10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2012 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 0-28218

AFFYMETRIX, INC.

(Exact name of registrant as specified in its charter)

DELAWARE(State or other jurisdiction of incorporation or organization)	77-0319159 (IRS Employer Identification Number)
3420 CENTRAL EXPRESSWAYSANTA CLARA, CALIFORNIA (Address of principal executive offices)	95051 (Zip Code)
(408) 731-5000 (Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class   Common Stock, $0.01 par value Preferred Stock Purchase Rights Name of Each Exchange on Which Registered   The Nasdaq Global Select Market The Nasdaq Global Select Market

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o  No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o  No x

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x  No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§232.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer x
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

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

The aggregate market value of the registrant's common stock held by non-affiliates of the registrant at June 30, 2012, based on the closing price of such stock on The Nasdaq Global Select Market on such date, was approximately $327 million. The number of shares of the registrant's Common Stock outstanding on February 22, 2013 was 71,053,521.

DOCUMENTS INCORPORATED BY REFERENCE

Certain sections of the Proxy Statement to be filed in connection with the 2013 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K where indicated.

AFFYMETRIX, INC.

FORM 10-K

DECEMBER 31, 2012

TABLE OF CONTENTS

Item No.		Page
	PART I	3
1.	Business	3
1A.	Risk Factors	18
1B.	Unresolved Staff Comments	32
2.	Properties	32
3.	Legal Proceedings	32
4.	Mine Safety Disclosures	32
	PART II	32
5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities	32
6.	Selected Financial Data	34
7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	36
7A.	Quantitative and Qualitative Disclosures About Market Risk	50
8.	Financial Statements and Supplementary Data	52
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	92
9A.	Controls and Procedures	92
9B.	Other Information	94
	PART III	94
10.	Directors, Executive Officers and Corporate Governance	94
11.	Executive Compensation	94
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	94
13.	Certain Relationships and Related Transactions, and Director Independence	94
14.	Principal Accounting Fees and Services	94
	PART IV	95
15.	Exhibits and Financial Statement Schedules	95
	Signatures	97
	Index to Exhibits	98

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PART I

ITEM 1.  BUSINESS

Forward-Looking Statements

All statements in this Annual Report on Form 10-K that are not historical are "forward-looking statements" within the meaning of the federal securities laws. These include statements regarding our strategic initiatives, anticipated cost savings, return to profitability and integration of and synergies related to eBioscience, as well as all other "expectations," "beliefs," "hopes," "intentions," "strategies" or the like. Such statements are based on our current expectations and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. We cannot assure you that actual results or business conditions will not differ materially from those projected or suggested in such forward-looking statements as a result of various factors, including, but not limited to, those discussed in "Risk Factors" contained in Item 1A of this Annual Report on Form 10-K. Unless required by law, we do not undertake to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions, or circumstances on which any such statements are based.

Overview

We are a leading provider of life science tools and molecular diagnostic products that enable parallel analysis of biological systems at the gene, protein and cell level. We sell our products to genomic research centers, academic institutions, government and private laboratories, as well as pharmaceutical, diagnostic and biotechnology companies. Over 48,000 peer-reviewed papers have been published based on work using our products. We have approximately 1,100 employees worldwide and maintain sales and distribution operations across the United States, Europe, Latin America and Asia.

We were incorporated in California in 1992 and reincorporated in Delaware in 1998. Our principal executive offices are located at 3420 Central Expressway, Santa Clara, CA 95051. Our telephone number is (408) 731-5000.

Our Strategy

In the past several years, we have been faced with declining financial performance. A significant portion of our business is a well-established GeneChip® Expression product line used to measure gene expression, i.e., the levels of the individual ribonucleic acid ("RNA") produced from genes contained in the cell. Historically, we have sold these products primarily in the basic research market focused on discovery research, where we face declining sales and intense competition from newer technologies such as next generation sequencing that is increasingly being used to identify and measure RNA levels in cells. Our strategy is to transform the company from one that is highly dependent on its GeneChip® Expression products, to one with diversified revenue streams that has a broad reach into the growing markets for translational medicine, molecular diagnostics and applied markets such as agricultural biotechnology ("AgBio").

The scientific and medical communities are recognizing that an understanding of complex diseases, such as cancer, will require not only an analysis of genes, but also parallel analyses of a wide variety of molecular events across the gene, protein and cell. They are increasingly focused on understanding underlying molecular mechanisms of disease and identification of biomarkers – molecular signatures of DNA, RNA or protein that are diagnostic, predictive and/or direct therapy – that will validate and translate research data into biomarker signatures with clinical utility. A primary goal is to identify biomarkers that will lead to routine use in the clinic. Affymetrix is evolving with these changes in the market to provide technologies that interrogate molecular events across the cell and between cells to enable scientists to more quickly derive results for clinical utility and routine use.

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Dr. Frank Witney became our President and Chief Executive Officer in July 2011. Under Dr. Witney's leadership, we focused on realigning our product portfolio, stabilizing our core business and positioning our company for growth and increasing profitability. We expect our transformation will take several years, and we are executing on a plan that we have categorized into three phases:

· Phase 1 (2011-2012) –Portfolio Realignment. During this phase, we reorganized ourselves into business units to sharpen our business focus based on target markets. We also launched CytoScan®, our growing cytogenetic microarray product line and acquired eBioscience Holdings, Inc ("eBioscience"). Through eBioscience, we now offer flow cytometry and immunoassay products that enable us to broaden our reach into the translational medicine and molecular diagnostics markets. We believe these actions will lead to a stabilization of our core business and the realignment of our product portfolio will position us for growth.

· Phase II (2013-2014) – Profitability, Strengthen Balance Sheet, Development of Newer Product Lines. In the beginning of 2013, we implemented a corporate restructuring with a goal of accelerating our path to profitability. We expect the corporate restructuring to result in annualized savings of approximately $25 million based on 2013 run rates, of which $5 million is expected to be in cost of goods sold. Our priorities for this phase will be to achieve profitability, repay our senior secured debt, successfully commercialize our newer product lines (CytoScan®, Axiom® and QuantiGene® lines, as well as our eBioscience products) and invest in new product offerings. In addition, we will train and refocus our global commercial organization to expand our reach to customers in the translational medicine, molecular diagnostics and applied markets.

· Phase III (2015 -2016) – Strategic Flexibility, Expansion of Product Lines; Growth. Our goal is to have a strong balance sheet in this phase that will provide us with the flexibility to make strategic acquisitions. In addition, we aim to grow revenues with developed product lines and new product offerings in the translational medicine, molecular diagnostic and applied markets.

eBioscience Acquisition in 2012

In June 2012, we acquired eBioscience for approximately $315 million (the "Acquisition"). eBioscience is based in San Diego, California, and engaged in the development, manufacture and sale of flow cytometry and immunoassay reagents for life science research and diagnostics.

We used a combination of cash-on-hand, third-party borrowings and the issuance of convertible senior notes to finance the Acquisition. We entered into a credit agreement with General Electric Capital Corporation, Silicon Valley Bank and other financial institutions that provided for a term loan (the "Term Loan") of an aggregate principal amount of $85.0 million and a revolving credit facility (the "Revolving Credit Facility") in an aggregate principal amount of $15.0 million (collectively, the "Senior Secured Credit Facility"). The term loan is due in 2017. As of December 31, 2012, we had $73.3 million of the Term Loan outstanding. We also issued $105.0 million of 4.00% Convertible Senior Notes (the "4.00% Notes") that are due July 1, 2019.

We believe that eBioscience will be a successful part of the Affymetrix portfolio and brand for the following reasons:

· Diversification and Market Opportunity. The acquisition of eBioscience represents a transformative opportunity for us to diversify our revenue streams with a stronger offering of reagents for cell and protein analysis that serve the immunology and cancer research, translational medicine and molecular diagnostics markets. We believe that diversification into cell and protein analysis provides an important growth opportunity and should help us offset the decline in our legacy gene expression microarray business. The integrated commercial organizations of eBioscience and Affymetrix Core enhance our ability and strengthen our reach to strategic customers. Finally, we are executing on novel product development opportunities enabled by combined research and development capabilities.

· Recognized Brand. eBioscience develops, manufactures and markets reagents and antibodies that are fundamental for research applications in immunology, oncology, cell biology, and stem cell biology. Marketing products in over 70 countries worldwide, eBioscience maintains one of the most recognizable reagents brands in the biology research community.

· Strong Historical Financial Performance. eBioscience total revenues for 2012 were $72.8 million, up 3% from 2011.

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Our Principal Markets

We believe that the analysis of genetic variation and an understanding of function and characteristics of single cells and sub-populations of cells will become increasingly important in disease research, drug development and the development of molecular tests. In addition to offering products in the basic research markets, we are making inroads into the translational research markets, the fast-growing molecular diagnostics market and the flow cytometry markets.

Basic Research Markets

Basic research encompasses the study of differences between individual humans, animals and plants or seeks to understand the biological mechanisms underlying normal development and disease states. Funding for basic research comes from a variety of public and private sources, with the National Institute of Health in the United States historically representing the largest financing source. The required technologies generally must enable large-scale and highly complex analysis of genetic variation and biological function. Our Affymetrix products target large scale genotyping (determining the genetic make-up of a cell and differences between individuals), copy number variation and gene expression applications, while our eBioscience reagents for flow cytometry and immunoassays serve academic research centers, government agencies, and private research foundations engaged in protein and cell biology research. A primary end-point of the end users of our products for basic research is peer-reviewed scientific publications.

Translational Medicine Markets

Customers in the translational medicine markets are clinical researchers, molecular pathologists, oncologists and cytogeneticists, who have become increasingly engaged in applying genetic analysis technologies for the development of new clinical methods to be used in the diagnosis, monitoring and treatment of a wide variety of molecular based diseases. These end users are often located in diagnostic companies, commercial reference laboratories, clinical research departments within academic medical centers and major pharmaceutical and biotechnology companies. The required technology is used in a repetitive testing environment and must enable cost effective, flexible analysis of significantly fewer genetic and biological markers, as compared to the technology used in basic research. Our Axiom®, CytoScan®, Oncoscan® and eBioscience® products line, and our low- to mid-plex QuantiGene® products target the needs of these users, who are focused on improving clinical outcomes and standard of care.

Molecular Diagnostic Markets

We believe molecular diagnostics is the fastest growing segment of the diagnostics market. At present, the growth historically has been driven by infectious disease testing, but molecular diagnostics is expanding into new areas such as non-invasive prenatal testing and cancer management. The increasing efficacy of molecular diagnostics is driven by the continued discovery of genetic markers with proven clinical utility, the increasing adoption of genetic-based diagnostic tests, and the expansion of reimbursement programs to include a greater number of approved molecular diagnostic tests. Our CytoScan® product line seeks to serve this market by providing genome wide analysis of the chromosome complement of the cell in inherited and acquired diseases. In addition, we also partner with molecular diagnostics companies under our Powered by Affymetrix program to develop and commercialize molecular diagnostics tests using our products. In addition, we have a variety of other internal programs such our OncoScan, QG View RNA and a large panel of Analyte Specific Reagents ("ASRs") for leukemia and lymphoma immunophenotyping aimed at the translational medicine and molecular diagnostics market.

Flow Cytometry

Flow cytometry is a well-established technology used to count and examine physical and chemical parameters of particles, such as cells, in high throughput. Fluorescently-labeled antibodies are generally used to measure these parameters in a population of cells, which are suspended in a fluid and passed through an electronic detection device. Measurable parameters of a cell include volume and morphology, DNA/RNA content, DNA copy number variation, protein expression and localization, intracellular antigens (e.g. cytokines, chemokines), enzymatic activity and cell viability. Flow cytometry is routinely used in basic and clinical research, including immunology, cell biology, and stem cell biology, as well as in the diagnosis of health disorders, especially blood cancers and HIV. Our eBioscience products serve the flow cytometry market.

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Applied Markets

Applied markets refer to a variety of other markets which we provide products and services in. The one we primarily target is the AgBio market where we supply catalog and custom genotyping and expression array products to facilitate agricultural plant and animal research and commercial improvement programs. We currently supply academic, industrial and government customers with SNP-based genotyping arrays for crops including wheat, strawberry and rice and for livestock such as cattle, buffalo and chicken. These genotyping products are used, among other things, in genomic selection for more rapid, accurate and efficient breeding of desired traits than traditional breeding methods. The AgBio market is growing rapidly and represents a significant business opportunity.

Factors Affecting Our Markets

We expect that the following factors, among others, will influence the size and development of the markets served by our technologies:

· the availability of government funding for basic and disease-related research;

· the amount of capital expenditures allocated to research and development by biotechnology, pharmaceutical and diagnostic companies;

· the regulatory and reimbursement environment for our customers in the translational medicine and molecular diagnostics markets;

· the application of gene, protein and cell analyses to new areas including molecular diagnostics, agriculture, human identity and consumer goods;

· technological innovation that creates price competition and lowers the costs of life science research;

· the development of new computational techniques to handle and analyze large amounts of life science search data; and

· the availability of genetic markers and signatures of the human population that have clinical value or of other organisms that have commercial value, and novel binding agents (such as antibodies) to new protein markers.

Business Segments

Our operations consist of two reportable segments, Affymetrix Core and eBioscience. Affymetrix Core accounted for approximately 80% of total revenue and eBioscience accounted for approximately 13% of total revenue during the year ended December 31, 2012. The remaining 7% of total revenue came from our Corporate business unit which we do not categorize as an operating segment.

Affymetrix Core is divided into three business units with each business unit having its own research, development and marketing groups to better serve customers and respond quickly to the market needs. In addition, the business units share common corporate services that provide capital, infrastructure and functional support, allowing them to focus on core technological strengths to compete and innovate in their markets. The following describes the three business units that form Affymetrix Core:

· Expression: This business unit develops and markets the Company's GeneChip® gene expression products and services, and the QuantiGene® line of low-to-mid-plex RNA measurement products.

· Genetic Analysis and Clinical Applications: This business unit develops and markets the Company's genotyping, such as the Axiom® product line and arrays with clinical research applications, such as the CytoScan® cytogenetics arrays.

· Life Science Reagents: This business unit develops and sells reagents, enzymes, purification kits and biochemicals used by life science researchers.

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eBioscience is operated as a separate business unit with its own research, marketing and manufacturing groups, but shares common corporation services with Affymetrix Core:

· eBioscience: This reportable segment specializes in the development, manufacturing, marketing and distribution of research tools in the areas of flow cytometry, immunoassays, microscopic imaging and other protein-based analyses.

We have one additional business unit, the Corporate business unit, which is comprised primarily of revenue from royalty arrangements, and field revenue from services provided to customers by the Company. Its manufacturing operations are based on platforms that are used to produce various Affymetrix Core and eBioscience products that serve multiple applications and markets. The Corporate business unit will be disclosed in the "other category", as it is not deemed to be a separate operating segment and will not be aggregated into either of our two reportable operating segments.

Sales and Distribution

All of our business units sell their products through our Global Commercial Organization comprised of sales, field application and engineering support, and marketing personnel. We market and distribute our products directly to customers in North America, Japan and major European markets. In these markets, we have our own sales, service and application support personnel responsible for expanding and managing their respective customer bases. In other markets, such as Mexico, India, the Middle East and Asia Pacific, including the People's Republic of China, we sell our products principally through third party distributors that specialize in life science supply. For molecular diagnostic and industrial applications market opportunities, we supply our partners with arrays and instruments, which they incorporate into diagnostic products and assume the primary commercialization responsibilities.

Scientific Background

Introduction to the Genome

Understanding the genome helps us understand the inheritance of biological characteristics, developmental biology and normal and disease states of cells and organisms. Genetic variation accounts for many of the differences between individuals, such as eye color and blood group, and also affects a person's susceptibility to certain diseases including cancer. For example, many cancers are caused by genetic variations in individual cells. Genetic variation can also determine a person's response to drug therapies. We believe that this will lead to a new healthcare paradigm where disease is understood at the molecular level, allowing patients to be diagnosed according to genetic information and then treated with drugs designed to work on specific molecular targets.

The instructions required for every living cell to develop its characteristic form and function are believed to be represented within discrete regions of the genome known as genes. All known genomes, including the human genome, are composed of either deoxyribonucleic acid ("DNA") or RNA. DNA molecules consist of two long complementary strands comprised of four different building blocks called nucleotides. The amount of RNA made from any given gene is a measure of the expression level of that gene. One type of RNA, the messenger RNA ("mRNA") is central to protein synthesis. There are RNAs with other roles, such as regulating gene expression, involvement in protein synthesis or comprise the genetic information of viruses.

Genotyping

Genotyping is the process of determining the genetic constitution of a cell, organism or individual in order to determine how it is specialized or differs from a group. Typically, each cell in an individual contains a complete copy of its genome. In a population, individuals vary from one another because of differences in gene sequences which are inherited from each parent and sometimes through the introduction of sequence changes due to environmental damage or biological errors in processes like gene replication. Common forms of genetic variation include single-nucleotide polymorphisms, or SNPs, and copy number variations, or CNVs. A SNP is a variation in a single position in a DNA sequence and a CNV is a variation in the number of copies of a segment of the DNA.

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By screening for these polymorphisms, researchers seek to identify those that might be implicated in specific diseases. Sometimes it is not a single SNP or CNV, but the combination of certain variations that lead to a diseased state. For this reason, researchers look at the patterns of these polymorphisms in a large number of healthy and diseased individuals in order to correlate specific variants with specific diseases or phenotypes. Large scale genotyping can be used, for example, in studies designed to elucidate the genetic contributions to disease and, in the case of clinical trials, to drug response.

Gene Expression

Gene expression monitoring is the process of determining which genes are active in a specific cell or group of cells. Timing and level of gene expression is an important mechanism by which the fate and function of cells are regulated. Although most cells contain an organism's full set of genes, each cell expresses only a subset of genes at any given time and the level of expression also varies with the state of that cell. The expression pattern or profile of genes can be correlated with many human diseases such as cancer, as well as with the effectiveness of treatment in specific patient populations. By identifying genes that are differentially expressed in particular diseases or patient populations, novel molecular targets and treatments may be identified and validated. In addition, gene expression signatures may be identified that provide early identification of a predisposition to disease or allow the selection of treatments optimized for an individual.

Our Principal Technologies

Array Technology

Our array technology leverages semiconductor-based photolithographic fabrication techniques, which enables us to synthesize a large variety of predetermined DNA sequences simultaneously in predetermined locations on a small glass chip called an "array." Photolithography is a technique which uses light to create exposure patterns on the glass chip and to direct chemical reactions. The function of each single-stranded sequence on our array, called a probe, is to bind to its complementary DNA or RNA from a biological sample. Our technology allows millions of probe sequences to be arrayed at specified locations on a chip the size of a thumb nail. Our arrays permit the analysis of all the genes or RNAs in the genome simultaneously.

The nucleic acid (DNA or RNA) to be tested is isolated from a sample, such as blood, saliva or biopsy tissue, amplified and prepared for hybridization, a process that enables the reaction of RNA or DNA targets in the sample to specific, pre identified locations on the array. The test sample is then washed over the array, where the individual nucleic acid sequences that represent the genetic content or expressed genes of the sample hybridize to their complementary sequences bound on the array. The molecules in the test sample may be labeled with fluorescent dye either before or after hybridization. When scanned by a laser in our scanner instrument, the test sample generates a fluorescent signal. The locations where a fluorescent signal is detected by an optical detection system on the scanner instrument correspond to sequences complementary to the test sample. Sequence variation, or the quantification of the amount of specific sequences of RNA or DNA sequences in the sample, can be determined by detecting the relative strength of these signals since the sequence and position of each complementary DNA probe on the GeneChip® is known.

The combination of a particular array, together with an optimized set of reagents and a user protocol describing how to carry out the procedure, is referred to as an "assay."

bDNA Technology

We offer customers our QuantiGene® line of assay products for a wide variety of low- to mid-plex genetic, protein and cellular analysis applications using branched DNA, or bDNA, technology. These assays measure RNA levels directly from samples, either in solution or in cells and tissues, using a signal amplification method without the need for RNA purification, providing customers with improved accuracy, scale and workflow relative to traditional methods based on the polymerase chain reaction, or PCR. An important feature of bDNA technology is the ability to measure RNA in clinically relevant samples such as FFPE (formalin fixed paraffin embedded) which are used in retrospective cancer research, as well as cancer diagnostic applications.

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Flow Cytometry and Immunoassay

Flow cytometry is a well-established technology used to count and examine physical and chemical parameters of particles, such as cells, in high throughput. Fluorescently-labeled antibodies are generally used to measure these parameters in a population of cells, which are suspended in a fluid and passed through an electronic detection device. Measurable parameters of a cell include volume and morphology, DNA/RNA content, DNA copy number variation, protein expression and localization, intracellular antigens (e.g. cytokines, chemokines), enzymatic activity and cell viability.

Flow cytometry is routinely used in basic and clinical research, including immunology, cell biology, and stem cell biology, as well as in the diagnosis of health disorders, especially blood cancers and HIV. It is one of the primary methods for rapid cell analysis and is extensively used for numerous applications in life sciences such as examining gene and protein profiles, metabolic studies, stem cell research, and screening markers for gene expression.

Immunoassays allow research scientists to measure the presence and quantity of proteins produced by cells in model systems and disease processes.

