to maintain the Premises in a clean and orderly condition consistent with other first class buildings with services included at least five nights a week) with a company reasonably acceptable to Landlord.

     7.6 Tenant shall, at its sole cost and expense , contract for its own security systems which will provide security to the Premises (Building) . In the event that the security system requires the installation of any special equipment, such will be contracted and paid for by Tenant, provided that Landlord approves of the system and manner of installation, such approval must not be unreasonably withheld. Tenant at its sole cost and expense shall install and remove any such special equipment for the security systems.

Tenant may, at its own expense, contract for, and receive, other standard exterior service such as day porter services (not furnished by Landlord) so long as the implementation of such services does not unreasonably interfere with the use or occupancy by any other tenant of the Project

8. LIENS. Tenant shall keep the Premises, the Project and appurtenant land and Tenant’s leasehold interest in the Premises free from any liens arising out of any services, work or materials performed, furnished, or contracted for by Tenant, or obligations incurred by Tenant. In the event that Tenant fails, within ten (10) days following the imposition of any such lien, to either cause the same to be released of record or provide Landlord with insurance against the same issued by a major title insurance company or such other protection against the same as Landlord shall accept (such failure to constitute an Event of Default), Landlord shall have the right to cause the same to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien. All such sums paid by Landlord and all expenses incurred by it in connection therewith shall be payable to it by Tenant within five (5) days Landlord’s demand.

9. ASSIGNMENT AND SUBLETTING.

     9.1 Tenant shall not have the right to assign or pledge this Lease or to sublet the whole or any part of the Premises whether voluntarily or by operation of law, or permit the use or occupancy of the Premises by anyone other than Tenant, and shall not make, suffer or permit such assignment, subleasing or occupancy without the prior written consent of Landlord, such consent not to be unreasonably withheld, and said restrictions shall be binding upon any and all assignees of the Lease and subtenants of the Premises. In the event Tenant desires to sublet, or permit such occupancy of, the Premises, or any portion thereof, or assign this Lease, Tenant shall give written notice thereof to Landlord at least twenty (20) business days but no more than one hundred twenty (120) days prior to the proposed commencement date of such subletting or assignment, which notice shall set forth the name of the proposed subtenant or assignee, copies of any executed (or proposed) sublease or assignment and copies of financial reports and other relevant financial information of the proposed subtenant or assignee. Notwithstanding the provisions of this Section 9.1, Tenant may assign this Lease or sublet the whole or any part of

the Premises to an Affiliate of Tenant without having to first obtain the prior written consent of Landlord (and without incurring any attorney fees as described in Section 9.5 below), but Tenant must give Landlord notice of such assignment or subletting to Tenant’s Affiliate. An “Affiliate” of Tenant is an entity that controls, is controlled by, or is under common control with Tenant, the surviving corporation in a merger, consolidation or other reorganization involving Tenant or is the purchaser of all or substantially all of Tenant’s assets .

     9.2 Notwithstanding any assignment or subletting, permitted or otherwise, Tenant shall at all times remain directly, primarily and fully responsible and liable for the payment of the rent specified in this Lease and for compliance with all of its other obligations under the terms, provisions and covenants of this Lease. Upon the occurrence of an Event of Default, if the Premises or any part of them are then assigned or sublet, Landlord, in addition to any other remedies provided in this Lease or provided by law, may, at its option, collect directly from such assignee or subtenant all rents due and becoming due to Tenant under such assignment or sublease and apply such rent against any sums due to Landlord from Tenant under this Lease, and no such collection shall be construed to constitute a novation or release of Tenant from the further performance of Tenant’s obligations under this Lease.

     9.3 Except for an assignment to an “Affiliate”, in the event that Tenant sells, sublets, assigns or transfers this Lease, Tenant shall pay to Landlord as additional rent an amount equal to fifty percent (50%) of any Increased Rent (as defined below), less the Costs Component (as defined below), when and as such Increased Rent is received by Tenant. As used in this Section, “Increased Rent” shall mean the excess of (i) all rent and other consideration which Tenant is entitled to receive by reason of any sale, sublease, assignment or other transfer of this Lease, over (ii) the rent otherwise payable by Tenant under this Lease at such time. For purposes of the foregoing, any consideration received by Tenant in form other than cash shall be valued at its fair market value as determined by Landlord in good faith. The “Costs Component” is that amount which, if paid monthly, would fully amortize on a straight-line basis, over the entire period for which Tenant is to receive Increased Rent, the reasonable costs incurred by Tenant for leasing commissions and tenant improvements in connection with such sublease, assignment or other transfer.

     9.4 Notwithstanding any other provision hereof, it shall be considered reasonable for Landlord to withhold its consent to any assignment of this Lease or sublease of any portion of the Premises if at the time of either Tenant’s notice of the proposed assignment or sublease or the proposed commencement date thereof, there shall exist an Event of Default, or if the proposed assignee or sublessee is an entity: (a) with which Landlord is already in negotiation; (b) is already an occupant of the Project unless Landlord is unable to provide the amount of space required by such occupant; (c) is a governmental agency; (d) is incompatible with the character of occupancy of the Project; (e) with which the payment for the assignment is determined in whole or in part based upon its net income or profits; or (f) would subject the Premises to a use which would: (i) involve increased personnel or wear upon the Premises; (ii) violate any exclusive right granted to another tenant of the Project; (iii) require any addition to or modification of the Premises in order to comply with building code or other governmental requirements; or, (iv) involve a violation of Section 1.2. Tenant expressly agrees that for the purposes of any statutory or other requirement of reasonableness on the part of Landlord, Landlord’s refusal to consent to any assignment or sublease for any of the reasons described in this Section9.4, shall be conclusively deemed to be reasonable.

     9.5 Upon any request to assign or sublet, Tenant will pay to Landlord , a sum equal to all of Landlord’s costs, including reasonable attorney’s fees (in an amount not to exceed One Thousand Dollars ($1,000.00)), incurred in investigating and considering any proposed or purported assignment or pledge of this Lease or sublease of any of the Premises, regardless of whether Landlord shall consent to, refuse consent, or determine that Landlord’s consent is not required for, such assignment, pledge or sublease. Any purported sale, assignment, mortgage, transfer of this Lease or subletting which does not comply with the provisions of this Article 9 shall be void.

     9.6 Except as set forth in Section 9.1, if Tenant is a corporation, limited liability company, partnership or trust, any transfer or transfers of or change or changes within any twelve (12) month period in the number of the outstanding voting shares of the corporation or limited liability company, the general partnership interests in the partnership or the identity of the persons or entities controlling the activities of such partnership or trust resulting in the persons or entities owning or controlling a majority of such shares, partnership interests or activities of such partnership or trust at the beginning of such period no longer having such ownership or control shall be regarded as equivalent to an assignment of this Lease to the persons or entities acquiring such ownership or control and shall be subject to all the provisions of this Article 9 to the same extent and for all intents and purposes as though such an assignment. Notwithstanding the foregoing provisions of this Article to the contrary, if Tenant is a public corporation, no transfer or assignment of the stock, whether by sale, merger, exchange or other means, shall constitute an assignment of this Lease.

10. INDEMNIFICATION. None of the Landlord Entities shall be liable and Tenant hereby waives all claims against them for any damage to any property or any injury to any person in or about the Premises or the Building by or from any cause whatsoever (including without limiting the foregoing, rain or water leakage of any character from the roof, windows,

walls, basement, pipes, plumbing works or appliances, the Building not being in good condition or repair, gas, fire, oil, electricity or theft), except that Landlord will indemnify and hold Tenant harmless from such claims to the extent caused by or arising from the gross negligence or willful misconduct of Landlord or its agents, employees or contractors or any breach or default on the part of Landlord in the performance of any covenant or agreement on the part of Landlord to performed pursuant to this Lease. Tenant shall protect, indemnify and hold the Landlord Entities harmless from and against any and all loss, claims, liability or costs (including court costs and attorney’s fees) incurred by reason of (a) any damage to any property (including but not limited to property of any Landlord Entity) or any injury (including but not limited to death) to any person occurring in, on or about the Premises or the Building to the extent that such injury or damage shall be caused by or arise from any actual or alleged act, neglect, fault, or omission by or of Tenant or any Tenant Entity to meet any standards imposed by any duty with respect to the injury or damage; (b) the conduct or management of any work or thing whatsoever done by the Tenant in or about the Premises or from transactions of the Tenant concerning the Premises; (c) Tenant’s failure to comply with any and all governmental laws, ordinances and regulations applicable to the condition or use of the Premises or its occupancy; or (d) any breach or default on the part of Tenant in the performance of any covenant or agreement on the part of the Tenant to be performed pursuant to this Lease. The provisions of this Article shall survive the termination of this Lease with respect to any claims or liability accruing prior to such termination.

11. INSURANCE.

     11.1 Tenant shall keep in force throughout the Term: (a) a Commercial General Liability insurance policy or policies to protect the Landlord Entities against any liability to the public or to any invitee of Tenant or a Landlord Entity incidental to the use of or resulting from any accident occurring in or upon the Premises with a limit of not less than $1,000,000 per occurrence and not less than $2,000,000 in the annual aggregate, or such larger amount as Landlord may prudently require from time to time, covering bodily injury and property damage liability and $1,000,000 products/completed operations aggregate; (b) Business Auto Liability covering owned, non-owned and hired vehicles with a limit of not less than $1,000,000 per accident; (c) insurance protecting against liability under Worker’s Compensation Laws with limits at least as required by statute with Employers Liability with limits of $500,000 each accident, $500,000 disease policy limit, $500,000 disease—each employee; (d) All Risk or Special Form coverage protecting Tenant against loss of or damage to Tenant’s alterations, additions, improvements, carpeting, floor coverings, panelings, decorations, fixtures, inventory and other business personal property situated in or about the Premises to the full replacement value of the property so insured; and, (e) Business Interruption Insurance with limit of liability representing loss of at least approximately six (6) months of income. Landlord agrees not to increase Tenant’s insurance coverage requirements during the initial Term of this Lease.

     11.2 The aforesaid policies shall (a) be provided at Tenant’s expense; (b) name the Landlord Entities as additional insureds (General Liability) and loss payee (Property — Special Form); (c) be issued by an insurance company with a minimum Best’s rating of “A:VII” during the Term; and (d) provide that said insurance shall not be canceled unless thirty (30) days prior written notice (ten days for non-payment of premium) shall have been given to Landlord; a certificate of Liability insurance on ACORD Form 25 and a certificate of Property insurance on ACORD Form 27 shall be delivered to Landlord by Tenant upon the Commencement Date and prior to each renewal of said insurance.

     11.3 Whenever Tenant shall undertake any alterations, additions or improvements in, to or about the Premises (“Work”) the aforesaid insurance protection must extend to and include injuries to persons and damage to property arising in connection with such Work, without limitation including liability under any applicable structural work act, and such other insurance as Landlord shall require; and the policies of or certificates evidencing such insurance must be delivered to Landlord prior to the commencement of any such Work.

     11.4 Upon request by Tenant, Landlord will provide to Tenant within a commercially reasonable period of time written evidence of any insurance carried by Landlord, but in no event will Landlord be required to provide such information more than once every twelve (12) months.

12. WAIVER OF SUBROGATION. So long as their respective insurers so permit, Tenant and Landlord hereby mutually waive their respective rights of recovery against each other for any loss insured by fire, extended coverage, All Risks or other insurance now or hereafter existing for the benefit of the respective party but only to the extent of the net insurance proceeds payable under such policies. Each party shall obtain any special endorsements required by their insurer to evidence compliance with the aforementioned waiver.

13. SERVICES AND UTILITIES. Tenant shall pay for all water, gas, heat, light, power, telephone, sewer, sprinkler system charges and other utilities and services used on or from the Premises, together with any taxes, penalties, and surcharges or the like pertaining thereto and any maintenance charges for utilities. Tenant shall furnish all electric light bulbs, tubes and ballasts, battery packs for emergency lighting and fire extinguishers. If any such services are not separately metered to Tenant, Tenant shall pay such proportion of all charges jointly metered with other premises as determined by Landlord, in its sole discretion, to be reasonable. Any such charges paid by Landlord and assessed against Tenant shall be

immediately payable to Landlord on demand and shall be additional rent hereunder. Tenant will not, without the written consent of Landlord , which consent shall not be unreasonably withheld, contract with a utility provider to service the Premises with any utility, including, but not limited to, telecommunications, electricity, water, sewer or gas, which is not previously providing such service to other tenants in the Project. Landlord shall not be liable for, and Tenant shall not be entitled to, any abatement or reduction of rent by reason of Landlord’s failure to furnish any of the foregoing, unless such failure shall persist for an unreasonable time after written notice of such failure is given to Landlord by Tenant and provided further that Landlord shall not be liable when such failure is caused by accident, breakage, repairs, labor disputes of any character, energy usage restrictions or by any other cause, similar or dissimilar, beyond the reasonable control of Landlord. Landlord shall use reasonable efforts to remedy any interruption in the furnishing of services and utilities.

14. HOLDING OVER. Provided that Tenant is not in default on the date the holdover notice hereinafter described is given or on the date the holdover period is to commence, Tenant shall have the right to hold over after the expiration of the original Term (or any extended Term resulting from the Tenant’s exercise of any option to extend the Term as set forth in Article 31hereof) by giving written notice (“Holdover Notice”) to Landlord at least four months (and not in excess of eight months) prior to the expiration of the then existing Term of Tenant’s intention to hold over for a period of up to four months. The rent during the period covered by the Holdover Notice shall be one hundred twenty-five percent (125%) of the Rent in effect during the last month of the Term of the Lease in which the Holdover Notice is given. In the event that Tenant holds over after the end of the period specified in the Holdover Notice, the holdover Rent rate shall be one hundred fifty percent (150%) of the Rent rate in effect for the last calendar month of the Lease Term that expired immediately prior to the holdover period, such holding over shall constitute renewal of the this Lease for a period from month to month. Either party shall be entitled to give thirty (30) days written notice to terminate any holdover period, except the holdover period described in Tenant’s Holdover Notice referenced above may not be terminated by either party prior to the end of the period specified in the Holdover Notice. In any event, no provision of this Article 14 shall be deemed to waive Landlord’s right of reentry or any other right under this Lease or at law.

15. SUBORDINATION. Without the necessity of any additional document being executed by Tenant for the purpose of effecting a subordination, this Lease shall be subject and subordinate at all times to ground or underlying leases and to the lien of any mortgages or deeds of trust now or hereafter placed on, against or affecting the Project or the Building, Landlord’s interest or estate in the Project or the Building, or any ground or underlying lease; provided, however, that if the lessor, mortgagee, trustee, or holder of any such mortgage or deed of trust elects to have Tenant’s interest in this Lease be superior to any such instrument, then, by notice to Tenant, this Lease shall be deemed superior, whether this Lease was executed before or after said instrument. Notwithstanding the foregoing, Tenant covenants and agrees to execute and deliver within ten (10) days of Landlord’s request such further instruments evidencing such subordination or superiority of this Lease as may be required by Landlord. At Tenant’s request, Landlord shall, at no expense to Tenant, deliver to Tenant a commercially reasonable subordination, nondisturbance and attornment agreement in favor of Tenant (“Non-Disturbance Agreement”) executed by any and all ground lessors, mortgage holders or lien holders having a lien against the Premises or the Project as of the date of this Lease (each a “Superior Mortgagee(s)”). In the event the Project or the Building is encumbered by a mortgage or deed of trust Landlord shall reasonably provide a Non Disturbance Agreement within sixty (60) days following recording of such mortgage or deed of trust. Any failure of Landlord to obtain a Non-Disturbance Agreement shall constitute a breach of this Lease.

16. RULES AND REGULATIONS. Tenant shall faithfully observe and comply with all the rules and regulations as set forth in Exhibit D to this Lease and all reasonable and non-discriminatory modifications of and additions to them from time to time put into effect by Landlord. Landlord shall not be responsible to Tenant for the non-performance by any other tenant or occupant of the Project of any such rules and regulations. Landlord will enforce the rules and regulations in a non-discriminatory manner.

17. REENTRY BY LANDLORD.

     17.1 Upon reasonable notice (written or oral), Landlord reserves and shall at all times have the right to re-enter the Premises to inspect the same, to show said Premises to prospective purchasers, mortgagees or tenants (Landlord may show the Premises to prospective tenants only during the last six months of the Term or Extended Term), and to alter, improve or repair the Premises and any portion of the Project, without abatement of rent, and may for that purpose erect, use and maintain scaffolding, pipes, conduits and other necessary structures and open any wall, ceiling or floor in and through the Premises where reasonably required by the character of the work to be performed, provided entrance to the Premises shall not be blocked thereby, and further provided that the business of Tenant shall not be interfered with unreasonably. Landlord shall use reasonable efforts not to interfere with Tenant’s use of or access to the Premises. Landlord shall have the right at any time to change the arrangement and/or locations of entrances, or passageways, doors and doorways, and corridors, windows, elevators, stairs, toilets or other public parts of the Project or the Building and to change the name, number or designation by which the Project is commonly known. Notwithstanding the foregoing, provided that Tenant is using the

entire Premises, Landlord agrees not to change the arrangement and/or locations of entrances, or passageways, doors and doorways, corridors, windows, elevators, or other public parts of the Premises. In the event that Landlord damages any portion of any wall or wall covering, ceiling, or floor or floor covering within the Premises, Landlord shall repair or replace the damaged portion to match the original as nearly as commercially reasonable but shall not be required to repair or replace more than the portion actually damaged. Tenant hereby waives any claim for damages for any injury or inconvenience to or interference with Tenant’s business, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned by any action of Landlord authorized by this Article 17.

     17.2 Landlord shall have the right to use any and all means which Landlord may deem proper to open doors in the Premises in an emergency to obtain entry to any portion of the Premises. Landlord is authorized to gain access by any means as Landlord shall elect and the cost of repairing any damage occurring in doing so shall be borne by Tenant and paid to Landlord within five (5) days of Landlord’s demand.

18. DEFAULT.

     18.1 Except as otherwise provided in Article 20, the following events shall be deemed to be Events of Default under this Lease:

          18.1.1 Tenant shall fail to pay when due any sum of money becoming due to be paid to Landlord under this Lease, whether such sum be any installment of the rent reserved by this Lease, any other amount treated as additional rent under this Lease, or any other payment or reimbursement to Landlord required by this Lease, whether or not treated as additional rent under this Lease, and such failure shall continue for a period of five (5) business days after written notice that such payment was not made when due, but if any such notice shall be given, for the twelve (12) month period commencing with the date of such notice, the failure to pay within five (5) business days after due any additional sum of money becoming due to be paid to Landlord under this Lease during such period shall be an Event of Default, without notice. The notice required pursuant to this Section 18.1.1 shall replace rather than supplement any statutory notice required under California Code of Civil Procedure Section 1161 or any similar or successor statute.

          18.1.2 Tenant shall fail to comply with any term, provision or covenant of this Lease which is not provided for in another Section of this Article and shall not cure such failure within twenty (20) days (forthwith, if the failure involves a hazardous condition) after written notice of such failure to Tenant provided, however, that such failure shall not be an event of default if such failure could not reasonably be cured during such twenty (20) day period, Tenant has commenced the cure within such twenty (20) day period and thereafter is diligently pursuing such cure to completion, but the total aggregate cure period shall not exceed ninety (90) days.

          18.1.3 Tenant shall fail to vacate the Premises immediately upon termination of this Lease, by lapse of time or otherwise, or upon termination of Tenant’s right to possession only.

          18.1.4 Tenant shall become insolvent, admit in writing its inability to pay its debts generally as they become due, file a petition in bankruptcy or a petition to take advantage of any insolvency statute, make an assignment for the benefit of creditors, make a transfer in fraud of creditors, apply for or consent to the appointment of a receiver of itself or of the whole or any substantial part of its property, or file a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws, as now in effect or hereafter amended, or any other applicable law or statute of the United States or any state thereof.

          18.1.5 A court of competent jurisdiction shall enter an order, judgment or decree adjudicating Tenant bankrupt, or appointing a receiver of Tenant, or of the whole or any substantial part of its property, without the consent of Tenant, or approving a petition filed against Tenant seeking reorganization or arrangement of Tenant under the bankruptcy laws of the United States, as now in effect or hereafter amended, or any state thereof, and such order, judgment or decree shall not be vacated or set aside or stayed within sixty (60) days from the date of entry thereof.

19. REMEDIES.

     19.1 Upon the occurrence of any Event or Events of Default under this Lease, whether enumerated in Article 18 or elsewhere in this Lease, Landlord shall have the option to pursue any one or more of the following remedies without any notice (except as expressly prescribed herein) or demand whatsoever (and without limiting the generality of the foregoing, Tenant hereby specifically waives notice and demand for payment of rent or other obligations and waives any and all other notices or demand requirements imposed by applicable law):

          19.1.1 Terminate this Lease and Tenant’s right to possession of the Premises and recover from Tenant an award of damages equal to the sum of the following:

               19.1.1.1 The Worth at the Time of Award of the unpaid rent which had been earned at the time of termination;

               19.1.1.2 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 rent loss that Tenant affirmatively proves could have been reasonably avoided;

               19.1.1.3 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 rent loss that Tenant affirmatively proves could be reasonably avoided;

               19.1.1.4 Any other amount necessary to compensate Landlord for all the detriment either proximately caused by Tenant’s failure to perform Tenant’s obligations under this Lease or which in the ordinary course of things would be likely to result therefrom; and

               19.1.1.5 All such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time under applicable law.

     The “Worth at the Time of Award” of the amounts referred to in parts 19.1.1.1 and 19.1.1.2 above, shall be computed by allowing interest at the lesser of a per annum rate equal to: (i) the greatest per annum rate of interest permitted from time to time under applicable law, or (ii) the Prime Rate plus 5%. For purposes hereof, the “Prime Rate” shall be the per annum interest rate publicly announced as its prime or base rate by a federally insured bank selected by Landlord in the State of California. The “Worth at the Time of Award” of the amount referred to in part 19.1.1.3, above, 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 1%;

          19.1.2 Employ the remedy described in California Civil Code § 1951.4 (Landlord may continue this Lease in effect after Tenant’s breach and abandonment and recover rent as it becomes due, if Tenant has the right to sublet or assign, subject only to reasonable limitations); or

          19.1.3 Notwithstanding Landlord’s exercise of the remedy described in California Civil Code § 1951.4 in respect of an Event or Events of Default, at such time thereafter as Landlord may elect in writing, to terminate this Lease and Tenant’s right to possession of the Premises and recover an award of damages as provided above in Section 19.1.1.

     19.2 The subsequent acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular rent so accepted, regardless of Landlord’s knowledge of such preceding breach at the time of acceptance of such rent. No waiver by Landlord of any breach hereof shall be effective unless such waiver is in writing and signed by Landlord.

     19.3 TENANT HEREBY WAIVES ANY AND ALL RIGHTS CONFERRED BY SECTION 3275 OF THE CIVIL CODE OF CALIFORNIA AND BY SECTIONS 1174 (c) AND 1179 OF THE CODE OF CIVIL PROCEDURE OF CALIFORNIA AND ANY AND ALL OTHER REGULATIONS AND RULES OF LAW FROM TIME TO TIME IN EFFECT DURING THE TERM PROVIDING THAT TENANT SHALL HAVE ANY RIGHT TO REDEEM, REINSTATE OR RESTORE THIS LEASE FOLLOWING ITS TERMINATION BY REASON OF TENANT’S BREACH. TENANT ALSO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY LITIGATION ARISING OUT OF OR RELATING TO THIS LEASE.