Our Products

Overview

We offer a comprehensive line of products for the parallel analysis of biological systems at the gene, protein and cell level.

Affymetrix Core. Through its Expression and Genetic Analysis and Clinical Applications business units, Affymetrix Core sells integrated systems in two principal applications, genotyping and gene expression. Consumables for these two applications run on the same instruments. We have three families of systems, GeneChip®, GeneTitan® and GeneAtlas® that include (1) instruments, (2) consumables and (3) software. Our GeneChip® instruments run arrays packaged in cartridges and our GeneTitan® and GeneAtlas® instruments run a large number of arrays simultaneously as they are packaged in a plate format for automated high throughput processing. In addition, the Expression business unit also sells QuantiGene® lines of assays for gene expression for a wide variety of low- to mid-plex genetic, protein and cell analysis. The Life Science Reagents business unit offers reagents, enzymes, purification kits and biochemicals used by life science researchers. In addition, this business unit supplies other companies in our industries with products that are incorporated as part of their products.

eBioscience.Our eBioscience business segment offers an extensive portfolio of antibodies and reagents for use in flow cytometry and immunoassays.

GeneChip® Family of Products

Our GeneChip® system provides an integrated solution for gene expression and genotyping analysis. It consists of instruments and consumables that provide for the robust preparation and analysis of samples using our GeneChip® cartridge arrays. The components of the GeneChip® system include (1) disposable probe arrays containing genetic information on a chip, (2) reagents for extracting, amplifying and labeling target nucleic acids, (3) a fluidics station for introducing the test sample to the probe arrays, (4) a hybridization oven for optimizing the binding of samples to the probe arrays, (5) a scanner to read the fluorescent image from the probe arrays, and (6) software to analyze and manage the resulting genetic information.

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Our major GeneChip® instrument products include:

Product	Product Description
GeneChip® Scanner 3000	Instrument for scanning higher-density arrays, including SNP arrays with up to 900,000 SNPs, tiling arrays for transcription and all-exon arrays for whole-genome analysis.
GeneChip® Scanner 3000Dx	This instrument is a version of the GeneChip® Scanner 3000 that is cleared by the United States Food and Drug Administration as an in vitro diagnostic device ("IVD").
GeneChip® Fluidics Station	Instrument for the wash and stain of GeneChip® arrays.
GeneChip® Hybridization Oven	This instrument provides temperature and rotation control to ensure the successful hybridization of cartridge arrays before scanning.

Our major GeneChip® array and reagent products include:

Product	Product Description
CytoGenetic and Genotyping Catalog Cartridge Arrays	·CytoScan® HD Array – This array includes more than 2.6 million copy number markers and provides broad coverage for the detection of human chromosomal aberrations associated with genes related to constitutional and cancer cytogenetics. ·SNP 6.0 Array – This single chip array is a robust tool for studying variation. It enables genotyping of approximately 906,600 SNPs and assaying of approximately 946,000 non-polymorphic probes for detection of copy number. ·DMET™ Plus – This array features drug markers in FDA-validated genes and enables discovery and measurement of genetic variation associated with drug response.
Gene Expression Catalog Cartridge Arrays	·U133 – This array analyzes the expression level of over 47,000 transcripts and variants of the human genome. ·Other Arrays – We also offer a range of catalog expression arrays for the study of rat, mouse and other mammalian and model organisms.
Custom Arrays	·MyGeneChip™ products are custom expression and sequence arrays designed by our customers to study organisms of interests to them.

GeneTitan® Family of Products

Our GeneTitan® family of products consists of the GeneTitan® instrument system that runs genotyping and gene expression array plates. The GeneTitan® family of products provides a hands-free, automated solution for monitoring gene expression and genome-wide SNP genotyping.

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Our GeneTitan® products include:

Product	Product Description
GeneTitan®	The GeneTitan® instrument automates array processing from target hybridization to data generation by combining a hybridization oven, fluidics processing and imaging device into a single bench-top instrument. It runs array plates and supports both gene expression and genotyping studies.
Axiom® Genotyping Solution	The Axiom® Genotyping Solution includes array plates with validated genomic content, complete reagent kits, data analysis tools and a fully automated workflow utilizing the GeneTitan®. ·Axiom® Human Array Plates – these arrays are designed to maximize genomic coverage of common and novel SNPs and insertions and deletions in Caucasian, Asian and African populations. In addition, through our functional genotyping arrays such as the Axiom Exome Array Plates and the BioBank Array plates, we enable researchers to search for genetic variants in regions of the genome that have potential biological impact. ·Axiom® Custom Arrays – Customers can make custom arrays utilizing our proprietary database of validated genomic markers or with newly discovered markets.Our ability to make custom arrays in a rapid and reproducible manner is critical to serve the growing needs of both the human and AG Bio market.
Gene Expression Array Plates	We offer a catalog of gene expression array plates similar to our catalog gene expression cartridge arrays to be used on the GeneTitan® instrument. These arrays are available for the study of human, rat, mouse and a broad range of other mammalian and model organisms.

Our GeneAtlas® products include:

Product	Product Description
GeneAtlas®  Personal Microarray System	The GeneAtlas® is a lower-priced instrument for low-to-medium throughput. The GeneAtlas® utilizes the array strip format, with four arrays per strip, and provides simplified hybridization and simple array processing with common microwell-based labware.
Gene Expression Array Plates	We offer a catalog of gene expression array plates for the study of human, rat and mouse to be used on our GeneAtlas® system.

QuantiGene® Line of Low- to Mid-plex Products

We also offer our QuantiGene® line of singleplex and multiplex assays to serve customers in the research and translational medicine markets. Multiplex assays measure many different targets from the same sample. These products enable drug target identification through analysis of gene silencing, cell signaling and biomarker validation. Our QuantiGene® line of products is based on bDNA technology and delivers quantitative gene expression analysis. These products are compatible with a wide variety of samples and tissues. We also serve the growing needs of the molecular pathology market by enabling the highly sensitive measurement of RNA molecules in individual cells in tissue samples through our QuantiGene View RNA products.

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Life Science Reagents

We offer researchers an extensive line of reagent kits, enzymes and biochemicals. Our reagents are complementary to our array portfolio, thus enabling us to provide our customers with whole product solutions. In addition, they can be applied to a broad variety of emerging technologies. Our reagents include:

· ExoSAP-IT® For PCR Product Clean-Up, a reagent for the rapid clean-up of PCR products used in downstream applications, such as DNA sequencing or SNP analysis.

· HotStart-IT® line of PCR reagents, reagents that utilize a novel primer binding protein to inhibit primer dimer formation, with results in sensitive and consistent amplification for real-time PCR.

eBioscience Products

eBioscience offers an extensive portfolio of antibodies and reagents for use in flow cytometry and immunoassays.  Within the flow cytometry market, through eBioscience, we are a leading provider of multi-color flow cytometry reagents, a growing subsector of the of the global flow cytometry market. The significance of multi-color flow is that it provides the scientist with the ability to characterize a variety of targets simultaneously in a given cell analysis, allowing a much more detailed picture of health and diseased cells than is possible when measuring a single target. Within the immunoassays market, eBioscience offers a broad portfolio of simple, easy-to-use immunoassays kits for the quantitative measurement of either secreted or intracellular protein levels in biological samples, such as cell lysates or serum. These assays are in a variety of single analyte and multiplex formats.

Our Services

We offer high-throughput genotyping services for customers using our genotyping products. Our projects range in size from a few hundred samples to over 10,000 samples. We serve customers requiring quick turnaround times and suitably priced solutions to their large-scale academic and consortia genotyping studies.

Our Collaborative Partners

We collaborate with our partners to expand the applications of our technology and to acquire access to complementary technologies and resources. We collaborate with a number of instrumentation and reagent companies to develop and supply certain components of the user work flow. These companies include Beckman Coulter, Inc., CapitalBio Corporation, Life Technologies Corporation, Genisphere LLC, Hamilton Robotics, Takara Bio Inc., New England Biolabs, Inc., Luminex Corporation and Qiagen GmbH.

Through our Powered by Affymetrix™, or PbA Program, we permit commercial entities to license our technologies to develop custom product solutions based upon our arrays, instrumentation and software. Our PbA partners include F. Hoffman-La Roche Ltd., bioMerieux, Inc., Pathwork Diagnostics, Veridex, LLC, a Johnson & Johnson company, Signature Diagnostics and TessArae. We provide our PbA partners custom arrays. Our partners subsequently package these arrays into kits, seek regulatory approval and reimbursement for their diagnostic use, and sell them into the diagnostic markets using their sales channels. An example is the gene expression array used by our PbA partner Veracyte, Inc., in its Affirma test for thyroid cancer.

We also collaborate with certain academic, government, and commercial research groups to develop and validate new applications of our technologies. These include the Broad Institute of Harvard, the Massachusetts Institute of Technology, Centers for Disease Control and Prevention and the National Genome Research Institute.

Manufacturing and Raw Materials

We manufacture our Affymetrix Core consumables, including our arrays and the majority of our reagents, and contract with third parties to manufacture our instruments. We manufacture our reagents in our Cleveland, Ohio facility. We manufacture our arrays in our Singapore facility, and we expect to begin manufacturing one of our instruments in our Singapore facility in 2013.

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Our array manufacturing process involves wafer preparation, probe synthesis, dicing of synthesized wafers into chips, assembly of chips and quality control. We have developed software programs that extensively automate the design of photolithographic masks used in array manufacturing and that control the array manufacturing lines. Glass wafers are prepared for synthesis through the application of chemical coatings. Arrays are synthesized on the wafers using our proprietary, combinatorial photolithographic process. The completed wafers can then be diced into chips. The chips can be packaged individually, in our cartridge format, in our strip format or in our peg format.

Our Singapore and Ohio facilities are fully operational and have been certified to ISO 13485 standards. The Singapore and Ohio facilities operate under the strict standards of our corporate quality plan. Third parties who manufacture our instruments will have to meet our quality standards as part of the qualification process.

eBioscience manufactures its flow cytometry reagents in San Diego, California, and most of its immunoassays in Vienna, Austria.

Key parts of our product lines, such as our GeneTitan® instrument and hybridization ovens, are available from single sources. Likewise, certain raw materials or components used in the synthesis of arrays or the assembly of instrumentation are currently available only from a single source or limited sources. Alternative sources of supply may be time consuming and expensive to qualify. In addition, we are dependent on our vendors to provide components of appropriate quality and reliability, and to meet applicable regulatory requirements. We take what we believe are appropriate measures to prevent the delay or interruption of supplies from these vendors and to ensure the appropriate quality for our customers, since any delay or interruption could delay our ability to deliver our products to our customers.

Research and Development

Our research and development effort is divided into the major areas of basic research, product research and development, and manufacturing technology development. Our product development efforts are focused primarily on the development of new array, assay and reagent products, improving the overall performance of our assays and simplifying highly complex assays. We are also actively engaged in research aimed at enhancing the manufacturing process currently employed in the production of our arrays.

Our research and development expenses for the years ended December 31, 2012, 2011 and 2010 were $57.9 million, $63.6 million and $67.9 million, respectively.

Intellectual Property

We rely on a combination of patent, copyright, and trade secret laws, know-how and licensing opportunities to establish and protect our proprietary technologies and products. Our success depends in part on our ability to obtain patent protection for our products and processes, to preserve our copyrights and trade secrets, to operate without infringing the proprietary rights of third parties and to acquire licenses related to enabling technology or products used with our technology.

We are pursuing a patent strategy designed to facilitate our research and development program and the commercialization of our current and future products. While no one patent is considered essential to our success, we aggressively seek to protect our patent rights as our patent portfolio as a whole is material to the success of the business.

There are a significant number of United States and foreign patents and patent applications in our areas of interest, and we believe that there will continue to be significant litigation in the industry regarding patent and other intellectual property rights. Others have filed, and in the future are likely to file, patent applications that are similar or identical to ours or those of our licensors. It may be necessary for us to enter into litigation to defend against or assert claims of infringement, to enforce patents issued to us, to protect trade secrets or know-how owned by us or to determine the scope and validity of the proprietary rights of others. From time to time, to determine the priority of inventions, it may be necessary for us to participate in interference proceedings declared by the United States Patent and Trademark Office. Litigation or patent administrative proceedings could result in substantial costs to and distraction from our core business and our efforts in respect to such proceedings may not be successful. For further information regarding intellectual property litigation involving us, see "Item 8. Financial Statements and Supplementary Data—Note 15. Legal Proceedings" in this Annual Report on Form 10-K.

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We also rely upon copyright and trade secrets to protect our confidential and proprietary information. We seek to protect our proprietary technology and processes by confidentiality agreements with our employees and certain consultants and contractors. These agreements may be breached, we may not have adequate remedies for any breach and our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our employees or our consultants or contractors use intellectual property owned by others in their work for us, disputes may also arise as to the rights in related or resulting know-how and inventions.

We are party to various option, supply and license agreements with third parties which grant us rights to use certain aspects of our technologies. We take such measures as we believe are appropriate to maintain rights to such technology under these agreements. In addition, our academic collaborators have certain rights to publish data and information in which we have rights. There is considerable pressure on academic institutions to publish discoveries in the genetics and genomics fields. We take such steps as we believe are appropriate to ensure that such publication will not adversely affect our ability to obtain patent protection for information in which we may have a commercial interest.

Competition

The markets for our products are characterized by rapidly changing technology, evolving industry standards, changes in customer needs, emerging competition, new product introductions and strong price competition. We face significant competition as existing companies develop new or improved products, and as companies enter the market with new technologies, such as next-generation sequencing.

In the highly multiplexed genotyping and gene expression markets, existing competitive technologies include DNA sequencing, which we do not offer and is offered by companies such as Illumina, Inc. and Life Technologies Corporation. Other companies developing or marketing competitive DNA array technology include Illumina, Inc., Agilent Technologies, Inc., BD Biosciences, CombiMatrix Corporation, MDS Analytic Technologies/Danaher, Nimblegen/Roche Diagnostics and NuGEN Technologies, Inc, some of which offer products directly competitive with our microarrays or reagents.

In the low to midplex genotyping and gene expression markets, much of the existing low-plex competition comes from the supplier of realtime PCR products, including Life Technologies Corporation, who has a dominant position, Roche Diagnostics, Agilent Technologies, Inc. and BioRad Laboratories, Inc. In addition, there are new midplex technologies being offered by Fluidigm Corporation, Sequenom, Inc., High Throughput Genomics, Inc., Beckman Coulter, NanoString Technologies and Life Technologies Corporation (BioTrove). In order to compete against existing and emerging technologies, we will need to demonstrate that our products have superior throughput, cost and accuracy advantages over competing products.

In the flow cytometry and immunoassay markets, we compete with Becton, Dickinson and Company and Beckman Coulter as well as a number of smaller companies. In order to compete effectively, we have to differentiate ourselves through superior product quality, speed to market and well regarded customer service functions.

In the molecular diagnostic field, competition is likely to come from established diagnostic companies, companies developing and marketing DNA probe tests for genetic and other diseases, and other companies conducting research on new technologies to ascertain and analyze genetic information. The market for molecular diagnostic products derived from gene discovery is highly competitive and has high barriers of entry, with several large corporations already having significant market share. Established diagnostic companies such as Beckman Coulter, Becton, Dickinson and Company, bioMérieux, Johnson & Johnson, Gen-Probe Incorporated and Roche Diagnostics have the strategic commitment to diagnostics, the financial and other resources to invest in new technologies, substantial intellectual property portfolios, substantial experience in new product development, regulatory expertise, manufacturing capabilities and the distribution channels to deliver products to customers. Established diagnostic companies also have an installed base of instruments in several markets, including clinical and reference laboratories, which are not compatible with our system and could slow acceptance of our products. In addition, these companies have formed alliances with genomics companies which provide them access to genetic information that may be incorporated into their diagnostic tests.

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We will face increased competition in existing and potential markets as the cost of new technologies such as sequencing and other technologies improves. In addition, pharmaceutical and biotechnology companies have significant needs for genomic information and may choose to develop or acquire competing technologies to meet these needs themselves. We have significantly expanded our network of approved service providers in America, Japan, Europe, and China. While these companies expand the reach of Affymetrix technology and make its analytical power available to a wider base of users they may act as a substitute for outright purchase of instruments and arrays by those end users. In addition, we have several other third-party licensees that could offer products that compete with our product offerings.

Government Regulation

Many of our products are labeled for research use only. Products intended for research use only are not subject to clearance or approval by the U.S. Food and Drug Administration ("FDA"). However, research use only products may fall under the FDA's jurisdiction if these are used for clinical rather than research purposes.Even where a product is not otherwise subject to clearance or approval by the FDA, the FDA may impose restrictions as to the manner in which we can market and sell our products and/or the types of customers to which we can market and sell our products in order to limit sales to those who use the products for research only.

Our GeneChip® Scanner 3000Dx is cleared by the FDA to be used in conjunction with cleared medical devices such as the Roche Diagnostics AmpliChip CYP450 Test. It is also cleared by China's State Food and Drug Administration for in vitro diagnostic use. We also offer a large panel of Analyte Specific Reagents (ASRs) for leukemia and lymphoma immunophenotyping aimed at the translational medicine and molecular diagnostics market.

We will continue to develop diagnostic products ourselves or with our collaborative partners that may require regulatory clearance or approval by governmental agencies. Commercially available in vitro diagnostic test kits and the reagents and instrumentation used with in vitro diagnostic tests are regulated as medical devices and are generally subject to rigorous testing and other pre-market review procedures by the FDA in the U.S. and by other regulatory agencies in other countries. The FDA's Quality System Regulations also apply in connection with our manufacture of arrays and systems as components for use in diagnostic products distributed outside of the research environment. Obtaining these clearances or approvals and the compliance with these regulations require the expenditure of substantial resources over a significant period of time, and we cannot assure you that any clearances or approvals will be granted on a timely basis, if at all. Once granted, a clearance or approval may place substantial restrictions on how the device is marketed or labeled or to whom it may be sold. In addition, various federal and state statutes and regulations govern or influence the manufacturing, safety, and storage of our products and components of our products as well as our record keeping.

The FDA, the U.S. Department of Health and Human Services, state authorities, and foreign government regulators are increasingly focused on genetic analysis tools, including the use of microarrays, which are labeled for research use only, by clinical laboratories in laboratory-developed tests offered by these laboratories, including labs certified under the Clinical Laboratory Improvement Amendments, or CLIA, or licensed under state laboratory regulations. We cannot predict the nature of future regulatory or policy initiatives with respect to the sale and use of arrays for the development of assays by CLIA-certified, state licensed laboratories, or the extent to which such initiatives will impact our business. If new regulations restrict our customers' development of laboratory-developed tests using products labeled for research use only, or if we otherwise are required to obtain FDA premarket clearance or approval prior to commercializing products labeled as research use only, our ability to generate revenue from the sale of our products may be delayed or otherwise adversely affected. Moreover, our failure to comply with governmental rules and regulations related to our products could cause us to incur significant adverse publicity, or subject us to investigations and notices of non-compliance or lead to fines or restrictions upon our ability to sell our products. We also may be at risk for liability related to government reimbursement of tests involving the use of our products if it were determined that these tests require FDA-clearance or approval and no such clearance or approval has been obtained.

Medical device laws and regulations are also in effect in many countries, including countries in the European Union, ranging from comprehensive device approval requirements to requests for product data or certifications. The number and scope of these requirements are increasing. We may not be able to obtain regulatory approvals in such countries or may incur significant costs in obtaining or maintaining our foreign regulatory approvals. In addition, the export by us of certain of our products which have not yet been cleared for domestic commercial distribution may be subject to FDA or other export restrictions.

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We have agreements relating to the sale of our products to government entities and, as a result, we are subject to various statutes and regulations that apply to companies doing business with the government. A failure to comply with these regulations might result in suspension of these contracts or administrative or other penalties, and could have a material adverse effect on our ability to compete for future government grants, contracts and programs.

Reimbursement

The design of our products and the potential market for their use may be directly or indirectly affected by U.S. and other government regulations governing reimbursement for clinical testing services. The availability of third-party reimbursement for our products and services may be limited or uncertain, particularly with respect to genetic tests and other clinical applications products.

Third-party payers may deny reimbursement if they determine that an ordered health care product or service has not received appropriate FDA or other governmental regulatory clearances, is not used in accordance with cost-effective treatment methods as determined by the payer, or is deemed by the third-party payer to be experimental, unnecessary or inappropriate. Under Medicare rules, diagnostic tests must be ordered by a physician who is treating the beneficiary and who uses the test results in patient management. Under this rule, some Medicare contractors may deny coverage for a test, even if the test has been cleared or approved by the FDA, without proof, as determined sufficient by the contractor, that the test is useful in patient management.Furthermore, third-party payers are increasingly challenging the prices charged for health care products and services.

We are currently developing diagnostic and therapeutic products, including those with our collaborative partners which may be subject to reimbursement issues. The commercialization of such products may depend, in part, on the extent to which reimbursement for these products will be available under U.S. and foreign regulations governing reimbursement for clinical testing services by government authorities, private health insurers and other organizations.

In the United States, third-party payer price resistance, the trend towards managed health care, implementation of the Patient Protection and Affordable Care Act of 2010 and other legislative proposals to reform health care or reduce government insurance programs could reduce payment rates for health care products and services, adversely affect the profits of our customers and collaborative partners and thus reduce our future royalties and product sales.

Environmental Matters

We are dedicated to compliance and protection of the environment and individuals. Our operations require the use of hazardous materials (including biological materials) which subject us to a variety of federal, state and local environmental and safety laws and regulations. Some of the regulations under the current regulatory structure allow for "strict liability," holding a party potentially liable without regard to fault or negligence. We could be held liable for damages and fines as a result of our, or others', business operations should contamination of the environment or individual exposure to hazardous substances occur. We cannot predict how changes in these laws or development of new regulations will affect our business operations or the cost of compliance.

Employees

As of February 22, 2013, we had 1,100 full-time employees. The employee group includes chemists, engineers, computer scientists, mathematicians and molecular biologists with experience in the diagnostic products, medical products, semiconductor, computer software and electronics industries. None of our employees is represented by a collective bargaining agreement, nor have we experienced work stoppages. Our success depends in large part on our ability to attract and retain skilled and experienced employees.

Seasonality

Customer demand for probe arrays and instrumentation systems is typically highest in the fourth quarter of the calendar year as customers spend unused budget allocations before the end of the year.

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Backlog

Because most customer orders are shipped in the quarter in which they are received, we believe that backlog at quarter end is typically not a material indicator of future sales. In addition, backlog may not result in sales because of cancellation of orders or other factors. On a few occasions we have experienced, and made public announcements about, short-term increases in backlog as a result of factors such as new product introductions or supply constraints.

Financial Information About Industry Segments

We operate in two business segments: Affymetrix Core focuses on the development, manufacture, and commercialization of systems for genetic analysis in the life sciences and diagnostic industry, and eBioscience focuses on the development, manufacturing, marketing and distribution of research tools in the areas of flow cytometry, immunoassays, microscopic imaging and other protein-based analyses. Our operations are divided into two reportable operating segments as we report operating information on a business unit level to our chief operating decision-maker. Resource allocations and decision-making processes are also made at the business unit level by our chief operating decision-maker. See "Item 8. Financial Statements and Supplementary Data—Note 17. Segment and Geographic Information" for more information.

Financial Information About Geographic Areas

Our total revenue from customers outside of the United States for the years ended December 31, 2012, 2011 and 2010 was $124.4 million, $125.0 million and $132.7 million, or approximately 42%, 47% and 43%, respectively, of our total revenue. A summary of revenues from external customers attributed to each of our geographic areas for the years ended December 31, 2012, 2011 and 2010 is included in "Item 8. Financial Statements and Supplementary Data—Note 17. Segment and Geographic Information".

Available Information

Our internet address is www.affymetrix.com. Information included on our website is not part of this Form 10-K. We make available free of charge on our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. In addition, copies of our annual reports are available free of charge upon written request. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is www.sec.gov.

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ITEM 1A. RISK FACTORS

Risks Related to Our Business

Risks Related to the Growth of Our Business

If we do not continually develop and commercialize new or enhanced products and services, our business may not grow.

Our success depends in large part on our continual, timely development and commercialization of new or enhanced products and services that address evolving market requirements and are attractive to customers. The life science and clinical diagnostic research markets are characterized by rapid and significant technological changes, frequent new product introductions and enhancements, evolving industry standards and changing customer needs. Standardization of tools and systems for genetic research is still ongoing and we cannot assure you that our products will emerge as the standard for genetic research. Other companies may introduce new technologies, techniques, products or services that render our products or services obsolete or uneconomical. If we do not appropriately innovate and invest in new technologies, then our technologies will become dated and our customers could move to new technologies offered by our competitors.

As a result, we are continually looking to develop, license or acquire new or enhanced technologies, products and services to further broaden and deepen our offerings. Some of the factors affecting market acceptance of our products and services include:

· availability, quality and price as compared to competitive technologies, products and services;

· the functionality of new and existing products and services, and whether they address market requirements;

· the timing of introduction of our technologies, products and services as compared to competitive technologies, products and services;

· the existence of product defects;

· scientists' and customers' opinions of the utility of our products and services and our ability to incorporate their feedback into future products and services;

· citation of our products in published research; and

· general trends in life science and clinical diagnostics research and life science informatics software development.

Our new or enhanced technologies, products or services may not be accepted by customers in our target markets. For example, once we have developed or obtained a new technology, we may fail to successfully commercialize new products and services based on that technology, particularly to the extent that our new products and services compete with established technologies or the products and services of more established competitors. Risks relating to product adoptions include the inability to accurately forecast demand and difficulties in managing different sales and support requirements due to the type or complexity of the new products.

Further, many of our current and potential customers have limited budgets. Accordingly, we cannot assure you that the successful introduction of new or enhanced products or services will not adversely affect sales of our current products and services or that customers that currently purchase our products or services will increase their aggregate spending as a result of the introduction of new products and services.

Emerging opportunities in molecular diagnostics may not develop as quickly as we expect and we depend, in part, on the efforts of our partners to be successful.

The clinical applications of our technologies for diagnosing and enabling informed disease management options in the treatment of disease is an emerging opportunity in molecular diagnostics. At this time, we cannot be certain that molecular diagnostic markets will develop as quickly as we expect. Although we believe that there will be clinical applications of our technologies that will be utilized for diagnosing and enabling informed disease management options in the treatment of disease, there can be no certainty of the technical or commercial success our technologies will achieve in such markets.

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Our success in the molecular diagnostics market depends, in part, on our collaborative relationships and the ability of our collaborative partners to achieve regulatory approval for such products in the United States and in overseas markets and successfully market and sell products using our technologies.

Our growth depends, in part, on our ability to acquire new businesses and technologies and successfully integrate acquisitions, which may absorb significant resources and may not be successful.

As part of our strategy to develop and identify new technologies, products and services, we have acquired and may continue to acquire new businesses and technologies. Our integration of the operations of acquired businesses requires significant efforts, including the coordination of information technologies, research and development, sales and marketing, operations, manufacturing and finance. In particular, the success of our acquisition of eBioscience will depend, in part, on our ability to successfully integrate eBioscience's business and operations and fully realize the anticipated benefits and synergies from combining our businesses and eBioscience. Such anticipated benefits and synergies of the Acquisition may not be realized fully or at all or may take longer to realize than expected, which could materially adversely affect our business, results of operations and financial condition. Our efforts to successfully integrate acquisitions may result in additional expenses and divert significant amounts of management's time from other projects.

Our failure to manage successfully and coordinate the growth of the combined company could also have an adverse impact on our business. In addition, there is no guarantee that businesses we acquire will become profitable or remain so. If our acquisitions do not meet our initial expectations, we may record impairment charges.

Factors that will affect the success of our acquisitions include:

· our ability to retain key employees of the acquired company;

· the performance of the acquired business, technology, product or service;

· our ability to integrate operations, financial and other systems;

· the ability of the combined company to achieve synergies among its constituent companies, such as increasing sales of the combined company's products and services, achieving expected cost savings and effectively combining technologies to develop new products and services;

· any disruption in order fulfillment or loss of sales due to integration processes, including relationships with suppliers or distributors;

· the presence or absence of adequate internal controls and/or significant fraud in the financial systems of acquired companies;

· any decrease in customer and distributor loyalty and product orders caused by dissatisfaction with the combined companies' product lines and sales and marketing practices, including price increases; and

· our assumption of known contingent liabilities that are realized, known liabilities that prove greater than anticipated, or unknown liabilities that come to light, to the extent that the realization of any of these liabilities increases our expenses or adversely affects our business or financial position.

Any difficulties and costs associated with the integration of eBioscience could negatively affect our results of operations and ability to execute our strategy.

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If we experience difficulties in integrating eBioscience with our existing operations or are not able to achieve the anticipated benefits and synergies of the Acquisition, our business and results of operations could be negatively affected. In addition, it is possible that the ongoing integration process could result in the loss of key employees, errors or delays in systems implementation, the disruption of our ongoing business or the acquired business or inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with customers and employees or to achieve the anticipated benefits and synergies of the Acquisition. Integration efforts also may divert management attention and resources. In addition, we will incur transaction fees and costs related to formulating and implementing integration plans. For example, pursuant to certain of our agreements with a collaborative partner, we will be required to migrate certain eBioscience products to incorporate our collaborative partner's technologies. We continue to assess the magnitude of these costs and additional unanticipated costs may be incurred in the integration of eBioscience. Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies or synergies related to the integration of the businesses, should allow us to offset incremental transaction and acquisition-related costs over time, this net benefit may not be achieved in the near term, or at all.

Risks Related to our Indebtedness

Our indebtedness could materially adversely affect our business, financial condition and results of operations.

We funded the Acquisition, in part, by incurring a substantial amount of indebtedness from the Term Loan provided under our Senior Secured Credit Facility and issuance of the 4.00% Notes. Refer to Note 13. "Long Term Debt Obligations" in this Annual Report on Form 10-K for further information regarding the Term Loan, the Senior Secured Credit Facility and the 4.00% Notes.

This substantial amount of indebtedness could materially adversely affect us, including by decreasing our business flexibility and increasing our borrowing costs. The indebtedness we incurred in connection with the Acquisition is expected to significantly increase our interest expense, leverage and debt service requirements. Increased levels of indebtedness may reduce funds available for our investment in product development as well as capital expenditures and other activities, increase our borrowing costs and create competitive disadvantages for us relative to other companies with lower debt levels. In addition, the agreements governing the Senior Secured Credit Facility contain restrictive covenants imposing operating and financial restrictions on us, including restrictions that may limit our ability to finance future operations or capital needs or to engage in other business activities. See the risk factor below entitled "We may not be able to finance future needs or adapt our business plan to changes because of restrictions placed on us by our Senior Secured Credit Facility and future instruments governing our indebtedness."

In addition, our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt. We may also incur expenditures that are outside of our control, such as costs associated with legal proceedings brought by other parties, or costs resulting from compliance with changes in laws. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

If an event of default occurs under the Senior Secured Credit Facility, the 4.00% Notes, or any other debt financing agreement, we may be required to immediately repay all outstanding borrowings, together with accrued interest and other fees. We may not be able to repay all amounts due in the event these amounts are declared due upon an event of default.

In addition, despite our current consolidated debt levels, we and our subsidiaries may be able to incur substantial additional debt in the future, subject to the restrictions contained in our debt instruments, including our Senior Secured Credit Facility.

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We may not be able to finance future needs or adapt our business plan to changes because of restrictions placed on us by the Senior Secured Credit Facility and future instruments governing our indebtedness.

The terms of our Senior Secured Credit Facility include various covenants that limit our ability, and that of our subsidiaries, to, among other things:

· incur additional debt, including guarantees by us or our subsidiaries;

· make investments, pay dividends on our capital stock, redeem or repurchase our capital stock, redeem or repurchase the notes or any subordinated obligations;

· create liens;

· make capital expenditures;

· dispose of assets;

· make acquisitions;

· create or permit restrictions on the ability of our subsidiaries to pay dividends or make other distributions to us;

· engage in transactions with affiliates;

· engage in sale and leaseback transactions; and

· consolidate or merge with or into other companies or sell all or substantially all of our assets.

Our ability to comply with covenants contained in the Senior Secured Credit Facility and any future agreements governing other indebtedness to which we are or may become a party may be affected by events beyond our control, including prevailing economic, financial and industry conditions. The Senior Secured Credit Facility will require us to comply with financial performance covenants, including, without limitation, a minimum fixed charge coverage ratio, maximum senior leverage multiple and maximum total leverage multiple. Additionally, the Senior Secured Credit Facility contains numerous affirmative covenants, including covenants regarding payment of taxes and other obligations, maintenance of insurance, reporting requirements and compliance with applicable laws and regulations. Any additional indebtedness we incur in the future may subject us to further covenants.

Our failure to comply with these covenants could result in a default under the agreements governing the relevant indebtedness. In addition, unless cured or waived, the default could result in an acceleration under our other instruments that contain cross-acceleration or cross-default provisions, which could require us to repay or repurchase indebtedness, together with accrued interest, prior to the date it otherwise is due and that could adversely affect our financial condition. If a default occurs under the Senior Secured Credit Facility, the lenders could cause all of the outstanding debt obligations under the facility to become due and payable, which would result in a default under our 3.50% Senior Convertible Notes (the "3.50% Notes") and the 4.00% Notes and could lead to an acceleration of obligations related to such notes. Upon a default or cross-default, the agent, at the direction of some or all of the lenders under the Senior Secured Credit Facility, could foreclose against the collateral. Even if we are able to comply with all of the applicable covenants, the restrictions on our ability to manage our business in our sole discretion could adversely affect our business by, among other things, limiting our ability to take advantage of financings, mergers, acquisitions and other corporate opportunities that we believe would be beneficial to us.

Risks Related to Our Sales

We face significant competition, and our failure to compete effectively could adversely affect our sales and results of operations.

We compete with companies that develop, manufacture and market genetic analysis tools for the life science and clinical healthcare markets. We face significant competition as our competitors and new companies develop new, improved or more economical products, services and technologies.

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The market for our products and services is highly competitive, has high barriers to entry and has several other large companies with significant market share. For example, companies such as Illumina, Inc., Agilent Technologies and Life Technologies Corporation have products for genetic analysis that are directly competitive with certain of our products. In addition, Illumina, Inc., Life Technologies Corporation, Roche Diagnostics and Complete Genomics, Inc. also offer DNA sequencing technology which we do not offer. As the costs of DNA sequencing fall, we will face increased competition in certain of our existing and potential markets. We also face competition from established diagnostic companies such as Beckman Coulter, Becton, Dickinson and Company, bioMérieux, Celera Diagnostics, Johnson & Johnson, Gen-Probe Incorporated and Roche Diagnostics, which have made strategic commitments to diagnostics, have financial and other resources to invest in new technologies, and have substantial intellectual property portfolios, substantial experience in new product development and regulatory expertise. In addition, our collaborative partners may compete with us.

Many of our current and potential competitors have significantly greater financial, technical, marketing and other resources than we do. In addition, many current and potential competitors have greater name recognition, more extensive customer bases and access to proprietary genetic content.

Our eBioscience segment competes in the life science research market with companies such as Becton, Dickinson and Company, Abcam plc, Life Technologies Corporation and Danaher Corporation/Beckman Coulter. A number of competitors employ bundled arrangements in which customers pay for consumable products (such as reagent test kits), services and the related instruments under a single arrangement, including arrangements where the customer commits to purchase a minimum volume of consumable products annually. Since we do not currently produce instruments for this market, and bundled arrangements can allow competitors to offer lower prices for competing products, customer demand for these bundled arrangements could lead to loss of market share or force us to supply products at a discount.

Reduction or delay in research and development budgets and government funding may adversely impact our sales.

We expect that our revenue in the foreseeable future, including anticipated revenue from our eBioscience segment, will be derived from products and services provided to pharmaceutical and biotechnology companies, as well as a relatively small number of academic, governmental and other research institutions. Our operating results may fluctuate substantially due to reductions and delays in research and development expenditures by these customers.

Factors that could affect the spending levels of our customers include:

· changes in government programs, including available funding, which support research and development expenditures by companies and research institutions;

· weakness in the global economy and changing market conditions that affect our customers;

· changes in the extent to which the pharmaceutical industry may use genetic information and genetic testing as a methodology for drug discovery and development;

· changes in the regulatory environment affecting life science companies and life science research;

· impact of consolidation within the pharmaceutical industry; and

· cost reduction initiatives of customers.

Budgets in the research-use-only market have been particularly challenged in recent periods, which we believe has had an adverse effect on us, including our eBioscience segment. A significant or prolonged change in research funding, particularly with respect to the U.S. National Institutes of Health, including funding reductions that may result from scheduled automatic federal budget sequestration provisions, could have an adverse impact on future revenues and results of operations.

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As we implement our strategy to expand into new markets, the size and structure of our current sales, marketing and technical support organizations may limit our ability to sell our products and services.

As we implement our strategy to expand into new markets, we may not be able to establish a sales, marketing and technical support organization sufficient to sell, market and support all of our new products, or to cover all of the regions that we target globally. To assist our sales and support activities, we have entered into distribution agreements through certain distributors, principally in markets outside of North America and Europe. In addition, we may enter into distribution arrangements with respect to some of our products that we believe will be better served in such arrangements than our current sales and marketing organizations. We have less control over other third parties on whom we rely for sales, marketing and technical support. In addition, these third parties may decide to develop and sell competitive products or otherwise become our competitors, which could harm our business.

Consolidation trends in both our market and many of our customers' markets have increased competition.

There has been a trend toward industry consolidation in our markets for the past several years. We expect this trend toward industry consolidation to continue as companies attempt to strengthen or hold their market positions in an evolving industry and as companies are acquired or are unable to continue operations. We believe that industry consolidation may result in stronger competitors that are better able to compete as sole-source vendors for customers. This could lead to more variability in operating results and could harm our business.

Additionally, there has been a trend toward consolidation in many of the customer markets we sell to, in particular the pharmaceutical industry. Consolidation in our customer markets results in increased competition for important market segments and fewer available accounts, and larger consolidated customers may be able to exert increased pricing pressure on companies in our market.

If we are unable to maintain our relationships with collaborative partners and licensors, we may have difficulty developing and selling our products and services.

Our commercial success depends, in part, on our ability to develop and maintain collaborative relationships and licenses with key companies as well as with key academic researchers. In particular, we depend on third parties for in-licensed technology and components for a variety of our product lines. We collaborate with a number of instrumentation and reagent companies, including Beckman Coulter, CapitalBio Corporation, Genisphere LLC, Hamilton Robotics, Life Technologies Corporation, Luminex Corporation, Siemens Medical Solutions Diagnostics, Takara Bio Inc., New England Biolabs, Inc. and Qiagen GmbH. Some of these collaborators, like Life Technologies Corporation, Takara Bio Inc., New England Biolabs, Inc. and Luminex Corporation, are currently sole suppliers of components of some of our reagent kits but they are also our competitors. Relying on our collaborative relationships is risky to our future success because:

· our partners may develop technologies or components competitive with our products and services;

· our existing collaborations may preclude us from entering into additional future arrangements or impact the integration of acquired businesses and technologies;

· our partners may not obtain regulatory approvals necessary to continue the collaborations in a timely manner;

· some of our agreements may terminate prematurely due to disagreements between us and our partners or licensors;

· our partners may not devote sufficient resources to the development and sale of our products and services;

· our partners may be unable to provide the resources required for us to progress in the collaboration on a timely basis;

· our collaborations may be unsuccessful; or

· some of our agreements have expired and we may not be able to negotiate future collaborative arrangements or renew current licenses on acceptable terms.

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In addition, our eBioscience segment relies on licensing as a basis for many of its products and intellectual property, and the ability to maintain and renew current licenses as well as license new technologies from third parties is and will continue to be important such unit's ability to offer and introduce products. The ability to retain and gain access to technologies necessary to develop new products will depend, in part, on our ability to convince third parties that our combined company can successfully commercialize the technologies we seek to license. The inability to maintain or to acquire any third-party licenses, or integrate the related third-party technologies into these products, could result in delays in our product developments and enhancements. There can be no assurance that we will be able to continue to successfully identify new products developed by others in the life science research and clinical healthcare markets or otherwise and, if identified, to negotiate license agreements on commercially reasonable terms, if at all.

Risks Related to the Manufacturing of Our Products

We depend on a limited number of suppliers. We will be unable to launch or commercialize our products in a timely manner if our suppliers are unable to meet our requirements or if shipments from these suppliers are delayed or interrupted.

We outsource the manufacturing of our instruments to a limited number of suppliers. Some of our instruments and other key parts of our product lines, including components of our manufacturing equipment and certain raw materials used in the manufacture of our products are currently only available from a single supplier. Therefore, we depend on our suppliers to supply our instruments, or components of our products, in required volumes, at appropriate quality and reliability levels, and in compliance with regulatory requirements on a timely basis. If supplies from these vendors do not meet our requirements, or were delayed or interrupted for any reason, we would not be able to commercialize our products successfully or in a timely fashion, and our business could be adversely impacted.

Our business is dependent on our ability to forecast our needs for components and products in our product lines and our suppliers' ability to deliver such components and products in time to meet critical manufacturing and product release schedules. Our business could be adversely affected, for example, if suppliers fail to meet product release schedules, if we experience supply constraints, if we fail to negotiate favorable pricing or if we experience any other interruption or delay in the supply chain which interferes with our ability to manufacture our products or manage our inventory levels.

We may lose customers or sales if we are unable to meet customer demand for our products on a timely and cost-effective basis, or if we are unable to ensure the proper performance and quality of our products.

We produce our products in an innovative and complicated manufacturing process which has the potential for significant variability in manufacturing yields. We have encountered, and may in the future encounter, difficulties in manufacturing our products and, due to the complexity of our products and our manufacturing process, we may experience delays in the manufacture of our products or fail to ensure their proper performance or quality. As we develop new and enhanced products, we must be able to resolve in a timely, cost-effective manner manufacturing issues that may arise from time to time.

We base our manufacturing capabilities on our forecasted product mix for the quarter. If the actual product mix varies significantly from our forecast, we may not be able to fill some orders during that quarter, which could adversely impact our financial results. Difficulties in meeting customer, collaborator and internal demand could also cause us to lose customers or require us to delay new product introductions, which could in turn result in reduced demand for our products.