     19.4 No right or remedy herein conferred upon or reserved to Landlord is intended to be exclusive of any other right or remedy, and each and every right and remedy shall be cumulative and in addition to any other right or remedy given hereunder or now or hereafter existing by agreement, applicable law or in equity. In addition to other remedies provided in this Lease, Landlord shall be entitled, to the extent permitted by applicable law, to injunctive relief, or to a decree compelling performance of any of the covenants, agreements, conditions or provisions of this Lease, or to any other remedy allowed to Landlord at law or in equity. Forbearance by Landlord to enforce one or more of the remedies herein provided upon an Event of Default shall not be deemed or construed to constitute a waiver of such Default.

     19.5 This Article 19 shall be enforceable to the maximum extent such enforcement is not prohibited by applicable law, and the unenforceability of any portion thereof shall not thereby render unenforceable any other portion.

     19.6 If more than one (1) Event of Default occurs (and Tenant has failed to timely and fully cure the Event of Default as provided in this Lease) during the Term or any renewal thereof, Tenant’s renewal options, expansion options, purchase options and rights of first offer and/or refusal, if any are provided for in this Lease, shall be null and void.

     19.7 If, on account of any breach or default by Tenant in Tenant’s obligations under the terms and conditions of this Lease, it shall become necessary or appropriate for Landlord to employ or consult with an attorney or collection agency concerning or to enforce or defend any of Landlord’s rights or remedies arising under this Lease or to collect any sums due from Tenant, Tenant agrees to pay all costs and fees so incurred by Landlord, including, without limitation, reasonable attorneys’ fees and costs. TENANT AND LANDLORD EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY JURY. Tenant further stipulates and agrees that in the event of litigation the proper and only venue for such action is San Diego County, California.

     19.8 Upon the occurrence of an Event of Default, Landlord may (but shall not be obligated to) cure such default at Tenant’s sole expense. Without limiting the generality of the foregoing, Landlord may, at Landlord’s option, enter into and upon the Premises if Landlord determines in its sole discretion that Tenant is not acting within a commercially reasonable time to maintain, repair or replace anything for which Tenant is responsible under this Lease or to otherwise effect compliance with its obligations under this Lease and correct the same, without being deemed in any manner guilty of trespass, eviction or forcible entry and detainer and without incurring any liability for any damage or interruption of Tenant’s business resulting therefrom and Tenant agrees to reimburse Landlord within five (5) days of Landlord’s demand as additional rent, for any expenses which Landlord may incur in thus effecting compliance with Tenant’s obligations under this Lease, plus interest from the date of expenditure by Landlord at the Wall Street Journal prime rate.

     19.9 Landlord shall be in default in the performance of any obligation required to be performed by Landlord under this Lease if Landlord has failed to perform such obligations within thirty (30) calendar days after Tenant’s notice specifying Landlord’s failure to perform; provided, however, that if the nature of Landlord’s obligation is such that more than thirty (30) calendar days are required for its performance, Landlord shall not be deemed in default if it shall commence such performance within thirty (30) calendar days and thereafter diligently pursues the same to completion. Upon any such default by Landlord, notwithstanding anything to the contrary contained in this Lease, Tenant may exercise any and all rights and remedies available at law or in equity.

20. TENANT’S BANKRUPTCY OR INSOLVENCY.

     20.1 If at any time and for so long as Tenant shall be subjected to the provisions of the United States Bankruptcy Code or other law of the United States or any state thereof for the protection of debtors as in effect at such time (each a “Debtor’s Law”):

          20.1.1 Tenant, Tenant as debtor-in-possession, and any trustee or receiver of Tenant’s assets (each a “Tenant’s Representative”) shall have no greater right to assume or assign this Lease or any interest in this Lease, or to sublease any of the Premises than accorded to Tenant in Article 9, except to the extent Landlord shall be required to permit such assumption, assignment or sublease by the provisions of such Debtor’s Law. Without limitation of the generality of the foregoing, any right of any Tenant’s Representative to assume or assign this Lease or to sublease any of the Premises shall be subject to the conditions that:

          20.1.1.1 Such Debtor’s Law shall provide to Tenant’s Representative a right of assumption of this Lease which Tenant’s Representative shall have timely exercised and Tenant’s Representative shall have fully cured any default of Tenant under this Lease.

          20.1.1.2 Tenant’s Representative or the proposed assignee, as the case shall be, shall have deposited with Landlord as security for the timely payment of rent an amount equal to the larger of: (a) three (3) months’ rent and other monetary charges accruing under this Lease; and (b) any sum specified in Article 5; and shall have provided Landlord with adequate other assurance of the future performance of the obligations of the Tenant under this Lease. Without limitation, such assurances shall include, at least, in the case of assumption of this Lease, demonstration to the satisfaction of the Landlord that Tenant’s Representative has and will continue to have sufficient unencumbered assets after the payment of all secured obligations and administrative expenses to assure Landlord that Tenant’s Representative will have sufficient funds to fulfill the obligations of Tenant under this Lease; and, in the case of assignment, submission of current financial statements of the proposed assignee, audited by an independent certified public accountant reasonably acceptable to Landlord and

showing a net worth and working capital in amounts determined by Landlord to be sufficient to assure the future performance by such assignee of all of the Tenant’s obligations under this Lease.

          20.1.1.3 The assumption or any contemplated assignment of this Lease or subleasing any part of the Premises, as shall be the case, will not breach any provision in any other lease, mortgage, financing agreement or other agreement by which Landlord is bound.

          20.1.1.4 Landlord shall have, or would have had absent the Debtor’s Law, no right under Article 9 to refuse consent to the proposed assignment or sublease by reason of the identity or nature of the proposed assignee or sublessee or the proposed use of the Premises concerned.

21. QUIET ENJOYMENT. Landlord represents and warrants that it has full right and authority to enter into this Lease and that Tenant, while paying the rental and performing its other covenants and agreements contained in this Lease, shall peaceably and quietly have, hold and enjoy the Premises for the Term without hindrance or molestation from Landlord subject to the terms and provisions of this Lease. Landlord shall not be liable for any interference or disturbance by other tenants or third persons, nor shall Tenant be released from any of the obligations of this Lease because of such interference or disturbance.

22. CASUALTY

     22.1 In the event the Premises are damaged by fire or other cause and in Landlord’s reasonable estimation such damage can be materially restored within one hundred eighty (180) days, Landlord shall forthwith repair the same and this Lease shall remain in full force and effect, except that Tenant shall be entitled to a proportionate abatement in rent from the date of such damage. Such abatement of rent shall be made pro rata in accordance with the extent to which the damage and the making of such repairs shall interfere with the use and occupancy by Tenant of the Premises from time to time. Within forty-five (45) days from the date of such damage, Landlord shall notify Tenant, in writing, of Landlord’s reasonable estimation of the length of time within which material restoration can be made, and Landlord’s determination shall be binding on Tenant. For purposes of this Lease, the Premises shall be deemed “materially restored” if they are in such condition as would not prevent or materially interfere with Tenant’s use of the Premises for the purpose for which it was being used immediately before such damage.

     22.2 If such repairs cannot, in Landlord’s reasonable estimation, be made within one hundred eighty (180) days, Landlord and Tenant shall each have the option of giving the other, at any time within ninety (90) days after such damage, notice terminating this Lease as of the date of such damage. In the event of the giving of such notice, this Lease shall expire and all interest of the Tenant in the Premises shall terminate as of the date of such damage as if such date had been originally fixed in this Lease for the expiration of the Term. In the event that neither Landlord nor Tenant exercises its option to terminate this Lease, then Landlord shall repair or restore such damage, this Lease continuing in full force and effect, and the rent hereunder shall be proportionately abated as provided in Section 22.1.

     22.3 Landlord shall not be required to repair or replace any damage or loss by or from fire or other cause to any panelings, decorations, partitions, additions, railings, ceilings, floor coverings, office fixtures or any other property or improvements installed on the Premises by, or belonging to, Tenant. Any insurance which may be carried by Landlord or Tenant against loss or damage to the Premises shall be for the sole benefit of the party carrying such insurance and under its sole control.

     22.4 In the event that Landlord should fail to complete such repairs and material restoration within sixty (60) days after the date estimated by Landlord therefor as extended by this Section 22.4, Tenant may at its option and as its sole remedy terminate this Lease by delivering written notice to Landlord, within fifteen (15) days after the expiration of said period of time, whereupon the Lease shall end on the date of such notice or such later date fixed in such notice as if the date of such notice was the date originally fixed in this Lease for the expiration of the Term; provided, however, that if construction is delayed because of changes, deletions or additions in construction requested by Tenant, strikes, lockouts, casualties, Acts of God, war, material or labor shortages, government regulation or control or other causes beyond the reasonable control of Landlord, the period for restoration, repair or rebuilding shall be extended for the amount of time Landlord is so delayed.

     22.5 Notwithstanding anything to the contrary contained in this Article: (a) Landlord shall not have any obligation whatsoever to repair, reconstruct, or restore the Premises when the damages resulting from any casualty covered by the provisions of this Article 22 occur during the last twelve (12) months of the Term or any extension thereof, but if Landlord determines not to repair such damages Landlord shall notify Tenant and if such damages shall render any material portion of the Premises untenantable Tenant shall have the right to terminate this Lease by notice to Landlord within fifteen

(15) days after receipt of Landlord’s notice; and (b) in the event the holder of any indebtedness secured by a mortgage or deed of trust covering the Premises requires that any insurance proceeds be applied to such indebtedness, then Landlord shall have the right to terminate this Lease by delivering written notice of termination to Tenant within fifteen (15) days after such requirement is made by any such holder, whereupon this Lease shall end on the date of such damage as if the date of such damage were the date originally fixed in this Lease for the expiration of the Term.

     22.6 In the event of any damage or destruction to the Premises by any peril covered by the provisions of this Article 22, it shall be Tenant’s responsibility to properly secure the Premises and upon notice from Landlord to remove forthwith, at its sole cost and expense, such portion of all of the property belonging to Tenant or its licensees from such portion or all of the Premises as Landlord shall request.

     22.7 Tenant hereby waives any and all rights under and benefits of Sections 1932(2) and 1933(4) of the California Civil Code, or any similar or successor Regulations or other laws now or hereinafter in effect.

23. EMINENT DOMAIN. If all or any substantial part of the Premises shall be taken or appropriated by any public or quasi-public authority under the power of eminent domain, or conveyance in lieu of such appropriation, either party to this Lease shall have the right, at its option, of giving the other, at any time within thirty (30) days after such taking, notice terminating this Lease, except that Tenant may only terminate this Lease by reason of taking or appropriation, if such taking or appropriation shall be so substantial as to materially interfere with Tenant’s use and occupancy of the Premises. If neither party to this Lease shall so elect to terminate this Lease, the rental thereafter to be paid shall be adjusted on a fair and equitable basis under the circumstances. In addition to the rights of Landlord above, if any substantial part of the Project shall be taken or appropriated by any public or quasi-public authority under the power of eminent domain or conveyance in lieu thereof, and regardless of whether the Premises or any part thereof are so taken or appropriated, Landlord shall have the right, at its sole option, to terminate this Lease. Landlord shall be entitled to any and all income, rent, award, or any interest whatsoever in or upon any such sum, which may be paid or made in connection with any such public or quasi-public use or purpose, and Tenant hereby assigns to Landlord any interest it may have in or claim to all or any part of such sums, other than any separate award which may be made with respect to Tenant’s trade fixtures and moving expenses; Tenant shall make no claim for the value of any unexpired Term. Tenant hereby waives any and all rights under and benefits of Section 1265.130 of the California Code of Civil Procedure, or any similar or successor Regulations or other laws now or hereinafter in effect.