We rely on internal quality control procedures to verify our manufacturing processes. Due to the complexity of our products and manufacturing process, however, it is possible that products that do not meet all of our performance specifications may not be identified before they are shipped. If our products do not consistently meet our customers' performance expectations, demand for our products will decline. In addition, we do not maintain any backup manufacturing capabilities for the production of our products. Any interruption in our ability to continue operations at our existing manufacturing facilities could delay our ability to develop or sell our products, which could result in lost revenue and seriously harm our business, financial condition and results of operations.

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We may need to adjust our manufacturing capacity based on business requirements or improvements made to our technological capabilities and there are risks associated with such adjustment.

If demand for our products is reduced or if we implement technologies that increase the density or yields of our wafers, our manufacturing capacity could be under-utilized and some of our long-lived assets, including facilities and equipment, may be impaired, which would increase our expenses. In addition, factory planning decisions may shorten the useful lives of long-lived assets including facilities and equipment, and cause us to accelerate depreciation. These changes in demand for our products, and changes in our customers' product needs, could have a variety of negative effects on our competitive position and our financial results, and, in certain cases, may reduce our revenue, increase our costs, lower our gross margin percentage or require us to recognize impairments of our assets. In addition, if demand for our products is reduced or we fail to accurately forecast demand, we could be required to write down inventory since certain of our products have a limited shelf life, which would have a negative impact on our gross margin.

We have in the past, and may in the future, adjust our manufacturing capacity based on business requirements, which may include the rationalization of our facilities, including the abandonment of long-lived manufacturing assets and additional charges related to a reduction in capacity. Manufacturing and product quality issues may arise as we launch new products in our Singapore, Ohio, San Diego and Vienna facilities and rely increasingly upon manufacturing by third parties. We may lose customers if we are unable to manufacture products or if we experience delays in the manufacture of our products as a result of this transition.

We may not be able to deliver acceptable products to our customers due to the rapidly evolving nature of genetic sequence information upon which our products are based.

The genetic sequence information upon which we rely to develop and manufacture our products is contained in a variety of databases throughout the world. These databases are rapidly expanding and evolving. In addition, the accuracy of these databases and resulting genetic research is dependent on various scientific interpretations and it is not expected that global genetic research efforts will result in standardized genetic sequence databases for particular genomes in the near future.

Although we have implemented ongoing internal quality control efforts to help ensure the quality and accuracy of our products, the fundamental nature of our products requires us to rely on genetic sequence databases and scientific interpretations which are continuously evolving. As a result, these variables may cause us to develop and manufacture products that incorporate sequence errors or ambiguities. The magnitude and importance of these errors will depend upon multiple and complex factors that would be considered in determining the appropriate actions required to remedy any inaccuracies. Our inability to timely deliver acceptable products as a result of these factors would likely adversely affect our relationship with customers, and could have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Our Operations

We may not achieve sustained profitability.

Prior to 2002, we incurred losses each year since our inception, and we reported losses in 2006 and from 2008 through 2012. As a result, we had an accumulated deficit of approximately $489.4 million as of December 31, 2012. Our ability to achieve sustained profitability will depend, in part, on the rate of growth, if any, of our revenue and on the level of our expenses. In 2011 and 2012, our business was affected by a drop in the volume of sales and consumables to our academic and pharmaceutical customers, particularly in North America, which led to a decrease in revenue as compared to the same prior-year period. There can be no assurance that our revenue will not continue to decrease in future periods. We have initiated a corporate restructuring program to reduce our costs, however, there can be no assurance that the anticipated cost savings will materialize. We expect to continue incurring significant expenses related to research and development, sales and marketing efforts to commercialize our products, litigation and non-cash stock based compensation, and we expect to continue to experience fluctuations in our operating results. If our revenue grows more slowly than we anticipate, or if our operating expenses are above what we expect or cannot be reduced in the event of lower revenue, we may not become profitable on a sustained basis, or at all.

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If we do not attract and retain key employees, our business could be impaired.

To be successful, we must attract and retain qualified scientific, engineering, manufacturing, sales, marketing and management personnel. To expand our research, product development and sales efforts we need additional people skilled in areas such as bioinformatics, organic chemistry, information services, regulatory affairs, manufacturing, sales, marketing and technical support. Competition for these people is intense, and our compensation arrangements, such as our equity award programs, may not always be successful in attracting new employees and retaining and motivating existing employees. For example, our stock price has been volatile in recent years, resulting in a significant number of stock options granted to our employees having a strike price that is higher than the current trading price of our common stock. In addition, following the Acquisition, in order to retain and incentivize key eBioscience employee as we integrate the business, we granted certain employees performance-based restricted stock units ("PRSUs") as further described in Note 14. "Stockholders' Equity and Share-Based Compensation Expense"; we cannot be assured that these equity awards will be successful in retaining and incentivizing such employees. If we are unable to hire, train and retain a sufficient number of qualified employees, we will not be able to expand our business or our business could be adversely affected.

We also rely on our scientific advisors and consultants to assist us in formulating our research, development and commercialization strategy. All of these individuals are engaged by other employers and have commitments to other entities that may limit their availability to us.

Due to the international nature of our business, political or economic changes or other factors could harm our business.

A significant amount of our revenue is currently generated from sales outside the United States. Although such transactions are denominated in both U.S. dollars and foreign currencies, our future revenue, gross margin, expenses and financial condition are still affected by such factors as changes in foreign currency exchange rates; unexpected changes in, or impositions of, legislative or regulatory requirements, including export and trade barriers and taxes; longer payment cycles and greater difficulty in accounts receivable collection.

We also are subject to general geopolitical risks in connection with international operations, such as political, social and economic instability, including austerity measures, potential hostilities, epidemics and changes in diplomatic and trade relationships. We cannot assure investors that one or more of the foregoing factors will not have a material adverse effect on our business, financial condition and operating results or require us to modify our current business practices.

As we expand our development and commercialization activities outside of the United States, we will be subject to an increased risk of inadvertently conducting activities in a manner that violates the U.S. Foreign Corrupt Practices Act and similar laws. If that occurs, we may be subject to civil or criminal penalties which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

We are subject to the U.S. Foreign Corrupt Practices Act ("FCPA"), which prohibits corporations and individuals from paying, offering to pay, or authorizing the payment of anything of value to any foreign government official, government staff member, political party, or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity. We are also subject to the UK Anti-Bribery Act, which prohibits both domestic and international bribery, as well as bribery across both public and private sectors.

In the course of establishing and expanding our commercial operations and seeking regulatory approvals outside of the United States, we will need to establish and expand business relationships with various third parties and we will interact more frequently with foreign officials, including regulatory authorities. Expanded programs to maintain compliance with such laws will be costly and may not be effective. Any interactions with any such parties or individuals where compensation is provided that are found to be in violation of such laws could result in substantial fines and penalties and could materially harm our business. Furthermore, any finding of a violation under one country's laws may increase the likelihood that we will be prosecuted and be found to have violated another country's laws. If our business practices outside the United States are found to be in violation of the FCPA, UK Anti-Bribery Act or other similar law, we may be subject to significant civil and criminal penalties which could have a material adverse effect on our financial condition and results of operations.

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Our effective tax rate may vary significantly.

Our operations are subject to income and transaction taxes in the United States and in multiple foreign jurisdictions. Estimates and judgments are required in determining our worldwide provision for income taxes. Some of these estimates are based on interpretations of existing tax laws or regulations. The ultimate amount of tax liability may be uncertain as a result.

Changes in overall levels and the geographic mix of pretax earnings may adversely impact our effective tax rate. Certain jurisdictions have lower tax rates, and the amount of earnings in these jurisdictions may fluctuate. If we do not have profitable operations in these jurisdictions, our effective tax rate could be adversely impacted. Changes in tax laws, regulatory requirements, our treasury plans, and applicability of tax holidays and incentive programs in the countries in which we operate could have a material impact on our tax provision. Tax authorities may challenge the allocation of profits between our subsidiaries and conformance with requirements of tax holidays and incentive programs and we may not prevail in any such challenge. If we were not to prevail, we could be subject to higher tax rates or double tax.

Estimates are required in determining any valuation allowance to be recorded against our net deferred tax assets. Changes in the amount of valuation allowance required may significantly impact our financial results of operations.

Changes in other categories of earnings such as discontinued operations and other comprehensive income may affect our tax provision allocated to continuing operations.

In the normal course of business, we are subject to examination by taxing authorities in the U.S. and multiple foreign jurisdictions.

Failure in our information technology systems could disrupt our operations and cause the loss of customers or business opportunities.

Information technology ("IT") systems are used extensively in virtually all aspects of our business, including sales forecast, order fulfillment and billing, customer service, logistics and management of data from running samples on our products. Our success depends, in part, on the continued and uninterrupted performance of our IT systems. IT systems may be vulnerable to damage from a variety of sources, including telecommunications or network failures, human acts and natural disasters. Moreover, despite the security measures we have implemented, our IT systems may be subject to physical or electronic break-ins, computer viruses and similar disruptive problems. We also have taken precautionary measures to prevent unanticipated problems that could affect our IT systems. Nevertheless, we may experience damages to our systems, and system failures and interruptions.

If we experience systems problems, they may interrupt our ability to operate and adversely affect our reputation and result in a loss of customers and revenues.

Risks Related to Our Investments

Our strategic equity investments may result in losses.

We periodically make strategic equity investments in various public and private companies with businesses or technologies that may complement our business. The market values of these strategic equity investments may fluctuate due to market conditions and other conditions over which we have no control. Other-than-temporary declines in the market price and valuations of the securities that we hold in other companies have required us to record losses relative to our ownership interest. This could result in future charges to our earnings. It is uncertain whether or not we will realize any long-term benefits associated with these strategic investments.

Global credit and financial market conditions could negatively impact the value of our current portfolio of cash equivalents or investments and our ability to meet our financing objectives.

Our cash and cash equivalents are maintained in highly liquid investments with remaining maturities of 90 days or less at the time of purchase. Our investments consist primarily of readily marketable debt securities with remaining maturities of more than 90 days at the time of purchase. While as of the date of this filing we are not aware of any downgrades, material losses, or other significant deterioration in the fair value of our cash equivalents or investments since December 31, 2012, any significant deterioration in conditions of the global credit and financial markets may negatively impact our current portfolio of cash equivalents or investments or our ability to meet our financing objectives. Other-than-temporary declines in the market price and valuation of any of our investments would require us to adjust the carrying value of the investment through an impairment charge.

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Risks Related to Government Regulation and Litigation

We and our customers are subject to various government regulations, and we may incur significant expenses to comply with, and experience delays in our product commercialization as a result of, these regulations.

The FDA has jurisdiction over the commercialization of medical devices, including in vitro diagnostic test kits and the reagents and instrumentation used in these tests. In vitro diagnostic tests, reagents, and instruments may be subject to pre-market review and post-market controls by the FDA. Certain in vitro diagnostic products must also be approved by the regulatory agencies of foreign governments or jurisdictions before the product can be sold outside the United States. Commercialization of our and our collaborative partners' in vitro diagnostic products outside of the research environment may depend upon successful completion of clinical trials. Clinical development is a long, expensive and uncertain process and we do not know whether we, or any of our collaborative partners, will be permitted to undertake clinical trials of any potential in vitro diagnostic products. It may take us or our collaborative partners many years to complete any such testing, and failure can occur at any stage. Delays or rejections of potential products may be encountered based on changes in regulatory policy during the period of product development and regulatory agency review. Moreover, if and when our projects reach clinical trials, we, or our collaborative partners, may decide to discontinue development of any or all of these projects at any time for commercial, scientific or other reasons. Any of the foregoing matters could have a material adverse effect on our business, financial condition and results of operations.

Many of our products are labeled for "research use only." Products intended for research use only are not subject to clearance or approval by the FDA. However, research use only products may fall under the FDA's jurisdiction if these are used for clinical rather than research purposes. Even when a product is exempted from FDA clearance or approval, the FDA may impose restrictions as to the types of customers to which we can market and sell our products. Such restrictions may materially and adversely affect our business, financial condition and results of operations.

The FDA, the U.S. Department of Health and Human Services and foreign government regulators are increasingly focused on genetic analysis tools, including the use of arrays, which are labeled for research use only, by clinical laboratories in laboratory-developed tests ("LDTs") offered by these laboratories, including labs certified under the Clinical Laboratory Improvement Amendments ("CLIA"). We cannot predict the extent of the FDA's future efforts in regulation and enforcement policies with respect to the sale and use of arrays for the development of LDTs by CLIA-certified laboratories. If regulations or enforcement policies restrict our customers' development of LDTs using our products labeled for research use only, or if we otherwise are required to obtain FDA premarket clearance or approval prior to commercializing these products, our ability to generate revenue from the sale of our products may be delayed or otherwise adversely affected. Moreover, our failure to comply with governmental rules and regulations related to our products could cause us to incur significant adverse publicity, subject us to investigations and notices of non-compliance or lead to fines or restrictions upon our ability to sell our products. We also may be at risk for liability related to government reimbursement of tests involving the use of our products if it is determined that these tests require FDA-clearance or approval and no such clearance or approval has been obtained.

Medical device laws and regulations are also in effect in many countries, ranging from comprehensive device approval requirements to requests for product data or certifications. The number and scope of these requirements are increasing. We may not be able to obtain regulatory approvals in such countries or may incur significant costs in obtaining or maintaining our foreign regulatory approvals. In addition, the export by us of certain of our products which have not yet been cleared for domestic commercial distribution may be subject to FDA or other export restrictions.

We have agreements relating to the sale of our products to government entities and, as a result, we are subject to various statutes and regulations that apply to companies doing business with the government. A failure to comply with these regulations might result in suspension of these contracts or administrative or other penalties, and could have a material adverse effect on our ability to compete for future government grants, contracts and programs.

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Healthcare reform and restrictions on reimbursements may limit our returns on molecular diagnostic products that we may develop independently or with our collaborators.

We are currently collaborating with our partners to develop diagnostic and therapeutic products. The ability of our collaborators to commercialize such products may depend, in part, on the extent to which reimbursement for these products will be available under U.S. and foreign regulations that govern reimbursement for clinical testing services by government authorities, private health insurers and other organizations. In the United States, third-party payer price resistance, the trend towards managed health care and the implementation of the Patient Protection and Affordable Care Act of 2010 could reduce payment rates for health care products and services, adversely affecting the profits of our customers and collaborative partners and reducing our future royalties. Under Medicare rules, diagnostic tests must be ordered by a physician who is treating the beneficiary and who uses the test results in patient management. Under this rule, some Medicare contractors may deny coverage for a test, even if the test has been cleared or approved by the FDA, without proof, as determined sufficient by the contractor, that the test is useful in patient management.

We face risks related to handling of hazardous materials and other regulations governing environmental safety.

Our operations are subject to complex and stringent environmental, health, safety and other governmental laws and regulations that both public officials and private individuals may seek to enforce. Our activities that are subject to these regulations include, among other things, our use of hazardous and radioactive materials and the generation, transportation and storage of waste. We could discover that we or an acquired business is not in material compliance. Existing laws and regulations may also be revised or reinterpreted, or new laws and regulations may become applicable to us, whether retroactively or prospectively, that may have a negative effect on our business and results of operations. It is also impossible to eliminate completely the risk of accidental environmental contamination or injury to individuals. In such an event, we could be liable for any damages that result, which could adversely affect our business.

We may be exposed to liability due to product defects.

The risk of product liability claims is inherent in the testing, manufacturing, marketing and sale of human diagnostic and therapeutic products and we may be subjected to such claims. We have voluntarily recalled products in the past. We may seek to acquire additional insurance for clinical or product liability risks. We may not be able to obtain such insurance or general product liability insurance on acceptable terms or in sufficient amounts. A product liability claim or recall could have a serious adverse effect on our business, financial condition and results of operations.

Ethical, legal and social concerns surrounding the use of genetic information could reduce demand for our products.

Genetic testing has raised ethical issues regarding privacy and the appropriate uses of the resulting information. For these reasons, governmental authorities may call for limits on or regulation of the use of genetic testing or prohibit testing for genetic predisposition to certain conditions, particularly for those that have no known cure. Similarly, such concerns may lead individuals to refuse to use genetics tests even if permissible. Any of these scenarios could reduce the potential markets for our molecular diagnostic products, which could have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Our Intellectual Property

We may be unable to effectively protect or enforce our intellectual property, which could harm our competitive position.

Maintaining a strong patent position is critical to our business. Patent law relating to the scope of claims in the technology fields in which we operate is uncertain, so we cannot be assured the patent rights we have or may obtain will be valuable. Others have filed, and in the future are likely to file, patent applications that are similar or identical to ours or those of our licensors. To determine the priority of inventions, we may have to participate in interference proceedings declared by the United States Patent and Trademark Office that could result in substantial costs in legal fees and could substantially affect the scope of our patent protection. We cannot be assured our patent applications will have priority over those filed by others. Also, our intellectual property may be subject to significant administrative and litigation proceedings. In addition, we may acquire businesses, which may not have developed or maintained a similarly robust patent position. For example, our eBioscience does not have a patent portfolio at the current time, so we must rely on non-patent rights, including third-party licenses that relate to such business operations.

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Legal actions to enforce our patent rights can be expensive and may involve the diversion of significant management time. In addition, these legal actions could be unsuccessful and could also result in the invalidation of our patents or a finding that they are unenforceable. We may or may not choose to pursue litigation or interferences against those that have infringed on our patents, or used them without authorization, due to the associated expense and time commitment of monitoring these activities. If we fail to protect or to enforce our intellectual property rights successfully, our competitive position could suffer, which could harm our results of operations.

In addition to patent protection, we also rely upon copyright and trade secret protection, as well as non-disclosure agreements with our employees, consultants and third-parties, to protect our confidential and proprietary information. Such measures may not provide adequate protection for our proprietary information.

Litigation or other proceedings or third-party claims of intellectual property infringement could require us to spend significant time and money and could prevent us from selling our products or services or impact our stock price.

Third parties have asserted and may in the future assert that we are employing their proprietary technology without authorization. As we launch new products and enter new markets, we expect that competitors will claim that our products infringe their intellectual property rights as part of business strategies designed to impede our successful commercialization and entry into new markets. We are currently engaged in litigation with third parties who allege that we have infringed their intellectual property rights. See Note 15. "Legal Proceedings" found in this Annual Report on 10-K for further information. In addition, we are aware of third-party patents that may relate to our technology. We routinely receive notices claiming infringement from third parties as well as invitations to take licenses under third-party patents. Third parties may have obtained, and may in the future obtain, patents allowing them to claim that the use of our technologies infringes these patents.

We could incur substantial costs and divert the attention of our management and technical personnel in defending ourselves against any of these claims. Any adverse ruling or perception of an adverse ruling in defending ourselves against these claims could have a material adverse impact on our cash position and stock price. Furthermore, parties making claims against us may be able to obtain injunctive or other relief, which could block our ability to develop, commercialize and sell products, and could result in the award of substantial damages against us. In the event of a successful claim of infringement against us, we may be required to pay damages and obtain one or more licenses from third parties, or be prohibited from selling certain products, all of which will have a material adverse impact on our cash position and business and financial condition.

In addition, we may be unable to obtain these licenses at a reasonable cost, if at all. We could therefore incur substantial costs related to royalty payments for licenses obtained from third parties, which could negatively affect our gross margins. Moreover, we could encounter delays in product introductions while we attempt to develop alternative methods or products. Defense of any lawsuit or failure to obtain any of these licenses on favorable terms could prevent us from commercializing products, and the prohibition of sale of any of our products could materially affect our ability to grow and maintain profitability.

Risks Related to Our Common Stock

The price of our common stock historically has been volatile. This volatility may affect the price at which you could sell the common stock you receive upon conversion, and the sale of substantial amounts of our common stock could adversely affect the price of our common stock.

The market price for our common stock has varied between a high of $5.50 on June 18, 2012, and a low of $2.96 on November 16, 2012 in the twelve-month period ending on December 31, 2012. Our stock price is likely to continue to be volatile and subject to significant price and volume fluctuations in response to market and other factors, including those listed in this "Risk Factors" section and other, unknown factors. Our stock price also may be affected by comments by securities analysts regarding our business or prospects, our issuance of common stock or other equity securities, our inability to meet analysts' expectations, general fluctuations in the stock market or in the stock prices of our industry peers or our customers and general conditions and publicity regarding the genomics, biotechnology, pharmaceutical or life science industries. This volatility may affect the price at which you could sell the common stock you receive upon conversion of your notes.

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In addition, the sale of substantial amounts of our common stock could adversely impact its price. As of December 31, 2012, we had outstanding approximately 71.0 million shares of our common stock and options to purchase approximately 6.1 million shares of our common stock (of which approximately 3.2 million were exercisable as of that date). We also had outstanding approximately 3.7 million shares underlying restricted stock awards and restricted stock units as of December 31, 2012. As of December 31, 2012, we also had outstanding $105.0 million aggregate principal amount of our 4.00% Notes and $3.9 million aggregate principal amount of our 3.50% Notes, which are convertible into shares of our common stock. We have reserved a total of approximately 14.4 million shares of our common stock to satisfy the settlement obligations of such notes. The sale or the availability for sale of a large number of shares of our common stock in the public market could cause the price of our common stock to decline.

Volatility in the stock price of other companies often has led to securities class action litigation against those companies. Any future securities litigation against us could result in substantial costs and divert management's attention and resources, which could seriously harm our business, financial condition and results of operations.

Our quarterly results have historically fluctuated significantly and may continue to do so. Failure to meet financial expectations may disappoint securities analysts or investors and result in a decline in our stock price.

Our revenue and operating results may fluctuate significantly due, in part, to factors that are beyond our control and which we cannot predict. The timing of our customers' orders may fluctuate from quarter to quarter. Historically, we have experienced customer ordering patterns for instrumentation and consumables in which the majority of the shipments occur in the last month of the quarter. These ordering patterns limit management's ability to accurately forecast our future revenue or product mix. Additionally, license revenue may also be unpredictable and fluctuates due to the timing of payments of non-recurring licensing fees. Because our expenses are largely fixed in the short to medium term, any material shortfall in revenue may cause us to experience material losses.

Because of this difficulty in predicting future performance, our operating results may fall below our own expectations and the expectations of securities analysts or investors in some future quarter or quarters. Our failure in the past to meet these expectations has adversely affected the market price of our common stock and may continue to do so.

In addition to factors that affect the spending levels of our customers described above, additional factors could cause our operating results to fluctuate, including:

· competition;

· our inability to produce products in sufficient quantities and with appropriate quality;

· the frequency of experiments conducted by our customers;

· our customers' inventory of products;

· the receipt of relatively large orders with short lead times; and

· our customers' expectations as to how long it takes us to fill future orders.

In addition, integrating operations, financial and other systems of acquired businesses, including those in connection with our acquisition of eBioscience, may compound the difficulty of predicting our future performance, for example by decreasing our ability to forecast customer demand and manage our inventory levels, and may therefore increase the fluctuation of our operating results.

Delaware law and our charter documents may impede or discourage a takeover, which could cause the market price of our common stock to decline.

We are a Delaware corporation, and the anti-takeover provisions of Delaware law impose various impediments to the ability of a third party to acquire control of us, even if a change in control would be beneficial to our existing stockholders. Our charter and bylaws contain provisions relating to issuance of preferred stock, limitations on written consents, special meetings of stockholders and advance notification procedures for stockholder proposals. In addition, we are subject to Section 203 of the Delaware General Corporation Law, which prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years after the date that such stockholder became an interested stockholder, unless certain conditions are met.

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These and other provisions of our charter documents and Delaware law could prevent or deter mergers, takeovers or other business combinations involving us, discourage potential acquirers from making tender offers for our common stock, or discourage proxy contests for changes in our management, any of which, under certain circumstances, could depress the market price of our common stock and the value of the notes.

ITEM 1B.  UNRESOLVED STAFF COMMENTS

None.

ITEM 2.  PROPERTIES

Our corporate headquarters is located in Santa Clara, California, where we lease approximately 200,000 square feet and we have manufacturing facilities located in Singapore and Cleveland, Ohio, where we lease approximately 150,000 square feet and 18,000 square feet, respectively. We lease approximately 140,000 square feet of administrative and research and development space in California (Emeryville and Sunnyvale), Ohio (Cleveland and Maumee), China (Beijing and Shanghai), Germany (Freiburg), Japan (Osaka and Tokyo), United Kingdom (Wooburn Green), Brazil (San Paulo) and Dubai. We have also entered into agreements to sublease to third parties approximately 80,000 square feet of administrative and research and development space in Massachusetts (Bedford).

As part of our acquisition of eBioscience, we now have locations in San Diego, California and Austria (Vienna). We lease approximately 100,000 square feet in San Diego of office property and a 25,000 square foot research and development facility in Vienna, Austria.

In 2012, we sold our 170,000 square foot facility in West Sacramento, California for $5.8 million, which included $0.3 million in commissions and closing costs paid by us, and recognized a net impairment of $3.5 million.

We believe that our existing properties are in good condition and are suitable for the conduct of our business.

ITEM 3.  LEGAL PROCEEDINGS

Information pertaining to legal proceedings can be found in "Item 8. Financial Statements and Supplementary Data—Note 15. Legal Proceedings" of this Annual Report on Form 10-K, and is incorporated by reference herein.

ITEM 4.  MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIES

Our common stock is traded on The Nasdaq Global Select Market under the symbol of AFFX. The following table sets forth on a per share basis, for the periods indicated, the low and high closing prices of our common stock as reported by The Nasdaq Global Select Market.

	Low		High
2012
First Quarter	$	4.11	$	5.21
Second Quarter	$	3.99	$	5.39
Third Quarter	$	3.60	$	4.69
Fourth Quarter	$	3.01	$	3.75
2011
First Quarter	$	4.45	$	5.53
Second Quarter	$	5.01	$	7.93
Third Quarter	$	4.14	$	8.06
Fourth Quarter	$	3.70	$	5.83

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As of February 22, 2013, there were approximately 277 holders of record of our common stock, one of which is Cede & Co., a nominee for Depository Trust Company ("DTC"). All of the shares of common stock held by brokerage firms, banks and other financial institutions as nominees for beneficial owners are deposited into participant accounts at DTC and therefore are considered to be held of record by Cede & Co. as one shareholder.

No cash dividends have been paid on our common stock. We currently intend to retain all future earnings, if any, for use in our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future.

No equity securities were sold during 2012 that were not registered under the Securities Act of 1933, as amended (the "Securities Act"). We did not repurchase any shares of our common stock during the fourth quarter of 2012.

For information regarding compensation plans under which equity securities were authorized for issuance, see the section of the Proxy Statement to be filed in connection with our 2013 Annual Meeting of Shareholders entitled "Equity Compensation Plan Information," incorporated by reference into Item 12 of this Annual Report on Form 10-K.

Performance Graph

The graph below compares the cumulative total return* on our common stock for the period commencing on December 31, 2007 and ending December 31, 2012 compared to the CRSP Total Return Index for the Nasdaq National Market (U.S. companies) and the CRSP Total Return Index for the Nasdaq Pharmaceutical Stocks (SIC 283). The stock price performance shown on the graph below is not necessarily indicative of future price performance.

*Assumes $100 invested on December 31, 2007 in our common stock and in each index listed above. The total return for our common stock and the indices used assumes the reinvestment of dividends, even though dividends have never been declared on our common stock.

The information under the caption "Performance Graph" is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference in any filing of Affymetrix under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether made before or after the date of this Annual Report on Form 10-K and irrespective of any general incorporation language in such filings.

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ITEM 6.  SELECTED FINANCIAL DATA

The following selected financial data has been derived from our audited consolidated financial statements. The information below is not necessarily indicative of our future results of operations and should be read in conjunction with Item 1A, "Risk Factors," Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and Item 8, "Financial Statements and Supplementary Data" in this Annual Report on Form 10-K in order to fully understand the factors that may affect the comparability of the information presented below:

	Year Ended December 31,
	2012			2011			2010			2009			2008
Consolidated Statement of Operations Data:	(in thousands, except per share amounts)
Total revenue (1)	$	295,623		$	267,474		$	310,746		$	327,094		$	410,249
Loss from operations (2)		(39,091	)		(16,641	)		(5,167	)		(33,158	)		(242,539	)
Net loss (3)	$	(10,696	)	$	(28,161	)	$	(10,233	)	$	(23,909	)	$	(307,919	)
Basic and diluted net loss per common share	$	(0.15	)	$	(0.40	)	$	(0.15	)	$	(0.35	)	$	(4.49	)
Consolidated Balance Sheet Data:
Cash, cash equivalents, and available-for-sale securities (4)	$	35,736		$	265,067		$	237,184		$	346,574		$	397,739
Working capital		97,384			259,961			159,932			345,486			420,768
Total assets (4)		544,294			438,015			460,785			630,950			713,310
Long-term obligations (5)		204,820			104,596			107,220			257,496			327,313

(1) Included in the total revenue for the year ended December 31, 2012 was $37.0 million from eBioscience, which we acquired on June 25, 2012.

In 2008, we received a non-recurring $90 million payment related to an intellectual property settlement.

(2) Included in loss from operations for the year ended December 31, 2012 was $8.8 million from eBioscience and the following items related to the acquisition of eBioscience:

· $8.2 million in acquisition- and integration-related costs, and

· $8.3 million in share-based compensation charges.

Additionally, we recognized $1.8 million, $2.2 million and $43.7 million in 2012, 2009 and 2008, respectively, of expense related to our restructuring plans that was presented in a single line item labeled "Restructuring charges" in our accompanying Consolidated Statements of Operations.

In 2008, we recognized a goodwill impairment charge of $239.1 million.

(3) As part of our repurchases of our 3.50% Notes, we recognized the following gains (see (5) for further details):

· In 2010, we recognized a net gain of $6.3 million on repurchases totaling $151.7 million in aggregate principal amount; and

· In 2009, we recognized a net gain of $17.4 million on the repurchase of $69.1 million in aggregate principal amount.

In 2008, we recognized an income tax provision of $65.9 million primarily resulting from a full valuation allowance recorded against all U.S. deferred tax assets

(4) In 2012, we completed the acquisition of eBioscience for aggregate cash consideration of $307.8 million and in 2008, we completed the acquisitions of USB Corporation ("USB"), True Materials, Inc. ("TMI"), and Panomics, Inc. for aggregate cash consideration of $163.0 million.

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(5) In 2012, as part of our acquisition of eBioscience, we obtained a Term Loan of $85.0 million under our Senior Secured Credit Facility and issued $105.0 million aggregate principal amount of 4.00% Notes.

We repurchased and redeemed our 3.50% Notes:

· In 2012, a total of $91.6 million aggregate principal amount was purchased for cash consideration of $92.1 million, including accrued interest and transaction costs of $0.5 million;

· In 2010, a total of $151.7 million aggregate principal amount was purchased for cash consideration of $143.6 million, including accrued interest and transaction costs; and

· In 2009, $69.1 million aggregate principal amount was purchased for cash consideration of $50.6 million, including accrued interest and transactions costs.

· Subsequent to December 31, 2012 results reflected above, we redeemed the remaining outstanding 3.50% Notes for cash considerations of $3.9 million, including accrued interest and transaction costs.

In 2008, a total of $119.9 million aggregate principal amount of our 0.75% senior convertible notes was redeemed for cash as investors exercised their put right. We repurchased the remaining $0.1 million aggregate principal amount of such notes in 2009.

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

The following discussion should be read in conjunction with the consolidated financial statements and the related notes that appear elsewhere in this document.

All statements in this annual report that are not historical are "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act as amended, including statements regarding our strategic initiatives, anticipated cost savings, return to profitability and integration of and synergies related to eBioscience, as well as all other statements regarding our "goals," "expectations," "beliefs," "intentions," "strategies" or the like. Such statements are based on our current expectations and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Actual results or business conditions may differ materially from those projected or suggested in such forward-looking statements as a result of various factors, including, but not limited to, our capacity to identify and capitalize upon emerging market opportunities; risks relating to our ability to acquire new businesses and technologies and successfully integrate and realize the anticipated strategic benefits and cost savings or other synergies thereof, including our acquisition of eBioscience, in a cost-effective manner while minimizing the disruption to our business; risks that eBioscience's future performance may not be consistent with its historical performance; risks relating to our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness; risks relating to our ability to develop and successfully commercialize new products and services; uncertainties related to cost and pricing of Affymetrix products; fluctuations in overall capital spending in the academic and biotechnology sectors; changes in government funding policies; our dependence on collaborative partners; the size and structure of our current sales, technology and technical support organizations; uncertainties relating to our suppliers and manufacturing processes; risks relating to our ability to achieve and sustain higher levels of revenue, higher gross margins and reduced operating expenses; uncertainties relating to technological approaches; global credit and financial market conditions; personnel retention; uncertainties relating to the FDA and other regulatory approvals; competition; risks relating to intellectual property of others and the uncertainties of patent protection and litigation; volatility of the market price of our common stock; unpredictable fluctuations in quarterly revenues; and the risk factors disclosed under Part I, Item 1A of this Annual Report on Form 10-K for the year ended December 31, 2012. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based, except as required by law.

Overview

We are a leading provider of life science tools and molecular diagnostic products that enable parallel analysis of biological systems at the gene, protein and cell level. We sell our products to genomic research centers, academic institutions, government and private laboratories, as well as pharmaceutical, diagnostic and biotechnology companies. Over 48,000 peer-reviewed papers have been published based on work using our products. We have approximately 1,100 employees worldwide and maintain sales and distribution operations across the United States, Europe, Latin America and Asia.

Our operations consist of two reportable segments, Affymetrix Core and eBioscience. Affymetrix Core accounted for approximately 80% of total revenue and eBioscience accounted for approximately 13% of total revenue during the year ended December 31, 2012. The remaining 7% of total revenue came from our Corporate business unit which was not deemed an operating segment.

Affymetrix Core is divided into three business units with each business unit having its own research and marketing groups to better serve customers and respond quickly to the market needs. In addition, the business units share common corporate services that provide capital, infrastructure, resources and functional support, allowing them to focus on core technological strengths to compete and innovate in their markets. The following describes the three business units that form Affymetrix Core:

· Expression: This business unit develops and markets the Company's GeneChip gene expression products and services, and the QuantiGene® line of low-to-mid-plex RNA measurement products.

· Genetic Analysis and Clinical Applications: This business unit develops and markets the Company's genotyping, such as the Axiom® product line, and arrays with clinical research applications, such as the CytoScan® cytogenetics arrays.

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· Life Science Reagents: This business unit develops and sells reagents, enzymes, purification kits and biochemicals used by life science researchers.

eBioscience is operated as a separate business unit after the acquisition with its own research and marketing and manufacturing groups, but shares common corporation services with Affymetrix Core:

· eBioscience: This reportable segment specializes in the development, manufacturing, marketing and distribution of research tools in the areas of flow cytometry, immunoassays, microscopic imaging and other protein-based analyses.

We have one additional business unit, the Corporate business unit, which is comprised primarily of revenue from royalty arrangements, and field revenue from services provided to customers by the Company. Its manufacturing operations are based on platforms that are used to produce various products that serve multiple applications and markets. The Corporate business unit is not deemed to be an operating segment.

All of our business units sell their products through our Global Commercial Organization comprised of sales, field application and engineering support, and marketing personnel. We market and distribute our products directly to customers in North America, Japan and major European markets. In these markets, we have our own sales, service and application support personnel responsible for expanding and managing their respective customer bases. In other markets, such as Mexico, India, the Middle East and Asia Pacific, including the People's Republic of China, we sell our products principally through third party distributors that specialize in life science supply. For molecular diagnostic and industrial applications market opportunities, we supply our partners with arrays and instruments, which they incorporate into diagnostic products and assume the primary commercialization responsibilities.

Acquisition of eBioscience Holding Company, Inc.

On June 25, 2012, we completed our acquisition of eBioscience, a privately-held company based in San Diego, California engaged in the development, manufacture and sale of flow cytometry and immunoassay reagents for immunology and oncology research and diagnostics (the "Acquisition") pursuant to an Amended and Restated Agreement and Plan of Merger dated May 3, 2012 (the "Acquisition Agreement").

We believe the Acquisition is a good strategic fit for Affymetrix, allowing us to expand our addressable markets and continue to diversify our business beyond genomics discovery into cell and protein analysis. We believe eBioscience will enable us to further expand into downstream markets where validation and testing activity leverages the results of basic discovery research to achieve a more thorough understanding of disease states, and ultimately, new and/or improved diagnostics and therapeutics.

We intend to operate eBioscience as a separate business unit to minimize or avoid any disruption of services, while taking advantage of immediate opportunities to create efficiencies. We expect to achieve certain commercial synergies between the two companies, including cross-selling opportunities and complementary distribution channels, as well as realize benefits from certain research and development synergies.

The Acquisition purchase price totaled $314.9 million, plus $17.5 million in other fees and expenses incurred since the transaction began, including $8.5 million of underwriting and financing fees, and was financed through a combination of cash on hand, the liquidation of available-for-sale securities, proceeds from the Term Loan of aggregate principal amount of $85.0 million provided under our Senior Secured Credit Facility and the issuance of $105.0 million principal amount of our 4.00% Notes.

Reportable Operating Segments

To better serve our markets subsequent to our acquisition of eBioscience, during the year ended December 31, 2012, we have organized our business units into two reportable operating segments: Affymetrix Core and eBioscience.

Affymetrix Core represents the aggregate of the Expression, Genetic Analysis and Clinical Applications and Life Science Reagents business units with each having its own development, manufacturing and marketing groups. The business units will share common corporate services that provide capital, infrastructure, resources and functional support. These corporate services will be included in the Corporate business unit.

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eBioscience is organized as a separate business unit in order to minimize disruption of its existing operations, and we evaluate the performance of eBioscience separately from Affymetrix Core's performance based on its revenue and income (loss) from operations. For the year ended December 31, 2012, the eBioscience reportable operating segment had $37.0 million in net revenue and $8.8 million in operating loss, from the Acquisition Date.

The Corporate business unit is not aggregated into either of the two operating segments and will be disclosed in the "other" category. See "Item 8. Financial Statements and Supplementary Data—Note 17. Segment and Geographic Information" for more information on our reportable operating segments.

Overview of Fiscal Year 2012 and Strategic Initiatives

We have faced declining financial performance over the past several years. Traditionally, a significant portion of our business was in the well-established gene expression business where our GeneChip® Expression product line comprised of at least 50% of our revenue as we concentrated on selling these products in the basic research market focused on discovery research. Declining sales and intense competition from newer technologies such next generation sequencing in this business has led to decreasing revenue annually since 2007.

Since Frank Witney became our President and Chief Executive Officer in July 2011, we have begun shifting our resources and focus areas from a dependency on our Expression business unit to a more diversified portfolio with broader revenue stream capabilities that can reach into the growing markets for translational medicine and molecular diagnostics. In 2012, Affymetrix Core reported lower overall revenue of $7.2 million as compared to 2011, primarily due to a $17.4 million decrease in our Expression business unit resulting from a lower volume of sales. Revenue from this business unit was approximately 40% of our business in 2012 as compared to over 50% in 2011. This decrease was partially offset by an $11.8 million increase in our Genetic Analysis and Clinical Applications business unit due to an increased volume of sales in our Cytogenetics line of products which more than doubled in 2012 from 2011.

As we enter 2013, we continue to execute on a strategy developed by Dr. Witney and our management team where we will realign our product portfolio, stabilize our core business and position our company for growth and increasing profitability. We expect this transformation to take several years, and have categorized this plan into three phases.

· Phase 1 (2011-2012) –Portfolio Realignment. During this phase, we reorganized ourselves into business units to sharpen our business focus based on target markets. We also launched CytoScan®, our growing cytogenetic microarray product line, grew our Axiom genotyping platform aggressively and acquired eBioscience. We believe these actions will lead to a stabilization of our core business and the realignment of our product portfolio will position us for growth.

· Phase II (2013-2014) – Profitability, Strengthen Balance Sheet, Development of Newer Product Lines. In the beginning of 2013, we implemented a corporate restructuring with a goal of accelerating our path to profitability. We expect the corporate restructuring is expected to result in annualized savings of approximately $25 million based on 2013 run rates, of which $5 million is expected to be in cost of goods sold. Our priorities for this phase will be to achieve profitability, repay our senior secured debt, successfully commercialize our newer product lines (CytoScan®, Axiom® and QuantiGene® lines, as well as our eBioscience products) and invest in new product offerings. In addition, we will train and refocus our global commercial organization to expand our reach to customers in the translational medicine, molecular diagnostics and applied markets.

· Phase III (2015 -2016) – Strategic Flexibility, Expansion of Product Lines; Growth. Our goal is to have a strong balance sheet in this phase that will provide us with the flexibility to make strategic acquisitions. In addition, we aim to grow revenues with developed product lines and new product offerings in the translational medicine and molecular diagnostic markets.

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CRITICAL ACCOUNTING POLICIES & ESTIMATES

General

The following section of Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles ("US GAAP"). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are fully described in "Item 8. Financial Statements and Supplementary Data—Note 2. Summary of Significant Accounting Policies." However, certain accounting policies are particularly important to the reporting of our financial position and results of operations and require the application of significant judgment by our management. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements. Management believes the following critical accounting policies reflect its more significant estimates and assumptions used in the preparation of the consolidated financial statements.

REVENUE RECOGNITION

We enter into contracts to sell our products and, while the majority of our sales agreements contain standard terms and conditions, there are agreements that contain multiple elements or non-standard terms and conditions. As a result, significant contract interpretation is sometimes required to determine the appropriate accounting, including whether the deliverables specified in a multiple element arrangement should be treated as separate units of accounting for revenue recognition purposes, and if so, how the value of the arrangement should be allocated among the deliverable elements, when and how to recognize revenue for each element, and the period over which revenue should be recognized.

INVENTORIES

We enter into inventory purchases and commitments so that we can meet future shipment schedules based on forecasted demand for our products. The business environment in which we operate is subject to rapid changes in technology and customer demand. We perform a detailed assessment of inventory each period, which includes a review of, among other factors, demand requirements, product life cycle and development plans, component cost trends, product pricing, product expiration and quality issues. Based on this analysis, we record adjustments to inventory for potentially excess, obsolete or impaired goods, when appropriate, in order to report inventory at net realizable value. These inventory adjustments may be required if actual demand, component costs, supplier arrangements, or product life cycles differ from our estimates. Any such adjustments would result in a charge to our results of operations.