24. SALE BY LANDLORD. In event of a sale or conveyance by Landlord of the Project or the Building, the same shall operate to release Landlord from any future liability upon any of the covenants or conditions, expressed or implied, contained in this Lease in favor of Tenant, and in such event Tenant agrees to look solely to the responsibility of the successor in interest of Landlord in and to this Lease. Except as set forth in this Article 24, this Lease shall not be affected by any such sale and Tenant agrees to attorn to the purchaser or assignee. If any security has been given by Tenant to secure the faithful performance of any of the covenants of this Lease, Landlord may transfer or deliver said security, as such, to Landlord’s successor in interest and thereupon Landlord shall be discharged from any further liability with regard to said security.

25. ESTOPPEL CERTIFICATES. Within ten (10) business days following any written request which Landlord may make from time to time, Tenant shall execute and deliver to Landlord or mortgagee or prospective mortgagee a sworn statement certifying: (a) the date of commencement of this Lease; (b) the fact that this Lease is unmodified and in full force and effect (or, if there have been modifications to this Lease, that this lease is in full force and effect, as modified, and stating the date and nature of such modifications); (c) the date to which the rent and other sums payable under this Lease have been paid; (d) the fact that there are no current defaults under this Lease by either Landlord or Tenant except as specified in Tenant’s statement; and (e) such other matters as may be requested by Landlord. Landlord and Tenant intend that any statement delivered pursuant to this Article 25 may be relied upon by any mortgagee, beneficiary or purchaser, and Tenant shall be liable for all loss, cost or expense resulting from the failure of any sale or funding of any loan caused by any material misstatement contained in such estoppel certificate. Tenant irrevocably agrees that if Tenant fails to execute and deliver such certificate within such ten (10) business day period Landlord or Landlord’s beneficiary or agent may execute and deliver such certificate on Tenant’s behalf, and that such certificate shall be fully binding on Tenant.

26. SURRENDER OF PREMISES.

     26.1 Tenant shall arrange to meet Landlord for two (2) joint inspections of the Premises, the first to occur at least thirty (30) days (but no more than sixty (60) days) before the last day of the Term, and the second to occur not later than forty-eight (48) hours after Tenant has vacated the Premises. In the event of Tenant’s failure to arrange such joint inspections and/or participate in either such inspection, Landlord’s inspection at or after Tenant’s vacating the Premises shall be conclusively deemed correct for purposes of determining Tenant’s responsibility for repairs and restoration.

     26.2 All alterations, additions, and improvements in, on, or to the Premises made or installed by or for Tenant, including carpeting (collectively, “Alterations”), shall be and remain the property of Tenant during the Term. Upon the expiration or sooner termination of the Term, all Alterations shall become a part of the realty and shall belong to Landlord without compensation, and title shall pass to Landlord under this Lease as by a bill of sale. At the end of the Term or any renewal of the Term or other sooner termination of this Lease, Tenant will peaceably deliver up to Landlord possession of the Premises, together with all Alterations by whomsoever made, in the same conditions received or first installed, broom clean and free of all debris, excepting only ordinary wear and tear and damage by fire or other casualty. Notwithstanding the foregoing, if Landlord elects by notice given to Tenant at the same time Landlord consents to Tenant’s Alterations, Tenant shall, at Tenant’s sole cost, remove any Alterations, including carpeting, so designated by Landlord’s notice, and repair any damage caused by such removal. Notwithstanding the foregoing, Tenant will have no obligation to remove any Alterations existing in the Premises as of the Commencement Date, including those Alterations paid for with Tenant’s Allowance. Tenant must, at Tenant’s sole cost, remove upon termination of this Lease, any and all of Tenant’s furniture, furnishings, movable partitions of less than full height from floor to ceiling and other trade fixtures and personal property (collectively, “Personalty”). Personalty not so removed shall be deemed abandoned by the Tenant and title to the same shall thereupon pass to Landlord under this Lease as by a bill of sale, but Tenant shall remain responsible for the cost of removal and disposal of such Personalty, as well as any damage caused by such removal. In lieu of requiring Tenant to remove Alterations and Personalty and repair the Premises as aforesaid, Landlord may, by written notice to Tenant delivered at least thirty (30) days before the Termination Date, require Tenant to pay to Landlord, as additional rent hereunder, the cost of such removal and repair in an amount reasonably estimated by Landlord.

     26.3 All obligations of Tenant under this Lease not fully performed as of the expiration or earlier termination of the Term shall survive the expiration or earlier termination of the Term Upon the expiration or earlier termination of the Term, Tenant shall pay to Landlord the amount, as estimated by Landlord, necessary to repair and restore the Premises as provided in this Lease and/or to discharge Tenant’s obligation for unpaid amounts due or to become due to Landlord. All such amounts shall be used and held by Landlord for payment of such obligations of Tenant, with Tenant being liable for any additional costs upon demand by Landlord, or with any excess to be returned to Tenant after all such obligations have been determined and satisfied. Any otherwise unused Security Deposit shall be credited against the amount payable by Tenant under this Lease.

27. NOTICES. Any notice or document required or permitted to be delivered under this Lease shall be addressed to the intended recipient, by fully prepaid registered or certified United States Mail return receipt requested, or by reputable independent contract delivery service furnishing a written record of attempted or actual delivery, and shall be deemed to be delivered when tendered for delivery to the addressee at its address set forth on the Reference Pages, or at such other address as it has then last specified by written notice delivered in accordance with this Article 27, or if to Tenant at either its aforesaid address or its last known registered office or home of a general partner or individual owner, whether or not actually accepted or received by the addressee. Any such notice or document may also be personally delivered if a receipt is signed by and received from, the individual, if any, named in Tenant’s Notice Address.

28. TAXES PAYABLE BY TENANT. In addition to rent and other charges to be paid by Tenant under this Lease, Tenant shall reimburse to Landlord, upon demand, any and all taxes payable by Landlord (other than net income taxes) whether or not now customary or within the contemplation of the parties to this Lease: (a) upon, allocable to, or measured by or on the gross or net rent payable under this Lease, including without limitation any gross income tax or excise tax levied by the State, any political subdivision thereof, or the Federal Government with respect to the receipt of such rent; (b) upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy of the Premises or any portion thereof, including any sales, use or service tax imposed as a result thereof; (c) upon or measured by the Tenant’s gross receipts or payroll or the value of Tenant’s equipment, furniture, fixtures and other personal property of Tenant or leasehold improvements, alterations or additions located in the Premises; or (d) upon this transaction or any document to which Tenant is a party creating or transferring any interest of Tenant in this Lease or the Premises. In addition to the foregoing, Tenant agrees to pay, before delinquency, any and all taxes levied or assessed against Tenant and which become payable during the term hereof upon Tenant’s equipment, furniture, fixtures and other personal property of Tenant located in the Premises.

29. ADA AND LIFE SAFETY COMPLIANCE. Prior to the Commencement Date of the Lease, Landlord shall survey the Premises to identify whether (i) any hazardous materials exist in the Premises and (ii) the status of compliance with the requirements of the Americans with Disabilities Act and IAQ Standards. Landlord then shall take the steps necessary, as required, to be in compliance with such laws applicable thereto. The costs associated therewith so long as it is deemed required by the governmental agency having jurisdiction thereof, and is not required due to Tenant’s specific use of Premises, shall be paid for by Landlord and will not be an Expense under part 4.1.2 of this Lease.. However, Tenant shall be responsible for any ADA requirements within the Premises after Landlord delivers the fully permitted Premises meeting the

code as of the date of the permit. Further, Tenant shall be responsible for complying with all codes and regulations and regulations relating to its own specific required improvements within the Premises.

30. ROOFTOP SATELLITE DISH. Subject to Landlord’s prior written consent, which consent shall not be unreasonably withheld, Tenant shall have the option to place equipment on the roof reasonably required (along with the use of any spare riser space) to install satellite dishes at no charge to Landlord. Prior to the installation thereof, Tenant shall deliver to Landlord plans and specifications for the satellite dish and related supports and equipment so that Landlord can assure that the dish and equipment will not be visible from the street. As a part of Landlord’s review, Tenant shall provide sufficient drawings and specifications to assure that the weight limit of the roof is not exceeded and that no part of the installation or structure penetrates the roof structure. Any such plans and specifications shall be made a part of this Lease. Any such satellite dish and related equipment shall be installed, constructed, maintained, used, repaired, replaced and/or removed by Tenant, at Tenant’s sole cost and expense, in compliance with all applicable laws, statutes, permit requirements, building codes, ordinances and governmental rules and regulations.

31. OPTION TO RENEW. Provided the Lease is in full force and effect and Tenant is not then currently (nor has been) in default under any of the terms and conditions of the Lease, Tenant shall have two (2) options to renew this Lease, each for a term of five (5) years (“Extension Term”), to run consecutively, for the Premises being leased by Tenant as of the date the Extension Term is to commence, on the same terms and conditions set forth in the Lease, except as modified by the terms, covenants and conditions as set forth below:

     31.1 If Tenant elects to exercise each option, then Tenant shall provide Landlord with written notice (“Option Notice”) no less than the date which is one hundred twenty (180) days prior to the expiration of the then current term of the Lease and no sooner then two hundred forty (270) days prior to the expiration of the then existing Term. If Tenant fails to provide such notice, Tenant shall have no further or additional rights to extend or renew the term of this Lease.

     31.2 The Annual Rent for the first year of each Extension Term shall adjust to an amount equal to ninety-five percent (95%) of the Fair Market Rental Rate (as defined below) for new leases of comparable industrial space in the Project and in comparable class buildings or space in the submarket described below.

          31.2.1. Fair Market Rental Rate. As used in this Lease, “Fair Market Rental Rate” shall mean the annual amount per rentable square foot that a willing, comparable tenant would pay and a willing landlord would accept at arm’s length, for a new five-year lease (for nonrenewal and nonexpansion space, unless the renewals of expansion space are pursuant to a comparable definition of Fair Market Rental Rate) for delivery on or about the applicable delivery or effective date, for comparable class non-sublease, non-encumbered, non-renewal industrial space within a three (3) mile radius where the Project is located, similarly improved, including an allowance to upgrade the Premises, giving appropriate consideration to annual rental rates per rentable square foot, the type of escalation clauses (including, but without limitation, operating expense, real estate tax allowance), rental abatement or free rent concessions, if any, brokerage commissions, the length of the lease term, size and location of the premises being leased (including the floor level), quality and location of project, building standard work letter and/or tenant improvement allowance, if any, the extent of services to be provided to the premises, the date as of which the Fair Market Rental Rate is to become effective, and other generally applicable terms and conditions of tenancy for comparable space. Fair Market Rental Rate shall be determined as follows:

          (a) Not later than 30 days after the Option Notice, Landlord and Tenant shall meet in an effort to negotiate, in good faith, the new Monthly Installment of Rent of the Premises for the Extension Term. If Landlord and Tenant have not agreed upon the new Monthly Installment of Rent of the Premises at least 60 days after the Option Notice, then the Fair Market Rental Rate shall be determined by appraisal as described below.

          (b) Landlord and Tenant shall attempt to agree in good faith upon a single appraiser (which appraiser shall be a commercial real estate broker with at least 5 years experience leasing comparable industrial space in the San Diego County and the Sorrento Mesa area) not later than 75 days after the Option Notice. If Landlord and Tenant are unable to agree upon a single appraiser within such time period, then Landlord and Tenant shall each appoint an appraiser not later than 85 days after the Option Notice. If Landlord and Tenant agree upon a single appraiser, or if either Landlord or Tenant fails to appoint its appraiser within the prescribed time period, the single appraiser appointed shall determine the Fair Market Rental Rate of the Premises. If both parties fail to appoint appraisers within the prescribed time periods, then the first appraiser thereafter selected by a party shall determine the Fair Market Rental Rate of the Premises. If two appraisers are appointed, they shall jointly determine the Fair Market Rental Rate or, if the appraisers cannot agree, the determination shall be the average of the two appraisers’ respective determinations. In any case, the appraiser(s) appointed shall issue a determination of Fair Market Rental Rate on or before the date which is 95 days after the Option Notice. Each party shall bear the cost of its own appraiser and the parties shall share equally the cost of the single appraiser if applicable.

          (c) The determination of Fair Market Rental Rate pursuant to such appraisal process shall be binding on Landlord and Tenant, unless Tenant gives written notice to Landlord of its rejection of such determination within fourteen (14) days after such determination is made, in which event the Option Notice shall be null and void and this Lease shall expire at the end of the then-current term.

          (d) The Monthly Installment of Rent will then increase by 3.0 % for each year of the Extension Period.

     31.3 This option is not transferable; the parties hereto acknowledge and agree that they intend the aforesaid option to renew of this Lease shall be “personal” to Tenant as set forth above and that in no event will any assignee or sublessee have any rights to exercise the aforesaid option to renew.

     31.4 Once Tenant has exercised both options to renew, Tenant shall have no further right to extend the term of the Lease.

     31.5 Tenant shall not have the right to exercise the Options described above, notwithstanding anything set forth above to the contrary: (a) during any period of time commencing from the date Landlord gives to Tenant a written notice that Tenant is in default under any provision of this Lease and continuing until the default alleged in said notice is cured; and/or (b) during the period of time commencing on the day after a monetary obligation to Landlord is due from Tenant and unpaid (after the giving of notice thereof to Tenant required pursuant to the Lease) and continuing until the obligation is paid. The period of time within which the Option may be exercised shall not be extended or enlarged by reason of Tenant’s inability to exercise the Option because of the foregoing provisions of this Paragraph, even if the effect thereof is to eliminate Tenant’s right to exercise the Option.

32. DEFINED TERMS AND HEADINGS. The Article headings shown in this Lease are for convenience of reference and shall in no way define, increase, limit or describe the scope or intent of any provision of this Lease. Any indemnification or insurance of Landlord shall apply to and inure to the benefit of all the following “Landlord Entities”, being Landlord, Landlord’s investment manager, and the trustees, boards of directors, officers, general partners, beneficiaries, stockholders, employees and agents of each of them. Any option granted to Landlord shall also include or be exercisable by Landlord’s trustee, beneficiary, agents and employees, as the case may be. In any case where this Lease is signed by more than one person, the obligations under this Lease shall be joint and several. The terms “Tenant” and “Landlord” or any pronoun used in place thereof shall indicate and include the masculine or feminine, the singular or plural number, individuals, firms or corporations, and their and each of their respective successors, executors, administrators and permitted assigns, according to the context hereof. The term “rentable area” shall mean the rentable area of the Premises or the Building as calculated by the Landlord on the basis of the plans and specifications of the Building including a proportionate share of any common areas. Tenant hereby accepts and agrees to be bound by the figures for the rentable square footage of the Premises and Tenant’s Proportionate Share shown on the Reference Pages; however, Landlord may adjust either or both figures if there is an addition or subtraction to the Building or any business park or complex of which the Building is a part. The term “Building” refers to the structure in which the Premises are located and the common areas (parking lots, sidewalks, landscaping, etc.) appurtenant thereto. If the Building is part of a larger complex of structures, the term “Project” includes the entire complex, where appropriate (such as shared Expenses or Taxes) and subject to Landlord’s reasonable discretion.

33. AUTHORITY. If Tenant signs as a corporation, partnership, trust or other legal entity each of the persons executing this Lease on behalf of Tenant represents and warrants that Tenant has been and is qualified to do business in the state in which the Building is located, that the entity has full right and authority to enter into this Lease, and that all persons signing on behalf of the entity were authorized to do so by appropriate actions. Tenant agrees to deliver to Landlord, simultaneously with the delivery of this Lease, a corporate resolution, proof of due authorization by partners or other appropriate documentation reasonably acceptable to Landlord evidencing the due authorization of Tenant to enter into this Lease. If Landlord signs as a corporation, partnership, trust or other legal entity each of the persons executing this Lease on behalf of Landlord represents and warrants that Landlord has been and is qualified to do business in the state in which the Building is located, that the entity has full right and authority to enter into this Lease, and that all persons signing on behalf of the entity were authorized to do so by appropriate actions. Landlord agrees to deliver to Tenant, simultaneously with the delivery of this Lease, a corporate resolution, proof of due authorization by partners or other appropriate documentation reasonably acceptable to Tenant evidencing the due authorization of Landlord to enter into this Lease.

34. FINANCIAL STATEMENTS AND CREDIT REPORTS. At Landlord’s request, but not more than once every twelve months, Tenant shall deliver to Landlord a copy, certified by an officer of Tenant as being a true and correct copy, of Tenant’s most recent audited financial statement, or, if unaudited, certified by Tenant’s chief financial officer as being true, complete and correct in all material respects. If Tenant is a publicly held corporation, Tenant can fulfill its obligations under this Article 34 by providing to Landlord its most recent quarterly or annual report filed with the appropriate governmental

authorities. Tenant hereby authorizes Landlord to obtain one or more credit reports on Tenant at any time, and shall execute such further authorizations as Landlord may reasonably require in order to obtain a credit report.

35. COMMISSIONS. Each of the parties represents and warrants to the other that it has not dealt with any broker or finder in connection with this Lease, except as described on the Reference Pages.

36. TIME AND APPLICABLE LAW. Time is of the essence of this Lease and all of its provisions. This Lease shall in all respects be governed by the laws of the state in which the Premises are located.

37. SUCCESSORS AND ASSIGNS. Subject to the provisions of Article 9, the terms, covenants and conditions contained in this Lease shall be binding upon and inure to the benefit of the heirs, successors, executors, administrators and assigns of the parties to this Lease.

38. ENTIRE AGREEMENT. This Lease, together with its exhibits, contains all agreements of the parties to this Lease and supersedes any previous negotiations. There have been no representations made by the Landlord or any of its representatives or understandings made between the parties other than those set forth in this Lease and its exhibits. This Lease may not be modified except by a written instrument duly executed by the parties to this Lease.

39. EXAMINATION NOT OPTION. Submission of this Lease shall not be deemed to be a reservation of the Premises. Landlord shall not be bound by this Lease until it has received a copy of this Lease duly executed by Tenant and has delivered to Tenant a copy of this Lease duly executed by Landlord, and until such delivery Landlord reserves the right to exhibit and lease the Premises to other prospective tenants. Notwithstanding anything contained in this Lease to the contrary, Landlord may withhold delivery of possession of the Premises from Tenant until such time as Tenant has paid to Landlord any security deposit required by Article 5, the first month’s rent as set forth in Article 3 and any sum owed pursuant to this Lease.

40. RECORDATION. Tenant shall not record or register this Lease or a short form memorandum hereof without the prior written consent of Landlord, and then shall pay all charges and taxes incident such recording or registration.

41. RIGHT OF FIRST OFFER. Except as to any rights of prior existing tenants at the Project, including, but not limited to SBC Services, Inc., a Delaware corporation. Tenant shall have a Right of First Offer (provided Tenant is not then in default hereunder beyond the expiration of any applicable notice and cure periods) to lease any available space at the Project (individually and collectively, the “First Offer Space”), and during the first twelve (12) months of the initial Lease Term upon the same rental rate and other economic terms and conditions of the Lease on a pro rated basis (i.e., consistent with Tenant’s remaining Lease Term) and after twelve (12) months upon the same economic terms, provisions and conditions that Landlord and a bona fide third party are willing to accept pursuant to a signed letter of intent, as set forth in a written notice from Landlord to Tenant (“Landlord’s Notice”). Tenant shall have the right, within ten (10) business days after Tenant’s receipt of the Landlord’s Notice, to give Landlord written notice whether or not Tenant desires to lease the First Offer Space in question on the terms and conditions set forth in Landlord’s Notice (“First Offer Exercise Notice”). Tenant’s failure to deliver a First Offer Exercise Notice within ten (10) business days after the date of Tenant’s receipt of the Landlord’s Notice shall be deemed Tenant’s waiver of the right of first offer set forth herein as to such First Offer Space (but not any other First Offer Space), and Landlord shall thereafter have the right to lease such First Offer Space free and clear of any rights of Tenant hereunder. If Tenant gives Landlord any First Offer Exercise Notice(s) in accordance with this Paragraph 40, then, in each instance, Landlord and Tenant shall execute an amendment to the Lease that incorporates the applicable First Offer Space into the Premises. If the Right of First Offer occurs after the initial twelve (12) months of the initial Lease Term, the amendment shall provide for Tenant to lease such First Offer Space on a pro rata basis (i.e., consistent with Tenant’s remaining Lease Term) at the rental rate and any allowance for construction of tenant improvements in the First Offer Space and any other economic terms set forth in Landlord’s Notice, and otherwise subject to all of the terms and conditions of the Lease to the extent not inconsistent with the economic terms set forth in Landlord’s Notice; provided, however, that the term of the Lease as to the First Offer Space shall be coterminous with the term of the Lease. In the event that Landlord’s Notice is for a term that exceeds Tenant’s remaining term (excluding renewals) than the economic terms of the Landlord’s notice shall be equal to that of Tenant’s remaining term.

42. PARKING. Subject to the size and condition of the parking area after any re-striping is performed by Landlord in order to comply with any provisions of the ADA, Tenant shall have approximately seventy-eight (78) reserved and appropriately marked parking spaces (based on the parking ratio for the Project (2.97/1,000)) for the entire term of the Lease and any extensions thereafter. Landlord, at its own expense, will mark the reserved parking spaces on the curbs.

43. SIGNAGE. Subject to the terms and conditions of this Paragraph 42 below, Tenant may not place, construct, or maintain any sign, advertisement, awning, banner, or other exterior decoration (collectively, “sign”) which is visible from the

exterior of the Premises, or any other portion of the Project without Landlord’s prior written consent. Tenant shall be granted exclusive Building exterior signage rights on the main fascia of the Building subject to Landlord’s prior written approval and allowable by the City of San Diego codes, ordinances and regulations. All costs associated with the design, installation, permitting and removal of any sign shall be paid by Tenant. Any signs shall be mutually agreed upon between Landlord and Tenant in accordance with the sign criteria for the Project, any conditions, covenants and regulations (or similar recorded instruments) and according to City of San Diego codes and regulations. Landlord makes no representation or warranty with respect to Tenant’s ability to obtain any such approval for any signs to be installed at the Premises. Tenant shall, at Tenant’s sole cost, make any changes to any sign at the Premises or on the Building as required by any new or revised applicable laws, ordinances, rules, or regulations. Tenant shall, additionally, maintain, repair, and replace all of Tenant’s signs in first class condition.

44. LIMITATION OF LANDLORD’S LIABILITY. Redress for any claim against Landlord under this Lease shall be limited to and enforceable only against and to the extent of Landlord’s interest in the Building, including the proceeds of the sale of the Building and, to the extent received by Landlord, insurance proceeds and condemnation awards. The obligations of Landlord under this Lease are not intended to be and shall not be personally binding on, nor shall any resort be had to the private properties of, any of its or its investment manager’s trustees, directors, officers, partners, beneficiaries, members, stockholders, employees, or agents, and in no case shall Landlord be liable to Tenant hereunder for any lost profits, damage to business, or any form of special, indirect or consequential damages.

LANDLORD:		TENANT:
RREEF AMERICA REIT II CORP., JJ,		RADYNE COMSTREAM, INC.,
a Maryland corporation		a Delaware corporation
By:	RREEF Management Company, a Delaware
	corporation, Its Authorized Agent

By: /s/ Peter Lloyd	By: /s/ Brian Duggan
Name: Peter Lloyd	Name: Brian Duggan
Title: Vice President and Regional Director	Title: President and COO
Dated: 11/8/04	Dated:
	By:
	Name:
	Title:
	Dated:

EXHIBIT A — FLOOR PLAN DEPICTING THE PREMISES

attached to and made a part of Lease bearing the
Lease Reference Date of September 28, 2004 between
RREEF America REIT II Corp. JJ, a Maryland corporation, as Landlord and
Radyne Comstream, Inc., a Delaware corporation, as Tenant

Exhibit A is intended only to show the general layout of the Premises as of the beginning of the Term of this Lease. It does not in any way supersede any of Landlord’s rights set forth in Article 17 with respect to arrangements and/or locations of public parts of the Building and changes in such arrangements and/or locations. It is not to be scaled; any measurements or distances shown should be taken as approximate.