BUSINESS COMBINATIONS

To account for our acquisition of eBioscience, we used the acquisition method of accounting which requires us to allocate the fair value of the total consideration transferred to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the date of the acquisition, with the difference between the net assets acquired and the total consideration transferred recorded as goodwill. The fair values assigned, defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants, are based on significant estimates and assumptions determined by management. These estimates and assumptions are inherently uncertain and subject to refinement, as a result, during the adjustment period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired or liabilities assumed with any corresponding offset to goodwill. Upon conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our Consolidated Statements of Operations.

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We used a discounted cash flow method to assign fair values to acquired identifiable intangible assets. This method requires significant management judgment to forecast future operating results and establish residual growth rates and discount factors. These models are based on reasonable estimates and assumptions given available facts and circumstances, including industry estimates and averages, as of the acquisition dates and are consistent with the plans and estimates that we use to manage our business. If the subsequent actual results and updated projections of the underlying business activity change compared with the estimates and assumptions used to develop these values, we could experience impairment charges. In addition, we have estimated the economic lives of certain acquired assets and these lives are used to calculate depreciation and amortization expense. If our estimates of the economic lives change, depreciation or amortization expenses could be accelerated or slowed.

GOODWILL, INTANGIBLE ASSETS AND OTHER LONG-LIVED ASSETS – IMPAIRMENT ASSESSMENTS

We review goodwill for impairment on an annual basis and whenever events or changes in circumstances indicate that its carrying value may not be recoverable. We first conduct an assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we then conduct a two-step test for impairment of goodwill. In the first step, the fair value of our reporting units is compared to their carrying values. If the fair values of the reporting units exceed the carrying value of the net assets, goodwill is not considered impaired and no further analysis is required. If the carrying values of the net assets exceed the fair values of the reporting units, then the second step of the impairment test must be performed in order to determine the implied fair value of the goodwill. If the carrying value of the goodwill exceeds the implied fair value, then an impairment loss equal to the difference would be recorded. For 2012, we conducted our annual goodwill impairment analysis during the fourth quarter of 2012 and concluded that it is not more likely than not that the fair value of the applicable reporting unit is less than its carrying amount.

We regularly review our finite-lived intangible assets and other long-lived assets to determine if the carrying values are impaired. A review is performed when an event occurs that may indicate the potential for impairment. If indicators of impairment exist, we assess the recoverability of the affected finite-lived intangible assets and other long-lived assets by determining whether the carrying amount of such assets exceeds the undiscounted expected future cash flows associated with such assets. If so, an impairment charge is recorded for the excess.

NON-MARKETABLE EQUITY SECURITIES

As part of our strategic efforts to gain access to potential new products and technologies, we invest in a limited partnership investment fund that is accounted for under the equity method. We periodically review our investment for impairment; however, the impairment analysis requires significant judgment in identifying events or circumstances that would likely have significant adverse effect on the fair value of the investment. The analysis may include assessment of the investee's (i) revenue and earnings trend, (ii) business outlook for its products and technologies, (iii) liquidity position and the rate at which it is using its cash, and (iv) likelihood of obtaining subsequent rounds of financing. If an investee obtains additional funding at a valuation lower than our carrying value, we presume that the investment is other than temporarily impaired. We have experienced impairments due to the decline in the value of certain of our non-marketable investments over the past few years.

INCOME TAXES

Income tax expense is based on pretax financial accounting income. Under the asset and liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. We must assess the likelihood that the resulting deferred tax assets will be realized. To the extent we believe that realization is not more likely than not, we establish a valuation allowance. Significant estimates are required in determining our provision for income taxes, our deferred tax assets and liabilities, any valuation allowance to be recorded against our deferred tax assets, and reserves for income tax related uncertainties. Some of these estimates are based on interpretations of existing tax laws or regulations.  Various internal and external factors may have favorable or unfavorable effects on our future effective tax rate. These factors include, but are not limited to, changes in overall levels, character, or geographical mix of pretax earnings, changes in tax laws, regulations and/or rates, changing interpretations of existing tax laws or regulations, changes in the valuation of our deferred tax assets or liabilities, levels of research and development spending, nondeductible expenses, applicability of tax holidays, ultimate outcomes of income tax audits, and income tax impacts of any business combination transactions or changes in our equity structure.

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The total amount of unrecognized tax benefits as of December 31, 2012 was approximately $20.4 million. If recognized, the amount of unrecognized tax benefits that would impact income tax expense is $5.3 million. As of December 31, 2012, we do not anticipate any material changes to the amount of unrecognized tax benefit during the next twelve months.

We classify interest and penalties related to tax positions as components of income tax expense. For the year ended December 31, 2012, the amount of accrued interest and penalties related to tax uncertainties was approximately $0.2 million for a total cumulative amount of $1.1 million of non-current income taxes payable as of December 31, 2012.

We file U.S. federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations. In significant foreign jurisdictions, the 2007 through 2012 tax years generally remain subject to examination by their respective tax authorities.

CONTINGENCIES

We are subject to legal proceedings principally related to intellectual property matters. Based on the information available at the balance sheet dates, we assess the likelihood of any adverse judgments or outcomes to these matters, as well as potential ranges of probable losses. If losses are probable and reasonably estimable, we will record a reserve which may change in the future due to new developments in each matter.

ACCOUNTING FOR SHARE-BASED COMPENSATION

We account for employee share-based compensation by estimating the fair value of our employee stock awards, employee stock purchase plan awards and performance-based restricted stock units at the date of grant using the Black‑Scholes option‑pricing model, which requires the use of certain subjective assumptions. The most significant of these assumptions are our estimates of the expected term, volatility and forfeiture rates of the awards. The expected stock price volatility assumption was determined using a combination of historical and implied volatility of our common stock. We determined that blended volatility is more reflective of market conditions and a better indicator of expected volatility than historical volatility. The estimate of these key assumptions is based on historical information and judgment regarding market factors and trends. As required under the accounting rules, we review our valuation assumptions at each grant date and, as a result, we are likely to change our valuation assumptions used to value employee share-based awards granted in future periods.

US GAAP requires that employee share-based compensation costs be recognized over the requisite service period, or the vesting period, in a manner similar to all other forms of compensation paid to employees.

RESULTS OF OPERATIONS

The following discussion compares the historical results of operations for the years ended December 31, 2012, 2011 and 2010.

PRODUCT SALES

The components of product sales are as follows:

Dollars in thousands							Dollar					Percentage
	Year ended December 31,						change from					change from
	2012		2011		2010		2011		2010			2011			2010
Consumables	$	247,687	$	224,972	$	252,165	$	22,715	$	(27,193	)		10	%		(11	)%
Instruments		18,376		16,301		25,578		2,075		(9,277	)		13			(36	)
Total product sales	$	266,063	$	241,273	$	277,743	$	24,790	$	(36,470	)		10			(13	)

Excluding eBioscience revenue of $37.0 million, product revenue for 2012 decreased by $12.2 million or 5% primarily due to lower Genechip® chips and reagents sales as a result of lower volume. This decrease was partially offset by higher instrument revenue from clinical GeneChip® Scanner 3000Dx sales due to greater volumes partially offset by lower overall average selling price.

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Total product sales decreased in 2011 as compared to 2010 primarily due to volume decreases. Chip volumes shipped were lower across all products while overall average selling price remained flat. Reagent revenue decreased primarily due to lower volume Genechip® shipments combined with lower average selling price caused by a shift in product mix. Instruments were lower due to fewer GeneTitan® sales partially offset by increased sales of the lower-priced GeneAtlas™.

SERVICES AND OTHER

Dollars in thousands							Dollar					Percentage
	Year ended December 31,						change from					change from
	2012		2011		2010		2011		2010			2011			2010
Services and other	$	29,560	$	26,201	$	33,003	$	3,359	$	(6,802	)		13	%		(21	)%

Services and other increased in 2012 as compared to 2011 primarily due to higher revenue from scientific services, partially offset by lower royalties revenue due to decreased royalties and research activities.

In 2011, services and other was lower as compared to 2010 primarily due to a non-recurring $4.8 million license payment received in 2010, as well as having lower overall royalties and research activities.

TOTAL REVENUE BY BUSINESS UNIT

The following table summarizes total revenue by business unit:

Dollars in thousands					Dollar			Percentage
	Year ended December 31,				change from			change from
	2012		2011		2011			2011
Affymetrix Core reportable operating segment
Expression	$	119,831	$	137,253	$	(17,422	)		(13	)%
Genetic analysis and clinical applications		83,225		71,435		11,790			17
Life science reagents		32,049		33,619		(1,570	)		(5	)
eBioscience reportable operating segment
eBioscience		37,011		-		37,011			-
Other
Corporate		23,507		25,167		(1,660	)		(7	)
Total revenue	$	295,623	$	267,474	$	28,149			11

	Year ended December 31,
	2012			2011
Affymetrix Core reportable operating segment
Expression		41	%		51	%
Genetic analysis and clinical applications		28	%		27	%
Life science reagents		11	%		13	%
eBioscience reportable operating segment
eBioscience		12	%		0	%
Other
Corporate		8	%		9	%
Total revenue		100	%		100	%

42

Expression  For the year ended December 31, 2012, Expression revenue decreased by $17.4 million primarily due to a decline in Genechip revenue of $18.3 million, which was driven by a lower volume of sales on our in vitro transcription (IVT) arrays. The decline in Expression revenue was partially offset by higher revenue from our QuantiGene and ProCarta line of products. We expect Expression to continue to decline as a percentage of our revenue portfolio in 2013.

Genetic Analysis and Clinical Applications  Genetic Analysis and Clinical Applications revenue increased $11.8 million for the year ended December 31, 2012 as compared to the same period in 2011, primarily due to increases in our CytoGenetics products of $21.5 million, Axiom products of $6.1 million and instruments of $2.3 million. These increases were partially offset by a decline in sales of our SNP 6.0 arrays of $13.5 million. Revenue from clinical applications as a percentage of Genetic Analysis and Clinical Applications will continue to increase in 2013.

Life Science Reagents  For the year ended December 31, 2012, Life Science Reagents revenue decreased due to lower volume of sales.

Corporate For the year ended December 31, 2012, Corporate revenue decreased by $1.7 million due to lower subscription revenue of $2.0 million and royalties of $0.3 million, partially offset by a net realized gain of $1.2 million from designated cash flow hedges.

PRODUCT AND SERVICES GROSS MARGINS

Dollars in thousands										Dollar/Point
	Year ended December 31,									change from
	2012			2011			2010			2011			2010
Total gross margin on product sales	$	149,802		$	143,458		$	160,359		$	6,344		$	(16,901	)
Total gross margin on services and other		13,686			13,064			17,181			622			(4,117	)
Product gross margin as a percentage of product sales		56	%		59	%		58	%		(3	)		1
Service gross margin as a percentage of services and other		46	%		50	%		52	%		(4	)		(2	)

Product gross margin increased $6.3 million for the year ended December 31, 2012 as compared to the same period in 2011 primarily due to the inclusion of eBioscience product margins. Excluding eBioscience, product margin decreased due to lower product sales partially offset by decreased warranty, excess and obsolescence costs and favorable cost absorption in 2012 as compared to 2011.

Despite lower product sales in 2011, product gross margin as a percentage of product sales increased during the year as compared to 2010 primarily due to a mix shift to higher margin products along with lower material, warranty and excess and obsolescence costs in 2011 as well as plant consolidation costs that occurred in 2010. These cost improvements were partially offset by lower cost absorption due to higher production levels in 2010.

Service and other gross margin as a percentage of services and other revenue decreased in 2012 as compared to 2011 primarily due to lower revenue from high margin royalties, partially offset by increased scientific services revenue. 2011 was lower as compared to 2010 primarily due to lower revenue from royalties as a result of a non-recurring license payment of $4.8 million received in 2010.

43

RESEARCH AND DEVELOPMENT EXPENSES

Dollars in thousands							Dollar						Percentage
	Year ended December 31,						change from						change from
	2012		2011		2010		2011			2010			2011			2010
Research and development	$	57,881	$	63,591	$	67,934	$	(5,710	)	$	(4,343	)		(9	)%		(6	)%

Research and development expenses decreased in 2012 and 2011 primarily due to savings in headcount-related expenses and variable compensation of $7.7 million and $3.2 million, respectively. The overall decrease in 2012 as compared to 2011 was partially offset by increased spending on chips, supplies and consulting and purchasing services totaling $2.0 million. Results for 2012 also included $3.8 million from eBioscience.

The overall decrease in 2011 as compared to 2010 was also due to decreased spending on supplies of $2.6 million as a result of cost-control measures, partially offset by an increase in facilities expenses primarily due to a one-time expense of $1.2 million related to the plant consolidation activities of our Oakmead facility in Santa Clara during 2011.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Dollars in thousands							Dollar					Percentage
	Year ended December 31,						change from					change from
	2012		2011		2010		2011		2010			2011			2010
Selling, general and administrative	$	142,853	$	109,572	$	114,773	$	33,281	$	(5,201	)		30	%		(5	)%

Selling, general and administrative expenses increased in 2012 as compared to 2011 due primarily to the acquisition of eBioscience which added an additional $18.2 million in expenses and acquisition-related costs totaling $16.5 million in 2012 as compared to no expenses from eBioscience and $2.9 million in acquisition-related costs in 2011. Excluding these costs, selling, general and administrative expenses increased by $1.5 million, primarily due to higher headcount-related expenses of $0.8 million due to shift from the use of temporary employees to full-time employees; consulting and purchased services $1.3 million due to greater use of consulting services, travel-related expenses of $1.6 million and advertising costs of $0.6 million. These increases were partially offset by lower spending on chips of $0.6 million, decreased depreciation and amortization expenses due to assets becoming fully amortized of $1.8 million and lower rent expenses of $1.8 million.

Selling, general and administrative expenses decreased in 2011 as compared to 2010 primarily due to lower legal expenses of $4.2 million as a result of a litigation settlement at the end of 2010. Other cost savings include variable compensation adjustments of $1.6 million, lower spending on consulting and other services of $1.5 million and advertising expenses of $0.8 million. These savings were partially offset by one-time severance benefits provided to our former chief executive officer of $1.4 million, rent expense of $1.8 million primarily due to the acceleration of future lease payments as a result of the plant consolidation activities of our Oakmead facility in Santa Clara and acquisition costs of $2.9 million incurred on the anticipated eBioscience transaction.

RESTRUCTURING EXPENSES

During the year ended December 31, 2012, we initiated a cost reduction action that included workforce, resulting in a charge of $1.8 million related to employees who were notified prior to the end of 2012. We estimate that the total restructuring charge associated with the plan will be approximately $6.8 million, substantially all of which is compensation and benefits afforded to terminated employees. The remaining amount is expected to be recognized during the first quarter of 2013.

44

INTEREST INCOME AND OTHER, NET

The components of interest income and other, net, are as follows:

Dollars in thousands										Dollar						Percentage
	Year ended December 31,									change from						change from
	2012			2011			2010			2011			2010			2011			2010
Interest income	$	643		$	2,627		$	2,845		$	(1,984	)	$	(218	)		(76	)%		(8	)%
Realized income (loss) on equity investments, net		616			(2,251	)		(4,342	)		2,867			2,091			127			48
Currency loss, net		(1,259	)		(2,483	)		(48	)		1,224			(2,435	)		49			(5,073	)
Other		(265	)		(4,195	)		58			3,930			(4,253	)		(94	)		(7,333	)
Total interest income and other, net	$	(265	)	$	(6,302	)	$	(1,487	)	$	6,037		$	(4,815	)		(96	)		324

Interest income and other, net decreased in 2012 as compared to 2011 due to the following:

· Interest income decreased as we sold the majority of our available-for-sale securities in conjunction with the Acquisition in the second quarter of 2012;

· Realized income (loss) on equity investments increased in 2012 as we recognized a net gain on sale of $0.5 million on the liquidation of our available-for-sale securities while in 2011, we recognized a total of $2.1 million in other-than-temporary impairment ("OTTI") on our non-marketable investment in a limited partnership fund, a non-marketable investment in a private biotechnology company and an investment classified as available-for-sale in a publicly-traded company;

· Currency loss, net, improved primarily due to the weakening of the U.S. dollar against other foreign currency in 2012 as compared to 2011; and

· In 2012, Other included a net $3.5 million impairment loss on our West Sacramento facility partially offset by the receipt of $2.2 million for a note receivable from a private biotechnology company that was previously fully reserved for in 2011 and a gain of $0.7 million on a disposal of an eBioscience product line. We also recognized a $1.7 million impairment charge against our West Sacramento facility in 2011.

Interest income and other, net decreased in 2011 as compared to 2010 due to the following:

· Realized loss on equity investments decreased in 2011 as compared to 2010 as we recognized lower OTTI. In 2011, we recorded $2.1 million in OTTI discussed above while in 2010, we had $5.6 million in OTTI on two non-marketable investments;

· Currency loss, net, increased primarily due to the weakening of the U.S. dollar against the Euro in 2011 as compared to 2010; and

· Other changed in 2011 due to the $2.2 million provision against a note receivable and the $1.7 million impairment charge recorded against our West Sacramento facility discussed above.

INTEREST EXPENSE

Dollars in thousands							Dollar					Percentage
	Year ended December 31,						change from					change from
	2012		2011		2010		2011		2010			2011			2010
Interest expense	$	7,193	$	3,813	$	7,706	$	3,380	$	(3,893	)		89	%		(51	)%

Interest expense increased in 2012 as compared to 2011 due to the long-term debt obligations entered into as part of the Acquisition. The increase was partially offset by the repurchase of approximately $91.6 million in aggregate principal amount of the 3.50% Notes during the first quarter of 2012.

Interest expense decreased in 2011 as compared to 2010 primarily due to a lower aggregate principal balance of our 3.50 % Notes as a result of our repurchases totaling $151.7 million in aggregate principal amount during 2010.

45

INCOME TAX (BENEFIT) PROVISION

Dollars in thousands								Dollar						Percentage
	Year ended December 31,							change from						change from
	2012			2011		2010		2011			2010			2011			2010
Income tax (benefit) provision	$	(35,853	)	$	1,405	$	2,170	$	(37,258	)	$	(765	)		(2,652	)%		(35	)%

The following discussion compares the historical results of operations for the years ended December 31, 2012, 2011 and 2010.

The income tax benefit was approximately $35.9 million in 2012 and consisted primarily of a $37.1 million one-time benefit resulting from a change in valuation allowance for our previously existing deferred tax assets as a result of the Acquisition, offset by an income tax provision for foreign taxes. The income tax provision was $1.4 million and $2.2 million in 2011 and 2010, respectively, which consisted primarily of foreign taxes.

Deferred tax assets are recognized if realization of such assets is more likely than not. As of December 31, 2012, we provided for a valuation allowance of $131.0 million against our net deferred tax assets. As a result of negative evidence based on our cumulative net loss position, we have placed a full valuation allowance on U.S. and certain foreign deferred tax assets. We intend to maintain the valuation allowance until sufficient positive evidence exists to assure realization of these tax benefits through future taxable income.

As of December 31, 2012, we had total net operating loss carryforwards of $356.1 million, comprised of $210.4 million for U.S. federal purposes, which expire in the years 2021 through 2032 if not utilized, and $145.7 million for state purposes, the majority of which expire in the years 2013 through 2032 if not utilized. Certain of the net operating loss and tax credit carryforwards are subject to annual limitations due to the ownership change provisions under Internal Revenue Code Section 382 and similar state provisions. We do not expect the limitations to result in significant expirations of the net operating loss carryforwards before utilization.

46

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Historically, we have financed our operations primarily through product sales; borrowings under credit arrangements; sales of equity and debt securities such as our 3.50% and 4.00% Notes, collaborative agreements; interest income; and licensing of our technology.

Our cash outflows have generally been as follows: cash used in operating activities such as research and development programs, sales and marketing activity, compensation and benefits of our employees and other working capital needs; cash paid for acquisitions; cash paid for litigation activity and settlements; and cash used for the payment of principal on debt obligations and repurchases of our convertible notes as well as interest payments on our long-term debt obligations.

As of December 31, 2012, we had cash, cash equivalents, and available-for-sale securities of approximately $35.7 million. We also have access, subject to compliance with certain covenants, to an additional $15.0 million revolving credit facility, provided under our Senior Secured Credit Facility. We anticipate that our existing capital resources along with the cash to be generated from operations will enable us to maintain currently planned operations, debt repayments or convertible notes repurchases, and capital expenditures for the foreseeable future. These expectations are based on our current operating and financing plans, which are subject to change, and therefore we could require further funding. Factors that may cause us to require additional funding may include, but are not limited to: costs associated with defending third party claims; adverse ruling in any of our current litigation proceedings; investments required to commercialize our products; investments required to upgrade our older product lines; a decline in cash generated by sales of our products and services; our ability to maintain existing collaborative and customer arrangements and establish and maintain new collaboration and customer arrangements; arrangements that we may enter into in connection with future acquisitions; the progress of our research and development programs; initiation or expansion of research programs and collaborations; the costs involved in preparing, filing, prosecuting and enforcing intellectual property rights; the purchase of patent licenses; and other factors.