EXHIBIT A-1 — SITE PLAN

attached to and made a part of Lease bearing the
Lease Reference Date of September 28, 2004 between
RREEF America REIT II Corp. JJ, a Maryland corporation, as Landlord and
Radyne Comstream, Inc., a Delaware corporation, as Tenant

Exhibit A-1 is intended only to show the general layout of the Premises as of the beginning of the Term of this Lease. It does not in any way supersede any of Landlord’s rights set forth in Article 17 with respect to arrangements and/or locations of public parts of the Project, Building and changes in such arrangements and/or locations. It is not to be scaled; any measurements or distances shown should be taken as approximate.

EXHIBIT B — INITIAL ALTERATIONS

attached to and made a part of Lease bearing the
Lease Reference Date of September 28, 2004 between
RREEF America REIT II Corp. JJ, a Maryland corporation, as Landlord and
Radyne Comstream, Inc., a Delaware corporation, as Tenant

TENANT IMPROVEMENTS

1. Types of Work.

1.1.	Except to the extent otherwise provided in Paragraphs 1.2, 1.3 and 1.4 below, Landlord will, at Landlord’s sole cost and expense, subject to any maximum allowance, through its architects furnish architectural, mechanical, and electrical engineering plans required for the performance of the work listed on the attached Schedule I and perform the work set forth on the attached Schedule I (“Landlord’s Work”).
1.2.	Tenant may request work (“Tenant’s Requested Work”) not conforming with, or in addition to, Landlord’s Work. If Landlord approves such request in accordance with the Lease and this Exhibit B, any architectural, mechanical, and electrical plans and specifications required for the Tenant’s Requested Work shall be furnished, at Tenant’s sole cost and expense, by Landlord’s architects and engineers, but subject to the provisions of Paragraphs 2, 3 and 7 hereof regarding the manner of payment. Landlord will perform such work subject to the terms and conditions of this Exhibit B.
1.3.	Tenant may perform additional work (“Tenant’s Additional Work”) that Tenant intends to construct itself, at Tenant’s sole cost and expenses, pursuant to, and in compliance with, the Lease.
1.4.	Any interior decorating services which are not included in Landlord’s Work or which Tenant desires to upgrade beyond the quality level which Landlord is obligated to deliver, such as selection of wall paint colors and/or wall coverings, fixtures, non-building standard carpet, and any or all other decorator items required by Tenant in the performance of said work referred to hereinabove in Paragraphs 1.1,1.2, and 1.3 shall be at Tenant’s sole cost and expense.
1.5.	Landlord has obtained all plans and specifications for the improvements provided for in Paragraphs 1.1, 2 and 3. All such plans shall be approved by Tenant, concurrently with the execution of the Lease, which approval shall not be unreasonably withheld. Complete plans and specifications and a cost estimate for the portion of the work covered thereby to be borne by Tenant shall be approved by Tenant within five business (5) days of receipt from Landlord.
1.6.	All Plans (“Plans”) whether prepared for Landlord’s Work, Tenant’s Requested Work or Tenant’s Additional Work shall meet the standards set forth in Schedule II.

2.	Completion of Landlord’s Work. Landlord will, at Landlord’s sole cost and expense, furnish and install all of Landlord’s Work (i.e., “turn-key” Tenant Improvements) in accordance with Schedule I (“Landlord’s Work”). The work to be performed by Landlord may include Tenant’s Requested Work if the provisions of Paragraph 1.2 and 1.4 above are timely met and Tenant has made satisfactory financial arrangements with Landlord to pay for the same. To the extent that the aggregate costs exceed $394,560.00 (“Tenant Allowance”), the excess costs of Landlord’s Work and Tenant’s Requested Work, if approved, will be amortized over the initial term of the Lease, and in determining such amortized cost, Tenant will be responsible to pay such excess costs plus interest at the rate of nine percent (9%) per annum on the unpaid balance from time to time of said excess costs and interest until it is paid in full.
3.	Emergency Generator; Parking Lot. At any time within the first twelve (12) months after this Lease is executed, Tenant may elect to install an emergency generator, subject to Landlord’s approval of the specifications and location within the Premises and its effect, if any, on other utilities and improvements within the Premises. Tenant shall be solely responsible for the cost to purchase and install the generator, but such costs may be included within the provisions for Tenant Allowance described in Paragraphs 2, 3 and 7 hereof.
	Landlord further agrees that prior to Tenant’s occupancy of the Premises, Landlord, at its own cost, will apply new slurry coat to, and re-stripe the parking lot.

4.	Telecommunications, Power and Fiber Optic Feeds. SBC has represented to Landlord and Tenant (both of which have relied thereon) that DSL service is available to the Premises and to telephone lines to be installed and used within the Premises. SBC has represented that fiber optic hookups are located on the west side of the SBC location at the Project, and Time Warner has represented that fiber optic lines can be brought to the Premises at no cost to Landlord or Tenant in exchange for a 36 month service contract. While Landlord does not warrant the validity of such representations by SBC and Time Warner, Landlord will accommodate any effort to install such fiber optic lines, all at no cost to Landlord.
	Landlord also represents that the Premises is equipped with a 1,200 amp main service capacity (120/228 volts). Landlord will be responsible as a part of the turnkey Landlord’s Work to provide sufficient power to support Tenant’s needs to utilize Landlord’s Work and Tenant’s Requested Work (to the extent the same becomes a part of the Premises).
5.	Completion of Tenant’s Requested Work. Provided the plans and specifications and cost estimates are approved by the date provided hereinabove in Paragraph 1.5, Landlord shall cause Tenant’s Requested Work to be installed by Landlord’s contractor (as defined below). Prior to commencing any such work, Landlord, its contractor, or its architects and engineers, shall submit to Tenant a written estimate of the cost thereof. Said cost shall include a construction management fee payable to Landlord equivalent to three percent (3%) of the cost of Tenant’s Requested Work. If Tenant shall fail to approve any such estimate within ten (10) days after submission thereof, such failure shall be deemed a disapproval thereof, and Landlord’s contractor shall not proceed with such work.
6.	Tenant Allowance. For purposes of the installation of Landlord’s Work referenced in Paragraph 1 above, the costs thereof (including all labor, material, subcontracts and standard overhead) shall be the sole responsibility of Tenant, and Tenant shall reimburse Landlord in full therefor upon completion of the work and the submittal of a final billing statement to Tenant. Notwithstanding the above, however, Landlord hereby grants to Tenant a Tenant Allowance of up to Three Hundred Ninety-Four Thousand Five Hundred Sixty Dollars ($394,560.00). That allowance will apply first against the obligation of Tenant to pay for Landlord’s Work and Tenant’s Requested Work (if applicable), and Tenant will remain liable for the excess of the costs of Landlord’s Work and Tenant’s Requested Work in excess of the Tenant Allowance. To the extent that the Tenant Allowance is not used prior to the completion of Landlord’s Work and the Tenant’s Requested Work, said unpaid portion shall be applied to the cost of construction of Tenant’s Additional Work, if any.
7	Early Access.

7.1

Landlord, in its sole discretion, may permit Tenant and Tenant’s agents or contractors to enter the Premises prior to the Commencement Date in order that Tenant may do the Tenant’s Additional Work. The request and permission must be in writing. If Landlord permits such prior entry, then such license shall be subject to the condition that Tenant and Tenant’s agents, contractors, workmen, mechanics, suppliers, and invitees shall work in harmony and not interfere with Landlord and its agents and contractors in doing their work or with other tenants and occupants of the Building. If at any time such entry shall cause or threaten to cause such disharmony or interference, Landlord, in its sole discretion, shall have the right to withdraw and cancel such license upon twenty-four (24) hours written notice to Tenant and any further prior entry shall be prohibited. Tenant agrees that any entry into and any occupation of the Premises shall be deemed to be under all of the terms, covenants, conditions and provisions of the Lease, except as to the covenant to pay rent.

7.2

In addition to any other conditions or limitations on such license to enter the Premises prior to the Commencement Date, Tenant expressly agrees that neither it nor any of its agents, contractors, workmen, mechanics, suppliers, or invitees shall enter the Premises prior to the Commencement Date unless and until each of them shall furnish such reasonable assurances to Landlord, including but not limited to, insurance coverages, waivers of lien, and surety company performance bonds , as Landlord shall require to protect Landlord against any loss, casualty, liability, liens or claims.

SCHEDULE 1

LANDLORD’S WORK

Landlord to construct Landlord’s Work and Tenant’s Requested Work approved by Landlord in accordance with Paragraphs 1 through 7 above in accordance with the following.

1. Working Drawings

     Landlord and Tenant have approved the floor plans depicting the Premsies as shown on Exhibit A as prepared by Smith Consulting Architects (dated September 23, 2004) for the tenant improvements to be constructed in the Premises. Landlord shall cause Final Working Drawings and Specifications (“Final Working Drawings and Specifications”) to be prepared and delivered to Tenant. The Final Working Drawings and Specifications will show, among other things, (i) the demising plan, finish schedule of Landlord’s building standard items (e.g., carpeting and other floor coverings, doors, hardware, lighting and ceiling), and Tenant’s design work desired by Tenant therefor, and (ii) any internal or external communications or special utility facilities which will require conduits or other improvements within common areas. The work shown on the Final Working Drawings and Specifications is hereafter referred to as the “Landlord’s Work”). Tenant shall, within three (3) business days following its receipt of the Final Working Drawings and Specifications, either approve such Final Working Drawings and Specifications or provide Landlord with the reasons that Tenant is withholding such consent. Tenant’s approval or consent shall be limited to verification that the Final Working Drawings and Specifications accurately detail and are not substantially different from the floor plans as shown on Exhibit A. If Tenant does not approve the Final Working Drawings and Specifications, Landlord shall cause them to be revised, and then resubmit them Tenant for review within three (3) business days of Tenant’s notice to Landlord of said non-approval. No work shall be undertaken by Landlord until the Final Working Drawings and Specifications have been finally approved by Tenant. Landlord’s contractor(“Contractor”), Landlord’s architect and/or Landlord’s engineer (sometimes referred collectively as “Consultants”) shall furnish all services necessary for securing such approvals as, by reason of the nature of the Landlord’s Work, shall be required from any governmental authority having jurisdiction or compliance deemed necessary by Landlord including without limitation, compliance with regulations governing ACM (asbestos containing material), hazardous wastes or materials, OSHA, CAL-OSHA, life-safety, sprinklers and the like. Unless otherwise specified in the Final Working Drawings and Specifications, Landlord shall use building standard materials as determined by Landlord.

2.

Changes at Tenant’s Expense.

If Tenant makes or requires any changes to the Final Working Drawings and Specifications or Landlord’s Work (collectively, “Change Orders”), the actual, reasonable and documented increased cost of performing the Landlord’s Work caused by such Change Orders shall be charged against Tenant in accordance with Paragraphs 2, 3 and 7 above; provided, however, in such increased cost shall include a construction supervision of three percent (3%) of the actual, reasonable and documented cost of performing the work relating to the Change Order. Within five (5) business days after Tenant requests a Change Order (or such longer time as may be reasonably required in light of the nature and scope of the Change Order), Landlord shall cause Landlord’s architect to (i) prepare and deliver to Tenant detailed plans and specifications therefor, (ii) specify the estimated increased cost, or, if applicable, reduced cost resulting therefrom, and (iii) specify the additional time, if any, it will take to complete the Landlord’s Work as a result of the Change Order. Within five (5) business days after Landlord’s and Tenant’s receipt of the information described in the preceding sentence, (A) Tenant shall approve or disapprove the requested Change Order (in Tenant’s sole and absolute discretion) and (B) Landlord shall approve or disapprove the work contained in such Change Order, it being agreed that Landlord may disapprove any such work only if a Design Problem exists. For purposes hereof, “Design Problem(s)” shall mean items that adversely affect the Building structure, Building systems, the exterior of the Building, or would increase the cost of operation and maintenance of the Building. Tenant’s failure to approve any such Change Order in writing within the five (5) business days period described above shall be deemed to be Tenant’s disapproval of such Change Order. If Landlord disapproves any Change Order, Landlord shall, within five (5) business days after receipt thereof, advise Tenant in writing of the Design Problem and the specific modifications required to correct the Design Problem, and Tenant shall notify Landlord in writing whether Tenant desires to make the required modifications to the Change Order. If Landlord delivers written notice of disapproval of a Change Order, and Landlord and Tenant disagree as to whether a Design Problem exists, Landlord and Tenant shall thereafter negotiate in good faith to reach agreement upon revisions to the Change Order to remove Landlord’s reasonable objections thereto. Landlord’s failure to advise Tenant of any Design Problem(s) arising in connection with a proposed Change Order

	within five (5) business days after the submittal thereof by Tenant shall be deemed to be Landlord’s consent thereto. All delivery dates which Landlord has obligated itself to satisfy pursuant to the construction schedule described in Paragraph 3 hereof shall be extended one day for each day of additional construction time that is required as a result of a Change Order, as set forth in the Change Order, it being agreed that Landlord shall have no obligation to do any work described in a Change Order on an overtime basis to avoid incurring construction delays.
3.	Landlord’s Work.
	Landlord shall provide the Landlord’s Work shown on the Final Working Drawings and Specifications at Landlord’s cost and expense subject to the provisions of Paragraphs 2, 3 and 7 of Tenant Improvements set forth above. All items of Landlord’s Work, whether the cost thereof is paid by Landlord or Tenant, shall become the property of Landlord upon expiration or earlier termination of the Lease and shall remain on the Premises at all times during the term of this Lease.
4.	Construction.
	Promptly after the Effective Date, Landlord’s Contractor shall commence and diligently proceed with the construction of all of the Landlord’s Work and the Tenant’s Requested Work and Landlord’s Contractor shall use commercially reasonable efforts to complete the Landlord’s Work and the Tenant’s Requested Work by the Scheduled Commencement Date, subject to delays beyond the control of Landlord or its contractor or subcontractors, including Tenant Delays (Paragraph 8), force majeure (Paragraph 9) or other causes as set forth in Paragraph 5(ii) below. Promptly upon the commencement of the Landlord’s Work, Landlord shall furnish Tenant with a schedule setting forth the projected completion dates therefor and showing the deadlines for any actions required to be taken by Tenant during such construction. Landlord’s Contractor shall make a reasonable effort to meet such schedule.
5.	Completion of Tenant’s Additional Work. Upon completion of the Tenant’s Additional Work, Tenant shall provide to Landlord original, executed contractor’s sworn statements, final waivers of all liens, a certificate of occupancy (if applicable) and receipted bills covering all labor and materials expended.
6.	Tenant’s Default. If Tenant shall fail to comply with any term, provision or agreement hereunder in this Exhibit B, and if any such failure is not cured within fifteen (15) days following written notice to Tenant, then, in addition to any other remedies granted Landlord under the Lease in the case of default by Tenant and any remedies provided for elsewhere in this Exhibit B or available at law or equity, Landlord may elect, upon notice to Tenant, to:

(i)	discontinue all work hereunder, and Tenant’s obligation to pay rent shall commence as of the Scheduled Commencement Date set forth in the Lease, without any abatement on account of any delay in connection with any work relating to the Premises; or
(ii)	complete the construction of the Landlord’s Work pursuant to the Plans as approved by Landlord and Tenant or complete any work which Landlord and Tenant have agreed to in writing, tendering possession to Tenant upon substantial completion thereof, the date of such tender being deemed to be the Commencement Date under the Lease, and charge Tenant for the additional costs of completing any other work, the plans and specifications for which have not been agreed to by Landlord and Tenant, but which Landlord, in its reasonable discretion, deems necessary for the completion of the Premises; or
(iii)	cancel the Lease, effective immediately after Tenant receives notice thereof, without incurring any liability on account thereof and the term granted under the Lease is expressly limited accordingly. If Landlord cancels the Lease pursuant to the terms hereof or as a result of Tenant’s default under the Lease, such cancellation shall not affect Tenant’s liability for any sums payable hereunder.

7. Miscellaneous.

(i)	Tenant expressly assumes the responsibility and obligation of supplying the Consultants with all information concerning Tenant’s requirements with respect to the Landlord’s Work and Tenant’s Requested Work as and when requested by any of the Consultants.
(ii)	Except as set forth in this Exhibit B, Landlord has no other agreement with Tenant and has no obligation to do any work with respect to the Premises. Any other work in the Premises which may be permitted by Landlord pursuant to the terms and conditions of the Lease shall be done at Tenant’s sole cost and expense

	and in accordance with the terms and provisions herein set forth pertaining to Tenant’s Additional Work and such additional requirements as Landlord deems necessary or desirable.
(iii)	All rights and remedies of Landlord herein created or otherwise existing at law or equity are cumulative, and the exercise of one or more such rights or remedies shall not be deemed to exclude or waive the right to the exercise of any other rights or remedies. All such rights and remedies may be exercised and enforced concurrently and whenever and as often as deemed desirable.
(iv)	This Exhibit B shall not be deemed applicable to any additional space added to the original Premises at any time or from time to time, whether by any options under the Lease or otherwise, or to any portion of the original Premises or any additions thereto in the event of a renewal or extension of the original term of the Lease, whether by any options under the Lease or otherwise.

8.	Tenant Delay.
	“Tenant Delay” shall mean any delay in the completion of the Landlord’s Work or Tenant’s Requested Work (if applicable) resulting from any or all of the following, provided any of the following occurrences continue for more than twenty-four (24) hours after Tenant’s receipt of written notice from Landlord, and provided that Tenant has received written notice from Landlord setting forth the cause of such delay within five (5) days after such claimed delay first arises: (a) Tenant’s failure to timely perform any of its obligations pursuant to this Exhibit B, including Tenant’s failure to provide, authorize, approve or address, in a reasonably timely manner, any plans, specifications, drawings, requests for clarification or other information required by this Exhibit B to be approved by Tenant or necessary to perform the Landlord’s Work; (b) Tenant’s changes to the Final Working Drawings and Specifications (i.e., Change Orders), including not only the time to perform the work required by such Change Order(s) but the time it takes for Landlord to cost out such Change Order(s), determine any anticipated delay which will be caused by the work and obtain approval of Tenant of the cost thereof and/or the delay as provided in this Lease or Exhibit B; (c) except to the extent set forth in the Final Working Drawings and Specifications, Tenant’s request for non-Building standard materials, finishes, or installations which are not readily available in a commercially reasonable time given the anticipated Commencement Date or which are incompatible with the Landlord’s building standards; (d) changes or postponements requested by Tenant to the Landlord’s Work or Tenant’s Requested Work (if applicable); (e) any errors in plans, specifications, drawings or other documents provided by Tenant or its employees or agents or any error in comments or requested changes to plans, specifications, drawings or other documents provided by Landlord or its employees; or (f) any wrongful act or failure to act by Tenant, Tenant’s employees, agents, independent contractors, consultants and/or any other person performing or required to perform services on behalf of Tenant which actually and directly causes a delay in the Landlord’s Work.
9.	Force Majeure.
	“Force Majeure” shall mean an actual delay caused by any labor dispute, strike, lockout, fire, unavailability of material, unseasonably severe weather, acts of God, riots, insurrection, war or other casualty or events of a similar nature beyond the reasonable control of Landlord (and any other party required to perform).

TENANT’S WORK

     Tenant agrees to cause the Tenant’s Additional Work to be constructed in a timely manner at its sole cost and expense in accordance with the provisions of this Lease. All of Tenant’s Additional Work shall be installed in a good and workmanlike manner, using only high-grade, first-class material at least equal in quality to existing materials in the Building.

SCHEDULE II

STANDARDS FOR PLANS

1. The space plan shall contain the following information:

a. A layout of the Premises showing demising, corridor and exterior walls in relationship to the Building core. The locations of exterior window mullions, columns, stairways and other building features shall also be shown on the Space Plans.

b.	The location and composition of all walls. Non-standard improvements, such as walls requiring insulation, half walls, vinyl wall coverings or walls requiring special construction must be clearly noted on the Space Plans. Sectional details must be provided to adequately describe the construction of any non-standard wall.
c.	The location, size and swing of all doors. All doors shall conform with Landlord’s standard door specifications, unless otherwise noted on the Space Plans.
d.	A description of flooring materials.
e.	A reflected ceiling plan showing the layout of lighting fixtures, switches, and any other non-standard improvements which are to be located within the ceiling system.
f.	The location of all telephone and electrical outlets. Non-standard improvements, such as outlets to be located more than twelve (12) inches above the floor, dedicated circuit outlets or high amperage/voltage outlets must be clearly noted on the Space Plans.

2. The working drawings shall be prepared at a scale of not less than 1/8"=1 foot and in accordance with Landlord’s design/build specification.

3. All working drawings shall be prepared based upon the use of Landlord’s Building Standard Improvements as set forth in Schedule 1 attached hereto. All Improvements must conform to Landlord’s design/build specifications.

4. The Plans shall contain sufficient notations, specifications and details to describe all Improvements, including but not limited to:

a.	Insulated walls, special wall coverings, graphics, special painting or special wall materials such as plate glass or glass block.
b.	Door dimensions, thickness, hardware or locks.
c.	Flooring materials.
d.	Electrical outlets requiring a dedicated circuit, more than 120 volts or more than 15 amperes.
e.	Telephone outlets requiring more than 3/4 inch diameter conduit.
f.	Light fixtures, exhaust fans, ceiling heights, or ceiling designs using non-standard materials.
g.	Any special conduits, receptacles or electrical devices necessary to serve communications equipment, computers or other facilities to be installed by Tenant.
h.	Any special requirements to accommodate handicapped employees of Tenant within the Premises.
i.	Any requirements for fire protection of computers, other equipment or materials installed by Tenant.
j.	Any requirements for special fire detection or life safety equipment not required by applicable building codes in effect at the time of construction.
k.	Any special reinforcing of the floor system which will be necessary to support computers, filing systems, equipment or furnishings having a load exceeding fifty pounds per square foot of floor area.
l.	Any special requirements for humidity control, temperature control, extra air-conditioning capacity, ventilation or heating which would not be provided by Landlord’s standard building systems. Such special requirements may arise as a result of Tenant’s desire to install a computer or other equipment which generates heat, food preparation facilities, bathrooms, laboratories, microfilm storage or other special facilities, equipment or products.
m.	Any private bathrooms, wet-bars, kitchens, vending machines or other installations requiring plumbing work or ventilation.
n.	Any cabinetry, wood paneling, reception desks, built-in shelving or furniture.

o.	Any improvement which will require modification of the Building’s structural, mechanical or electrical components.
p.	Sufficient details, specifications and other information as may be necessary for accurate pricing of any other non-standard improvements.

INCORPORATION

     This Work Letter (Exhibit B) is hereby incorporated into this Lease executed between Landlord and Tenant concurrently herewith.