On June 25, 2012, we completed our acquisition of eBioscience for approximately $307.8 million, representing the purchase price of $314.9 million less $7.1 million cash transferred from eBioscience. The Acquisition was financed through a combination of cash on hand, the liquidation of available-for-sale securities, the proceeds, net of debt issuance costs, from our Term Loan of $80.5 million provided under our Senior Secured Credit Facility and the proceeds from the issuance, net of underwriting fees, of our 4.00% Notes of $101.1 million. During the year ended December 31, 2012, we made $8.2 million of cash payments for legal, advisory and other costs related to the Acquisition. As part of the terms of the Senior Secured Credit Facility, we are required to meet certain financial and other negative covenants. As of December 31, 2012, we were in compliance with the covenants and currently anticipate that we will be in compliance through the foreseeable future. Refer to Note 13. "Long-Term Debt Obligations" for further details regarding the Term Loan, our Senior Secured Credit Facility and the 4.00% Notes.

From time to time, we may seek to retire, repurchase or exchange common stock or convertible notes in open market purchases, privately negotiated transactions dependent on market conditions, liquidity, and contractual obligations and other factors. We did not retire, repurchase or exchange any of our common stock during the year ended December 31, 2012. During the first quarter of 2012, we repurchased approximately $91.6 million of aggregate principal amount of our 3.50% Notes at par plus accrued and unpaid interest for total cash consideration of $92.1 million, including accrued interest of $0.5 million. In January 2013, we redeemed the remaining $3.9 million of outstanding aggregate aggregate principal amount of our 3.50% Notes at par plus accrued and unpaid interest of $0.1 million.

Cashflow (in thousands)

	Year Ended December 31,
	2012			2011			2010
Net cash provided by operating activities	$	3,731		$	39,337		$	47,975
Net cash (used in) provided by investing activities		(258,933	)		127,634			66,211
Net cash provided by (used in) financing activities		78,500			(486	)		(144,759	)
Effect of foreign currency translation on cash and cash equivalents		436			(32	)		415
Net (decrease) increase in cash and cash equivalents	$	(176,266	)	$	166,453		$	(30,158	)

47

Operating Activities

Net cash provided by operating activities for the year ended December 31, 2012 was comprised of net loss of $10.7 million, non-cash charges of $34.0 million and a decrease in operating assets of $19.4 million. Adjustments for non-cash expenses include depreciation and amortization expense of $45.5 million, including $9.4 million of amortization on the fair value step-up of inventory, share-based compensation expense of $17.2 million that includes a non-recurring share-based compensation expense of $8.3 million related to the accelerated vesting of eBioscience stock options, an income tax benefit of $34.0 million that includes the release of valuation allowance of $37.1 million related to the Acquisition and a $3.5 million impairment on our West Sacramento facility that was sold during the year. Cash used in Accounts payable and accrued liabilities include certain non-recurring activity relating to the Acquisition, including $8.2 million cash payments for legal, advisory and other costs related to the Acquisition.

Investing Activities

As discussed above, during the second quarter of 2012, we completed our acquisition of eBioscience for $307.8 million in cash considerations. The Acquisition was partially funded through the proceeds from sales of available-for-sale securities of $52.0 million. Other investing activities for the year ended December 31, 2012 included capital expenditures of $8.2 million and purchases of technology rights of $2.4 million. We monitor the level of cash and cash equivalents as compared to available-for-sale securities to manage the return on funds. Management of our portfolio and sale of securities for purposes of funding the Acquisition resulted in net sales of available-for-sale securities during 2012. The investments were partially offset by $5.5 million in proceeds from the sale of our West Sacramento facility.

In late 2012, the Company initiated a cost reduction action that included workforce. In January 2013, approximately 100 employees were notified of their involuntary termination. The Company estimates that the total restructuring charge associated with the plan will be approximately $6.8 million, substantially all of which is compensation and benefits afforded to terminated employees. The restructuring charges will be recognized during the first quarter of 2013 in Selling, general and administrative expenses except for $1.8 million related to employees who were notified prior to December 31, 2012 and recognized in the accompanying Consolidated Statements of Operations for the year ended December 31, 2012. The Company anticipates substantially all of the cash expenditures will be released during the first quarter of 2013. See "Item 8. Financial Statements and Supplementary Data—Note 21. Restructuring" in this Annual Report on Form 10-K.

We classified our available-for-sale securities as current as we expect to incur cash expenditures associated with the restructuring and did incur such cash expenditures in connection with the redemption of the remaining outstanding 3.50% Notes due on January 15, 2013 for $3.9 million in total cash consideration as described in the Financing Activities below.

Financing Activities

To fund the Acquisition, we obtained a Term Loan of an aggregate principal amount of $85.0 million provided under our Senior Secured Credit Facility and issued $105.0 million in principal amount of our 4.00% Notes. Proceeds net of debt issuance costs from our Term Loan were $80.5 million and proceeds net of underwriting fees from the issuance of our 4.00% Notes were $101.1 million. The Term Loan is subject to certain financing and operating covenants and amortizes over a 5 year period. Refer to Note 13. "Long-Term Debt Obligations" in this Annual Report on Form 10-K for further details regarding the Term Loan, our Senior Secured Credit Facility and our 4.00% Notes. In addition to certain mandatory payments, from time to time, we also may make early payments on the outstanding principal amount of our Term Loan. As of December 31, 2012, we paid a total of $11.7 million of quarterly installments representing both fiscal 2012 and 2013 installments under the Credit Agreement. The Company intends to continue to make quarterly payments during fiscal 2013 and has classified $12.7 million of the Term Loan as current debt on the accompanying Consolidated Balance Sheets.

During the first quarter of 2012, we completed the repurchase of approximately $91.6 million in aggregate principal amount of the 3.50% Notes and paid to the holders of the 3.50% Notes aggregate consideration of $92.1 million, including accrued interest of $0.5 million.

48

Other financing activities generally consist of stock option exercise activity under our employee stock plan. Cash used in the issuance of stock under our employee stock plan, net of treasury shares withheld for taxes, was $0.3 million for the year ended December 31, 2012. In addition, during the first quarter of 2013, we redeemed the remaining outstanding 3.50% Notes for $3.9 million in total cash consideration, including accrued interest of $0.1 million. The 3.50% Notes were purchased at par and the related deferred financing costs written off. See "Item 8. Financial Statements and Supplementary Data—Note 22. Subsequent Events" in this Annual Report on Form 10-K.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

As of December 31, 2012, we had no off-balance sheet arrangements. The impact that our contractual obligations as of December 31, 2012 are expected to have on our liquidity and cash flow in future periods is as follows (in thousands):

	Total		2013			2014-2015		2016-2017	After 2017
Convertible notes (1)	$	108,855	$	3,855	$	-	$	-	$	105,000
Senior secured credit facility (2)		73,276		12,713		30,813		29,750		-
Interest payments		38,588		8,555		14,369		9,364		6,300
Operating leases		64,438		10,465		16,254		10,248		27,471
Purchase commitments (3)		2,539		2,539		-		-		-
Total contractual obligations	$	287,696	$	38,127	$	61,436	$	49,362	$	138,771

(1) Our 3.50% Notes are no longer outstanding due to redemption made in full during the first quarter of 2013. See "Item 8. Financial Statements and Supplementary Data—Note 22. Subsequent Events" in this Annual Report on Form 10-K.

(2) Reflects anticipated principal payment obligations that will be made each year

(3) Purchase commitments include agreements to purchase goods or services that are enforceable and legally binding on Affymetrix and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase obligations exclude agreements that are cancelable without penalty.

The above table does not reflect unrecognized tax benefits of approximately $20.4 million, the timing of which is uncertain. Refer to "Item 8. Financial Statements and Supplementary Data—Note 16. Income Taxes" for additional discussion on unrecognized tax benefits.

49

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business, we are exposed to foreign currency exchange rate, interest rate and equity price risks that could impact our financial position and results of operations. Our risk management strategy with respect to these three market risks may include the use of derivative financial instruments. We use derivative contracts only to manage existing underlying exposures of Affymetrix. Accordingly, we do not use derivative contracts for speculative purposes. Our risks, risk management strategy and a sensitivity analysis estimating the effects of changes in fair values for each of these exposures are outlined below.

Actual gains and losses in the future may differ materially from the sensitivity analyses based on changes in the timing and amount of interest rate, foreign currency exchange rate and equity price movements and our actual exposures and hedges.

Interest Rate Risk

Our exposure to interest rate risk relates primarily to our investment portfolio. Fixed rate securities may have their fair market value adversely impacted due to fluctuations in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if forced to sell securities which have declined in market value due to changes in interest rates.

The primary objective of our investment activities is to preserve principal while at the same time maximize yields without significantly increasing risk. To achieve this objective, we invest our excess cash in debt instruments of the U.S. Government and its agencies and high-quality corporate issuers, and, by policy, restrict our exposure to any single corporate issuer by imposing concentration limits. To minimize the exposure due to adverse shifts in interest rates, we maintain investments at an average maturity of less than three years.

																			Fair Value at
	Periods of Maturity																		December 31,
	2013				2014				2015				Thereafter				Total		2012
ASSETS:
Available-for-sale securities		$	7,039			$	652			$	1,572			$	-		$	9,263	$	9,366
Average interest rate			1.9	%			2.6	%			2.5	%			0.0	%
LIABILITIES:
3.50% senior convertible notes due 2038		$	3,855			$	-			$	-			$	-		$	3,855	$	3,855
Average interest rate			3.50	%
4.00% convertible senior notes due 2019		$	-			$	-			$	-			$	105,000		$	105,000	$	87,297
Average interest rate															4.00	%
Senior secured credit facility		$	12,713			$	13,813			$	17,000			$	29,750		$	73,276	$	73,276
Average interest rate	Variable				Variable				Variable				Variable

Foreign Currency Exchange Rate Risk

We transact business in various foreign currencies and have significant international revenues, as well as costs denominated in foreign currencies. This exposes us to the risk of fluctuations in foreign currency exchange rates. We purchase foreign exchange option contracts to reduce the volatility of cash flows related to forecasted revenues denominated in certain foreign currencies. The objective of the foreign exchange contracts is to better ensure that the U.S. dollar-equivalent cash flows are not adversely affected by changes in the U.S. dollar or foreign currency exchange rates. These contracts are designated as cash flow hedges. The gain or loss on the effective portion of a cash flow hedge is initially reported as a component of accumulated Other Comprehensive Income ("OCI") and subsequently reclassified into revenues when the hedged revenues are recorded or as interest and other income, net, if the hedged transaction becomes probable of not occurring. Any gain or loss after a hedge is de-designated or related to an ineffective portion of a hedge is recognized as interest and other income, net, immediately.

50

The following table summarizes the notional amounts, weighted-average currency exchange rates and fair values of our unsettled foreign currency exchange forward contracts at December 31, 2012 and 2011. All contracts have maturities of 12 months or less. Weighted-average rates are stated in terms of the amount of U.S. dollars per foreign currency. Fair values represent estimated settlement amounts at December 31, 2012 and 2011 (notional amounts and fair values in U.S. dollars and in thousands):

				Weighted-
				Average
	Notional			Settlement		Fair
	Amount			Price		Value
December 31, 2012
Currency
Euro		$	16,933		1.27		$	(637	)
Japanese Yen			10,542		79.34			832
British Pound			4,278		1.59			(105	)
Interest rate swap			27,519					(77	)
Total		$	59,272				$	13
December 31, 2011
Currency
Euro		$	11,851		1.39		$	816
Japanese Yen			7,008		79.62			(216	)
British Pound			4,459		1.59			123
Total		$	23,318				$	723

51

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AFFYMETRIX, INC.

	Page No.
Report of Independent Registered Public Accounting Firm	53
Consolidated Balance Sheets	54
Consolidated Statements of Operations	55
Consolidated Statements of Comprehensive Loss	56
Consolidated Statements of Stockholders' Equity	57
Consolidated Statements of Cash Flows	58
Notes to Consolidated Financial Statements	59

52

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Affymetrix, Inc.

We have audited the accompanying consolidated balance sheets of Affymetrix, Inc. as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive loss, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2012. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Affymetrix, Inc. at December 31, 2012 and 2011, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Affymetrix, Inc.'s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control‑Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2013 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Redwood City, California

March 1, 2013

53

AFFYMETRIX, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

	December 31,			December 31,
	2012			2011
ASSETS:
Current assets:
Cash and cash equivalents	$	25,671		$	201,937
Restricted cash		699			692
Available-for-sale securities—short-term portion		9,366			7,937
Accounts receivable, net		53,893			44,021
Inventories—short-term portion		72,691			42,851
Deferred tax assets—short-term portion		359			364
Property and equipment, net—held for sale		-			9,000
Prepaid expenses and other current assets		10,126			7,785
Total current assets		172,805			314,587
Available-for-sale securities—long-term portion		-			54,501
Property and equipment, net		28,663			30,583
Inventories—long-term portion		11,772			-
Goodwill		159,736			-
Intangible assets, net		152,718			29,525
Deferred tax assets—long-term portion		3,394			450
Other long-term assets		15,206			8,369
Total assets	$	544,294		$	438,015
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued liabilities	$	50,355		$	44,774
Convertible notes—short-term portion		3,855			-
Term loan—short-term portion		12,713			-
Deferred revenue—short-term portion		8,498			9,852
Total current liabilities		75,421			54,626
Deferred revenue—long-term portion		3,450			3,959
Convertible notes		105,000			95,469
Term loan—long-term portion		60,563			-
Other long-term liabilities		22,689			9,127
Stockholders' equity:
Convertible preferred stock, $0.01 par value; 5,000 shares authorized; no shares issued and outstanding at December 31, 2012 and 2011		-			-
Common stock, $0.01 par value; 200,000 shares authorized; 71,030 and 70,454 shares issued and outstanding at December 31, 2012 and 2011, respectively		710			704
Additional paid-in capital		759,549			750,332
Accumulated other comprehensive income		6,302			2,492
Accumulated deficit		(489,390	)		(478,694	)
Total stockholders' equity		277,171			274,834
Total liabilities and stockholders' equity	$	544,294		$	438,015

See Accompanying Notes

54

AFFYMETRIX, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

	Year Ended December 31,
	2012			2011			2010
REVENUE:
Product sales	$	266,063		$	241,273		$	277,743
Services and other		29,560			26,201			33,003
Total revenue		295,623			267,474			310,746
COSTS AND EXPENSES:
Cost of product sales		116,261			97,815			117,384
Cost of services and other		15,874			13,137			15,822
Research and development		57,881			63,591			67,934
Selling, general and administrative		142,853			109,572			114,773
Restructuring charges		1,845			-			-
Total costs and expenses		334,714			284,115			315,913
Loss from operations		(39,091	)		(16,641	)		(5,167	)
Interest income and other, net		(265	)		(6,302	)		(1,487	)
Interest expense		7,193			3,813			7,706
Gain from repurchase of convertible notes		-			-			6,297
Loss before income taxes		(46,549	)		(26,756	)		(8,063	)
Income tax (benefit) provision		(35,853	)		1,405			2,170
Net loss	$	(10,696	)	$	(28,161	)	$	(10,233	)
Basic and diluted net loss per common share	$	(0.15	)	$	(0.40	)	$	(0.15	)
Shares used in computing basic and diluted net loss per common share		70,300			70,877			68,856

See Accompanying Notes

55

AFFYMETRIX, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

	Year Ended December 31,
	2012			2011			2010
Net loss	$	(10,696	)	$	(28,161	)	$	(10,233	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment		4,553			79			415
Unrealized (losses) gains on available-for-sale and non-marketable securities		(486	)		2,271			(4,093	)
Reclassification adjustment for realized gains (losses) on available-for-sale securities and non-marketable securities recognized in net loss		537			(2,060	)		1,003
Unrealized (losses) gains on cash flow hedges		(2,020	)		826			-
Reclassification adjustment for realized gains on cash flow hedges recognized into income		1,226			-			-
Net change in other comprehensive income (loss), net of tax		3,810			1,116			(2,675	)
Comprehensive loss	$	(6,886	)	$	(27,045	)	$	(12,908	)

See Accompanying Notes

56

AFFYMETRIX, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands)

										Accumulated
							Additional			Other
	Common Stock						Paid-In			Comprehensive			Accumulated
	Shares			Amount			Capital			Income			Deficit			Total
Balance as of December 31, 2009		71,000		$	710		$	733,378		$	4,051		$	(440,300	)	$	297,839
Issuance of common stock in connection with employee stock plans and other		(422	)		(4	)		(1,178	)		-			-			(1,182	)
Share-based compensation expense		-			-			9,910			-			-			9,910
Income tax benefit from share-based compensation		-			-			96			-			-			96
Net change in other comprehensive income (loss), net of tax		-			-			-			(2,675	)		-			(2,675	)
Net loss		-			-			-			-			(10,233	)		(10,233	)
Balance as of December 31, 2010		70,578			706			742,206			1,376			(450,533	)		293,755
Issuance of common stock in connection with employee stock plans and other		(124	)		(2	)		(681	)		-			-			(683	)
Share-based compensation expense		-			-			8,771			-			-			8,771
Income tax benefit from share-based compensation		-			-			36			-			-			36
Net change in other comprehensive income (loss), net of tax		-			-			-			1,116			-			1,116
Net loss		-			-			-			-			(28,161	)		(28,161	)
Balance as of December 31, 2011		70,454			704			750,332			2,492			(478,694	)		274,834
Issuance of common stock in connection with employee stock plans and other		271			5			(756	)		-			-			(751	)
Employee stock purchase plan		305			1			1,026			-			-			1,027
Share-based compensation expense		-			-			8,947			-			-			8,947
Income tax benefit from share-based compensation		-			-						-			-			-
Net change in other comprehensive income (loss), net of tax		-			-			-			3,810			-			3,810
Net loss		-			-			-			-			(10,696	)		(10,696	)
Balance as of December 31, 2012		71,030		$	710		$	759,549		$	6,302		$	(489,390	)	$	277,171

See Accompanying Notes

57

AFFYMETRIX, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Year Ended December 31,
	2012			2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(10,696	)	$	(28,161	)	$	(10,233	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		36,068			32,309			35,460
Amortization of inventory step-up in fair value		9,444			-			-
Excess tax benefits for share-based compensation		-			(200	)		(416	)
Share-based compensation		17,207			8,771			9,910
Deferred tax assets		(34,003	)		415			(73	)
Impairment of property and equipment, net—held for sale		3,491			1,710			-
Other non-cash transactions		1,348			6,702			323
Changes in operating assets and liabilities:
Accounts receivable, net		(514	)		8,260			12,599
Inventories		12			6,522			5,117
Prepaid expenses and other assets		6,338			3,297			10,802
Accounts payable and accrued liabilities		(21,655	)		(448	)		(12,801	)
Deferred revenue		(2,023	)		(1,740	)		(2,881	)
Other long-term liabilities		(1,286	)		1,900			168
Net cash provided by operating activities		3,731			39,337			47,975
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net of cash acquired		(307,796	)		-			-
Purchases of available-for-sale securities		-			(86,252	)		(453,138	)
Proceeds from sales of available-for-sale securities		52,063			189,440			417,981
Proceeds from maturities of available-for-sale securities		1,138			32,982			110,477
Proceeds from sale of property and equipment		5,509			493			-
Capital expenditures		(8,166	)		(5,779	)		(7,726	)
Capital distribution from non-marketable investments		681			-			-
Purchase of technology rights		(2,362	)		(3,250	)		(1,383	)
Net cash (used in) provided by investing activities		(258,933	)		127,634			66,211
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock, net		276			(683	)		(1,182	)
Proceeds from term loan		80,500			-			-
Payments of term loan		(11,724	)		-			-
Proceeds from issuance of 4.00% convertible senior notes		101,062			-			-
Repurchase of 3.50% senior convertible notes		(91,614	)		(3	)		(143,993	)
Excess tax benefits for share-based compensation		-			200			416
Net cash provided by (used in) financing activities		78,500			(486	)		(144,759	)
Effect of exchange rate changes on cash and cash equivalents		436			(32	)		415
Net (decrease) increase in cash and cash equivalents		(176,266	)		166,453			(30,158	)
Cash and cash equivalents at beginning of period		201,937			35,484			65,642
Cash and cash equivalents at end of period	$	25,671		$	201,937		$	35,484
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	(6,968	)	$	(3,341	)	$	(9,284	)
Cash received (paid) for income taxes, net of refunds	$	3,905		$	(633	)	$	(1,450	)

See Accompanying Notes

58

AFFYMETRIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

NOTE 1—NATURE OF OPERATIONS

Affymetrix, Inc. ("Affymetrix" or the "Company") is a provider of life science tools and molecular diagnostic products that enable multiplex and parallel analysis of biological systems at the gene, protein and cell level. The Company sells products to genomic research centers, academic institutions, government and private laboratories, as well as pharmaceutical, diagnostic and biotechnology companies. The Company also sells some of its products through life science supply specialists acting as authorized distributors in Latin America, India, the Middle East and Asia Pacific regions, including China.

In June 2012, the Company acquired eBioscience Holdings, Inc. ("eBioscience") for approximately $315 million (the "Acquisition"). eBioscience is based in San Diego, California, and engaged in the development, manufacture and sale of flow cytometry and immunoassay reagents for life science research and diagnostics. Refer to Note 3. "Acquisition" for further information.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Affymetrix and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The consolidated financial statements include the results of companies acquired by us from the date of each acquisition for the applicable reporting periods.

Certain prior year amounts on the accompanying Consolidated Statements of Cash Flows have been reclassified to conform to the current period presentation.