  LANDLORD:

  RREEF AMERICA REIT III CORP. JJ.,

  a Maryland corporation

By: RREEF Management Company,

     a Delaware corporation, Its Authorized Agent

  By: /s/ Peter Lloyd

  Date: November 8, 2004

  TENANT:

  RADYNE COMSTREAM, INC.,

  a Delaware corporation

  By: /s/ Brian Duggan

  Date: November 2, 2004

EXHIBIT C — COMMENCEMENT DATE MEMORANDUM

attached to and made a part of Lease bearing the
Lease Reference Date of September 28, 2004 between
RREEF America REIT II Corp. JJ, a Maryland corporation, as Landlord and
Radyne Comstream, Inc., a Delaware corporation, as Tenant

COMMENCEMENT DATE MEMORANDUM

     THIS MEMORANDUM, made as of ___, 20___, by and between RREEF America REIT II Corp., JJ, a Maryland corporation (“Landlord”) and Radyne Comstream, Inc., a Delaware corporation (“Tenant”).

Recitals:

A.	Landlord and Tenant are parties to that certain Lease, dated for reference September 28, 2004 (the “Lease”) for certain premises (the “Premises”) consisting of approximately 26,304 square feet at the building commonly known as 7330 Trade Street, San Diego, California 92121.
B.	Tenant is in possession of the Premises and the Term of the Lease has commenced.
C.	Landlord and Tenant desire to enter into this Memorandum confirming the Commencement Date, the Termination Date and other matters under the Lease.

     NOW, THEREFORE, Landlord and Tenant agree as follows:

	1.	The actual Commencement Date is ___.
	2.	The actual Termination Date is ___.
3.       The schedule of the Annual Rent and the Monthly Installment of Rent set forth on the Reference Pages is deleted in its entirety, and the following is substituted therefor:

Period			Rentable Square		Annual Rent				Monthly Installment
from	through		Footage		Per Square Foot		Annual Rent		of Rent
2/1/2005		6/30/2005		26,304	$	0.00	$	0.00	$	0.00
7/1/2005		6/30/2006		26,304	$	9.00	$	236,736.00	$	19,728.00
7/1/2006		6/30/2007		26,304	$	9.27	$	243,838.08	$	20,319.84
7/1/2007		6/30/2008		26,304	$	9.46	$	248,835.84	$	20,736.32
7/1/2008		6/30/2009		26,304	$	9.74	$	256,200.96	$	21,350.08
7/1/2009		6/30/2010		26,304	$	10.03	$	263,829.12	$	21,985.76

4. Capitalized terms not defined herein shall have the same meaning as set forth in the Lease.

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date and year first above written.

LANDLORD:		TENANT:
RREEF AMERICA REIT II CORP., JJ., a		RADYNE COMSTREAM, INC., a Delaware
Maryland corporation		corporation
By:	RREEF Management Company, a
	Delaware corporation
By:	DO_NOT_SIGN	By:	DO_NOT_SIGN
Name:		Name:
Title:		Title:
Dated:		Dated:

EXHIBIT D — RULES AND REGULATIONS

attached to and made a part of Lease bearing the
Lease Reference Date of September 28, 2004 between
RREEF America REIT II Corp. JJ, a Maryland corporation, as Landlord and
Radyne Comstream, Inc., a Delaware corporation, as Tenant

1. Except as provided in Article 43 of the Lease, no sign, placard, picture, advertisement, name or notice (collectively referred to as “Signs”) shall be installed or displayed on any part of the outside of the Building without the prior written consent of the Landlord . All approved Signs shall be printed, painted, affixed or inscribed at Tenant’s expense by a person or vendor approved by Landlord and shall be removed by Tenant at Tenant’s expense upon vacating the Premises. Landlord shall have the right to remove any Sign installed or displayed in violation of this rule at Tenant’s expense and without notice. Landlord, at its own expense, will mark Tenant’s reserved parking spaces on the curbs.

2. If Landlord objects in writing to any curtains, blinds, shades or screens attached to or hung in or used in connection with any window or door of the Premises or Building, Tenant shall immediately discontinue such use. No awning shall be permitted on any part of the Premises. Tenant shall not place anything or allow anything to be placed against or near any glass partitions or doors or windows which may appear unsightly, in the opinion of Landlord, from outside the Premises.

3. Tenant, upon the termination of its tenancy, shall deliver to Landlord the keys or other means of access to all doors.

4. If Tenant requires telephone, data, burglar alarm or similar service, the cost of purchasing, installing and maintaining such service shall be borne solely by Tenant. No boring or cutting for wires will be allowed without the prior written consent of Landlord. Landlord shall direct electricians as to where and how telephone, data, and electrical wires are to be introduced or installed. The location of burglar alarms, telephones, call boxes or other office equipment affixed to the Premises shall be subject to the prior written approval of Landlord.

5. Tenant shall not place a load upon any floor of its Premises, including mezzanine area, if any, which exceeds the load per square foot that such floor was designed to carry and that is allowed by law. Heavy objects shall stand on such platforms as determined by Landlord to be necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any such equipment or other property from any cause, and all damage done to the Building by maintaining or moving such equipment or other property shall be repaired at the expense of Tenant.

6. Except as provided in Article 30 of this Lease, Tenant shall not install any radio or television antenna, satellite dish, loudspeaker or other device on the roof or exterior walls of the Building without Landlord’s prior written consent which consent shall be in Landlord’s sole discretion.

7. Tenant shall not mark, drive nails, screw or drill into the partitions, woodwork, plaster or drywall (except for pictures and general office uses) or in any way deface the Premises or any

part thereof. Tenant shall not affix any floor covering to the floor of the Premises or paint or seal any floors in any manner except as approved by Landlord. Tenant shall repair any damage resulting from noncompliance with this rule.

8. No cooking shall be done or permitted on the Premises, except that Underwriters’ Laboratory approved small kitchen appliances shall be permitted, provided that such equipment and use is in accordance with all applicable federal, state and city laws, codes, ordinances, rules and regulations.

9. Tenant shall not use any hand trucks except those equipped with the rubber tires and side guards, and may use such other material-handling equipment as Landlord may approve. Tenant shall not bring any other vehicles of any kind into the Building. Landlord consents to Tenant’s use of a forklift in and around the Premises provided that the forklift only use tires that do not damage asphalt.

10. Tenant shall not use the name of the Building or any photograph or other likeness of the Building in connection with or in promoting or advertising Tenant’s business except that Tenant may include the Building name in Tenant’s address and Tenant may use a likeness of the Building in its Internet advertising. Landlord shall have the right, exercisable with notice and without liability to any tenant, to change the name and address of the Building, provided, however, Landlord will reimburse Tenant its reasonable cost to replace its business cards, stationary and other brochures and marketing materials in an amount not to exceed One Thousand Dollars ($1,000.00).

11. All trash and refuse shall be contained in suitable receptacles at locations approved by Landlord. Tenant shall not place in the trash receptacles any personal trash or material that cannot be disposed of in the ordinary and customary manner of removing such trash without violation of any law or ordinance governing such disposal.

12. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governing authority.

13. Tenant assumes all responsibility for securing and protecting its Premises and its contents including keeping doors locked and other means of entry to the Premises closed.

14. Tenant shall not use any method of heating or air conditioning other than that supplied by Landlord without Landlord’s prior written consent.

15. No person shall go on the roof without Landlord’s permission, except Tenant and Tenant’s employees may go on the roof to maintain its satellite dishes.

16. Tenant shall not permit any animals, other than seeing-eye dogs, to be brought or kept in or about the Premises or any common area of the property.

17. Tenant shall not permit any motor vehicles to be washed or mechanical work or maintenance of motor vehicles to be performed on any portion of the Premises or parking lot, except that Tenant may maintain its forklift on the Premises.

18. These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of any lease of any premises in the Building. Landlord may waive any one or more of these Rules and Regulations for the benefit of any tenant or tenants, and any such waiver by Landlord shall not be construed as a waiver of such Rules and Regulations for any or all tenants. Landlord agrees to enforce the Rules and Regulations in a non-discriminatory manner.

19. Landlord reserves the right to make such other and reasonable rules and regulations as in its judgment may from time to time be needed for safety and security, for care and cleanliness of the Building and for the preservation of good order in and about the Building. Tenant agrees to abide by all such rules and regulations herein stated and any additional rules and regulations which are adopted. Tenant shall be responsible for the observance of all of the foregoing rules by Tenant’s employees, agents, clients, customers, invitees and guests.

20. Any toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown into them. The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the Tenant who, or whose employees or invitees, shall have caused it.

21. Tenant shall not permit smoking or carrying of lighted cigarettes or cigars in areas reasonably designated by Landlord or any applicable governmental agencies as non-smoking areas. The non-smoking areas shall include (without limitation) the entire Building constituting the Premises and adjacent patios. Landlord shall designate areas outside of the Building as designated smoking areas.

22. Any directory of the Building or project of which the Building is a part (“Project Area”), if provided, will be exclusively for the display of the name and location of tenants only and Landlord reserves the right to charge for the use thereof and to exclude any other names.

23. Canvassing, soliciting, distribution of handbills or any other written material in the Building or Project Area is prohibited and each tenant shall cooperate to prevent the same. No tenant shall solicit business from other tenants or permit the sale of any goods or merchandise in the Building or Project Area without the written consent of Landlord.

24. Any equipment belonging to Tenant which causes noise or vibration that may be transmitted to the structure of the Building or to any space therein to such a degree as to be objectionable to Landlord or to any tenants in the Building shall be placed and maintained by Tenant, at Tenant’s expense, on vibration eliminators or other devices sufficient to eliminate the noise or vibration.

25. Driveways, sidewalks, halls, passages, exits, entrances and stairways (“Access Areas”) shall not be obstructed by tenants or used by tenants for any purpose other than for ingress to and egress from their respective premises. Access areas are not for the use of the general public and Landlord shall in all cases retain the right to control and prevent access thereto by all persons whose presence, in the judgement of Landlord, shall be prejudicial to the safety, character, reputation and interests of the Building or its tenants.

26. Landlord reserves the right to designate the use of parking areas and spaces. Tenant shall not park in visitor, reserved, or unauthorized parking areas. Tenant and Tenant’s guests shall park between designated parking lines only and shall not park motor vehicles in those areas designated by Landlord for loading and unloading. Vehicles in violation of the above shall be subject to being towed at the vehicle owner’s expense.

27. No trucks, tractors or similar vehicles can be parked anywhere other than in Tenant’s own truck dock area. Tractor-trailers which must be unhooked or parked with dolly wheels beyond the concrete loading areas must use steel plates or wood blocks under the dolly wheels to prevent damage to the asphalt paving surfaces. No parking or storing of such trailers will be permitted in the parking areas or on streets adjacent thereto.

28. During periods of loading and unloading, Tenant shall not unreasonably interfere with traffic flow and loading and unloading areas of other tenants. All products, materials or goods must be stored within the Tenant’s Premises and not in any exterior areas, including, but not limited to, exterior dock platforms, against the exterior of the Building, parking areas and driveway areas. Tenant agrees to keep the exterior of the Premises clean and free of nails, wood, pallets, packing materials, barrels and any other debris produced from their operation.

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

EX-31.1

Exhibit 31.1

Certification

I, Robert C. Fitting, certify that:

1)	I have reviewed this quarterly report on Form 10-Q of Radyne Corporation;
2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operation and cash flows of the registrant as of, and for, the periods presented in this report;
4)	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9th, 2005

/s/ Robert C. Fitting

Robert C. Fitting, Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification

I, Malcolm C. Persen, certify that:

1)	I have reviewed this quarterly report on Form 10-Q of Radyne Corporation;
2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operation and cash flows of the registrant as of, and for, the periods presented in this report;
4)	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

4) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

e)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
f)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9th, 2005

/s/ Malcolm C. Persen

Malcolm C. Persen, Chief Financial Officer

(Principal Financial Officer)

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Quarterly Report of Radyne Corporation (the “Company”) on Form 10-Q for the quarter ended September 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:

     (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2) The information contained in the Report fairly presents, in all material respects, the consolidated financial condition and results of operations of the Company .

/s/ Robert C. Fitting

Robert C. Fitting

Chief Executive Officer

November 9th, 2005

/s/ Malcolm C. Persen

Malcolm C. Persen

Chief Financial Officer

November 9th, 2005