USE OF ESTIMATES

The preparation of the consolidated financial statements is in conformity with U.S. generally accepted accounting principles ("US GAAP") which require management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates.

BUSINESS COMBINATIONS

The Company's condensed consolidated financial statements include the operations of an acquired business after the completion of the acquisition. The Company accounts for acquired businesses using the acquisition method of accounting which requires, among other things, that assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date, while transaction costs are expensed as incurred, except for any debt and equity issuance costs. The measurement of the fair value of assets acquired and liabilities assumed requires significant judgment. Any excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill.

FOREIGN CURRENCY

Certain operations from foreign subsidiaries of the Company have a functional currency other than the U.S. dollar. All other subsidiaries have the U.S. dollar as their functional currency.

Assets and liabilities of non-U.S. subsidiaries that use the local currency as their functional currency are translated to U.S. dollars at exchange rates in effect at the balance sheet date with the resulting translation adjustments directly recorded to a separate component of accumulated other comprehensive income (loss) within stockholders' equity. Income and expense accounts are translated at average exchange rates during the year. Foreign currency transaction gains and losses are recognized, net of hedging activity, in interest income and other, net and were comprised of net losses of $1.3 million, $2.5 million and less than $0.1 million for the years ended December 31, 2012, 2011 and 2010, respectively.

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The Company's subsidiaries that use the U.S. dollar as their functional currency remeasure monetary assets and liabilities at exchange rates in effect at the end of each period, and inventories, property and nonmonetary assets and liabilities at historical rates. Gains and losses from these remeasurements were insignificant and have been included in the Company's results of operations.

CASH EQUIVALENTS, AVAILABLE-FOR-SALE SECURITIES AND INVESTMENTS

Restricted Cash

The Company's restricted cash balances consist primarily of outstanding letters of credits that are fully cash collateralized and reserves for value added tax in foreign locations.

Marketable Securities

The Company's investments consist of marketable equity and debt securities, including U.S. government notes and bonds; corporate notes, bonds and asset‑backed securities; mortgage‑backed securities, municipal notes and bonds; and publicly traded equity securities. The Company reports all securities with maturities at the date of purchase of 90 days or less that are readily convertible into cash and have insignificant interest rate risk as cash equivalents. The Company's investments are carried at fair value with unrealized gains and losses reported in accumulated other comprehensive income (loss) in stockholders' equity. The cost of its marketable securities is adjusted for the amortization of premiums and discounts to maturity. This amortization is included in interest income and other, net. Realized gains and losses, as well as interest income, on available-for-sale securities are also included in interest income and other, net. The cost of securities sold is based on the specific identification method. The fair values of securities are based on quoted market prices. The Company has classified its available-for-sale securities in current assets on the accompanying Consolidated Balance Sheets as it expects to liquidate the securities within the next twelve months.

Non-marketable Securities

As part of the Company's strategic efforts to gain access to potential new products and technologies, the Company owns an approximately 6% interest in a limited partnership investment fund that is accounted for under the equity method and included in other long-term assets in the accompanying Consolidated Balance Sheets.

Other-than-temporary Impairment

All of the Company's marketable and non-marketable securities are subject to quarterly reviews for impairment that is deemed to be other-than-temporary ("OTTI"). An investment is considered other-than-temporarily impaired when its fair value is below its amortized cost and (1) the Company intends to sell the security; (2) it is "more likely than not" that the Company will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not expected to recover the entire amortized cost basis. Below is a summary of the Company's analysis:

· Marketable securities –As part of its review, the Company is required to take into consideration current market conditions, extent and nature of change in fair value, issuer rating changes and trends, volatility of earnings, current analysts' evaluations, all available information relevant to the collectability of debt securities and other factors when evaluating for the existence of OTTI in its securities portfolio. OTTI is separated into credit-related losses, which exist when amortized cost basis is not expected to be fully recovered, and non-credit related losses, which are the result of all other factors, such as illiquidity. Any credit-related OTTI is recognized in earnings while noncredit-related OTTI is recorded in other comprehensive income (loss) ("OCI"). No impairment charges were recognized on its marketable securities during the year ended December 31, 2012. During the year ended December 31, 2011, the Company recorded an impairment charge of $0.8 million due to OTTI of its investment in a publicly-traded company. Refer to Note 6. "Financial Instruments – Investments in Debt and Equity Securities" for further information.

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· Non-marketable securities – The Company periodically monitors the liquidity and financing activities of its non-marketable securities to determine if any impairment exists and accordingly writes down, to the extent necessary, the carrying value of the non-marketable equity securities to their estimated fair values. In order to determine whether a decline in value is other-than-temporary, the Company evaluates, among other factors: the duration and extent to which the fair value has been less than the carrying value; the financial condition of and business outlook of the issuer, including key operational and cash flow metrics, current market conditions; and the Company's intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in estimated fair value. No impairment charges were recognized on its non-marketable securities during the year ended December 31, 2012. During the year ended December 31, 2011, the Company recorded impairment charges totaling $1.3 million, primarily related to its investment in a limited partnership investment fund. Refer to Note 6. "Financial Instruments – Non-Marketable Securities" for further information.

ACCOUNTS RECEIVABLE

Trade accounts receivable are recorded at net invoice value. The Company considers amounts past due based on the related terms of the invoice. The Company reviews its exposure to amounts receivable and provides an allowance for specific amounts if collectability is no longer reasonably assured. The Company also provides an allowance for a percentage of the gross trade receivable balance (excluding any specifically reserved amounts) based on its collection history. The allowance for doubtful accounts was not material at December 31, 2012 and 2011.

DERIVATIVE INSTRUMENTS

The Company accounts for its derivative instruments as either assets or liabilities and carries them at fair value. Derivatives that are not defined as hedges must be adjusted to fair value through earnings at each reporting date.

For derivative instruments that hedge the exposure to variability in expected future cash flows that are designated as cash flow hedges, the Company measures the effectiveness of the derivative instruments by comparing the cumulative change in the hedge contract with the cumulative change in the hedged item. The effective portion of the gain or loss on the derivative instrument is reported as a component of OCI in stockholders' equity and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The ineffective portion of the gain or loss on the derivative instrument is recognized in current earnings. To receive hedge accounting treatment, cash flow hedges must be highly effective in offsetting changes to expected future cash flows on hedged transactions. The net gain or loss on the effective portion of a derivative instrument that is designated as an economic hedge of the foreign currency translation exposure of the net investment in a foreign operation is reported in the same manner as a foreign currency translation adjustment. Refer to Note 6. "Financial Instruments – Derivative Financial Instruments" for further information.

INVENTORIES

Inventory cost is computed on an adjusted standard basis (which approximates actual cost on a first-in, first-out basis). Provisions for slow moving, potentially excess and obsolete inventories are provided based on estimated demand requirements, product life cycle and development plans, component cost trends, product pricing, product expiration and quality issues.

Inventory that is not expected to be utilized until more than 12 months from the balance sheet date is classified as long-term. Estimating the level of inventory utilization for the upcoming 12 months requires management to exercise significant judgment. The Company maintains inventory levels in excess of 12 months for certain components of work-in-progress that have useful lives of up to 10 years. Carrying such levels of inventory impacts the Company's liquidity and cash flows since the inventory will not be converted to cash for more than one year.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the assets or the lease term, whichever is shorter. Equipment and furniture is depreciated over useful lives generally ranging from 3 to 7 years and leasehold improvements are depreciated over the shorter of the expected life of the asset or lease terms generally ranging from 3 to 15 years. Maintenance and repair costs are expensed as incurred. The Company reassesses the useful life on its property and equipment on a periodic basis and may adjust the lives accordingly.

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In the fourth quarter of 2012, the Company sold its facility located in West Sacramento, California to a third-party for $5.8 million, which included $0.3 million of commissions and closing costs paid by the Company, and received $5.5 million in cash.

GOODWILL, INTANGIBLE ASSETS AND OTHER LONG-LIVED ASSETS

Goodwill represents the excess of the fair value of the acquired entity over the fair value of the net tangible and identifiable intangible assets acquired and liabilities assumed in a business combination. Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives which range from one to twelve years with the amortization recognized in either cost of revenue or operating expenses, as appropriate.

Goodwill is not subject to amortization, but is tested for impairment on an annual basis during the fourth quarter or whenever events or changes in circumstances indicate the carrying amount of these assets may not be recoverable. Goodwill impairment testing is a two-step process and performed on a reporting unit level. In the first step, the Company conducts an assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines that it is more likely than not that the fair value of its reporting unit is less than its carrying amount, it then conducts the second step, a two-part test for impairment of goodwill. The Company first compares the fair value of its reporting units to their carrying values. If the fair values of the reporting units exceed the carrying value of the net assets, goodwill is not considered impaired and no further analysis is required. If the carrying values of the net assets exceed the fair values of the reporting units, then the second part of the impairment test must be performed in order to determine the implied fair value of the goodwill. If the carrying value of the goodwill exceeds the implied fair value, then an impairment loss equal to the difference would be recorded. For 2012, the Company performed its annual goodwill impairment analysis during the fourth quarter of 2012 and concluded that goodwill is not impaired.

Finite-lived intangible assets and other long-lived assets are reviewed for impairment when facts or circumstances suggest that the carrying value of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written down to their estimated fair values. Additionally, during each period, the Company evaluates the estimated remaining useful lives of purchased finite-lived intangible assets and other long-lived assets to determine whether events or changes in circumstances warrant a revision to the remaining period of amortization. For the year ended December 31, 2012, no impairment charges were recognized. For the years ended December 31, 2011 and 2010, the Company recognized $1.7 million and $0.3 million, respectively, of impairment charges on its long-lived assets.

INCOME TAXES

Income tax expense is based on pre-tax financial accounting income. Under the liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company must then assess the likelihood that the resulting deferred tax assets will be realized. To the extent the Company believes that realization of the deferred tax assets is not more likely than not, the Company establishes a valuation allowance. Significant estimates are required in determining the Company's provision for income taxes, deferred tax assets and liabilities, any valuation allowance to be recorded against net deferred tax assets, and reserves for income tax related uncertainties. Some of these estimates are based on interpretations of existing tax laws or regulations. Various internal and external factors may have favorable or unfavorable effects on the Company's future effective tax rate. These factors include, but are not limited to, changes in overall levels of characterization and geographical mix of pretax earnings (losses), changes in tax laws, regulations and/or rates, changing interpretations of existing tax laws or regulations, changes in the valuation of deferred tax assets or liabilities, levels of research and development spending, nondeductible expenses, applicability of tax holidays, ultimate outcomes of income tax audits, and income tax impacts of any business combination transactions or changes in our equity structure. Relative to uncertain tax positions, the Company only recognizes the tax benefit if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the Company's financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

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CONTINGENCIES

The Company is subject to various legal proceedings principally related to intellectual property matters. Based on the information available at the most recent balance sheet date, the Company assesses the likelihood of any material adverse judgments or outcomes that may result from these matters, as well as the range of possible or probable loss, if any. If losses are probable and reasonably estimable, the Company will record a reserve. Any reserves recorded may change in the future due to new developments in each matter.

REVENUE RECOGNITION

Overview

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is reasonably assured. In instances where final acceptance of the product or system is required or performance obligations remain, revenue is deferred until all the acceptance criteria or performance obligations have been met.

The Company derives the majority of its revenue from product sales of probe arrays, reagents, and related instrumentation that may be sold individually or combined with any of the Company's products, services or other sources of revenue. When a sale combines multiple elements upon delivery or performance of multiple products, services and/or rights to use assets, the Company allocates revenue for transactions or collaborations that include multiple elements to each unit of accounting based on its relative fair value or best estimate selling price, and recognizes revenue for each unit of accounting when the revenue recognition criteria have been met. The price charged when the element is sold separately generally determines fair value.

Effective January 1, 2010, the Company adopted Auditing Standards Update ("ASU") No. 2009-13, Revenue Recognition (ASC Topic 605) – Multiple-Deliverable Revenue Arrangements on a prospective basis, which establishes the relative selling price method whereby the Company is required to allocate consideration to all deliverables at the inception of the arrangement based on their relative selling prices. This change in accounting principle did not have a material impact on the Company's financial results.

Product Sales

Product sales include sales of probe arrays, reagents and related instrumentation. Probe array, reagent and instrumentation revenue is recognized when earned, which is generally upon shipment and transfer of title to the customer and fulfillment of any significant post-delivery obligations. Accruals are provided for anticipated warranty expenses at the time the associated revenue is recognized.

Services

Services revenue includes equipment service revenue; scientific services revenue, which includes associated consumables; and revenue from custom probe array design fees. Revenue from equipment service contracts are recognized ratably over the life of the contract.

Revenue from scientific and DNA analysis services are recognized upon shipment of the required data to the customer.

Revenue from custom probe array design fees associated with the Company's GeneChip^® CustomExpress™ and CustomSeq™ products are recognized when the associated products are shipped.

Royalties and Other Revenue

Royalties and other revenue include license revenue; royalties earned from third party license agreements; milestones and royalties earned from collaborative product development and supply agreements; subscription fees earned under GeneChip^® array access programs; and research revenue, which mainly consists of amounts earned under government grants.

License revenue is generally recognized upon the execution of an agreement or is recognized ratably over the period of expected performance.

Revenue from royalties is recognized under the terms of the related agreement.

63

The Company enters into collaborative arrangements which generally include a research and product development phase and a manufacturing and product supply phase. These arrangements may include up-front nonrefundable license fees, milestones, the rights to royalties based on the sale of final product by the partner, product supply agreements and distribution arrangements.

Any up-front, nonrefundable payments from collaborative product development agreements are recognized ratably over the research and product development period, and at-risk substantive based milestones are recognized when earned. Any payments received which are not yet earned are included in deferred revenue.

Transactions with Distributors

The Company recognizes revenue from transactions with distributors when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller's price is fixed or determinable, and collectability is reasonably assured. The Company's agreements with distributors do not include rights of return.

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses consist of costs incurred for internal, collaborative and grant‑sponsored research and development. Research and development expenses include salaries, contractor fees, building costs, utilities and allocations of shared corporate services. In addition, the Company funds research and development at other companies and research institutions under agreements which are generally cancelable. All such costs are charged to research and development expense as incurred.

SOFTWARE DEVELOPMENT COSTS

Development Costs of Software to Be Sold, Leased or Marketed

Certain software development costs subsequent to the establishment of technological feasibility are capitalized. The Company's software is deemed to have achieved technological feasibility at the point a working model of the software product is developed. For the years ended December 31, 2012 and 2011, the Company did not capitalize any software development costs. Amortization of such costs was $0.5 million for the year ended December 31, 2012 and $0.7 million for each of the years ended December 31, 2011 and 2010. The costs of developing routine software enhancements are expensed as research and development when incurred because of the short time between the determination of technological feasibility and the date of general release of the related products.

Internal-Use Software

For the year ended December 31, 2012, the Company capitalized $0.4 million of costs associated with internal-use software. There was nothing capitalized for the year ended December 31, 2011. All costs associated with software developed for internal use will be amortized from the time at which the software is ready for its intended use. As of December 31, 2012, the Company had recognized total cumulative amortization costs related to internal-use software of $0.8 million.

ADVERTISING COSTS

The Company expenses advertising costs as incurred. Advertising costs recorded for the years ended December 31, 2012, 2011 and 2010 were $2.0 million, $0.6 million and $1.2 million, respectively.

SHARE‑BASED COMPENSATION

The Company estimates the fair value of its option grants and shares sold under its Employee Stock Purchase Plan using the Black‑Scholes-Merton ("BSM") option pricing model. This model requires the use of certain estimates and assumptions such as the expected term of options, estimated forfeitures, expected volatility of the Company's stock price, expected dividends and the risk-free interest rate at the grant date to determine the fair value of the stock options. The fair value of its restricted stock, restricted stock units and performance based restricted stock units, collectively referred to as restricted stock awards ("RSAs"), is based on the market price of the Company's common stock on the grant date. The Company recognizes the fair value of its share-based compensation as expense on a straight-line basis over the requisite service period of each award, generally four years. Refer to Note 14. "Stockholders' Equity and Share-Based Compensation Expense" for further information.

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COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) is comprised of net loss and other comprehensive income (loss). Other comprehensive income (loss) includes foreign currency translation adjustments, unrealized gains and losses on the Company's available-for-sale securities that are excluded from net loss and unrealized gains and losses on cash flow hedges. Total comprehensive income (loss) has been disclosed in the Company's Consolidated Statements of Comprehensive Loss.

At December 31, 2012 and 2011, the components of accumulated other comprehensive income, net of tax, are as follows (in thousands):

	Year Ended December 31,
	2012		2011
Foreign currency translation adjustment	$	5,374	$	821
Unrealized gains on available-for-sale and non-marketable securities		896		845
Unrealized gains on cash flow hedges		32		826
Accumulated other comprehensive income	$	6,302	$	2,492

NET LOSS PER COMMON SHARE

Basic net loss per common share is calculated using the weighted‑average number of common shares outstanding during the period less the weighted‑average shares subject to repurchase. Diluted net loss per common share gives effect to dilutive common stock subject to repurchase, stock options (calculated based on the treasury stock method), shares purchased under the employee stock purchase plan and convertible debt (calculated using an as-if-converted method).

Diluted earnings per share, if any, include certain potential dilutive securities from common stock subject to repurchase, outstanding stock options (on the treasury stock method), shares purchased under the employee stock purchase plan and convertible notes (on the as-if-converted basis). The potentially dilutive securities excluded from diluted earnings per common share on an actual outstanding basis, were as follows (in thousands):

	Year Ended December 31,
	2012		2011		2010
Employee stock options		6,101		6,276		6,636
Employee stock purchase plan		210		64		-
Restricted stock and restricted stock units		3,734		2,597		1,953
Convertible notes		9,899		3,169		3,169
Total		19,944		12,106		11,758

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2011, the FASB issued an amendment to an existing accounting standard which requires companies to present net income and other comprehensive income in one continuous statement or in two separate, but consecutive, statements. In addition, in December 2011, the FASB issued an amendment to an existing accounting standard which defers the requirement to present components of reclassifications of other comprehensive income on the face of the income statement. The Company adopted this guidance on January 1, 2012 on a retrospective basis and the adoption did not have a material effect on its consolidated financial statements.

In May 2011, the FASB issued a new accounting standard update, which amends the fair value measurement guidance and includes some enhanced disclosure requirements. The most significant change in disclosures is an expansion of the information required for Level 3 measurements based on unobservable inputs. The standard is effective for fiscal years beginning after December 15, 2011. The Company adopted this standard in the first quarter of 2012 and the adoption did not have a material impact on its financial statements and disclosures.

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In September 2011, the FASB issued new guidance on testing goodwill for impairment. The new guidance allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. An entity is no longer required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The Company adopted this accounting standard in the fourth quarter of 2012 and completed its 2012 goodwill impairment analysis based on this guidance. The adoption of this guidance did not have a material impact on the accompanying Consolidated Financial Statements.

NOTE 3—ACQUISITION

On June 25, 2012 (the "Acquisition Date"), pursuant to the terms of an Amended and Restated Agreement and Plan of Merger (the "Acquisition Agreement"), a wholly-owned subsidiary of the Company merged with and into eBioscience, with eBioscience surviving as a wholly-owned subsidiary of the Company (the "Acquisition"). eBioscience specializes in the development, manufacturing, marketing and distribution of research tools in the areas of flow cytometry, immunoassays, microscopic imaging and other protein-based analyses.

At the Acquisition Date, each share of eBioscience issued and outstanding common stock immediately prior to the Acquisition Date was cancelled and converted into the right to receive cash of $38.18 per each such previously issued and outstanding common share. Further, all options to purchase shares of eBioscience common stock that were outstanding immediately prior to the Acquisition Date became exercisable to the extent not fully vested and were cancelled and retired immediately prior to the Acquisition Date in exchange for cash of $38.18 per each such previously outstanding option, less the exercise price of such option.

The Acquisition was accounted for using the acquisition method of accounting. Under the acquisition method of accounting, the tangible and identifiable intangible assets and liabilities of eBioscience were recorded at their respective fair values as of the Acquisition Date, including an amount for goodwill representing the difference between the Acquisition consideration and the fair value of the identifiable net assets.

At June 30, 2012, the Company had provisionally estimated fair values for the assets acquired and liabilities assumed at the Acquisition Date. The amounts reported were considered provisional as the Company was completing the valuation work to determine the fair value of assets acquired and liabilities assumed and finalize the working capital adjustments as required by the Acquisition Agreement. With the help of third-party specialists, the valuation was finished during the fourth quarter of 2012 and the determination of the fair value of acquired inventory, property and equipment, and intangible assets was completed. In addition, the Company's review of tax accounts was also completed during the fourth quarter of 2012. This resulted in adjustments to the determination of the fair value of assets acquired and liabilities assumed (also referred to as "measurement period adjustments") to the accompanying Condensed Consolidated Financial Statements as of and for the six months ended June 30, 2012. Under US GAAP, changes to the fair value of the assets acquired and liabilities assumed during the measurement period are recognized as of the date of acquisition. The Company considers the fair value analysis to be final as of December 31, 2012.

The results of operations of the acquired eBioscience business and the fair values of the assets acquired and liabilities assumed have been included in the accompanying Consolidated Financial Statements since the Acquisition. For the year ended December 31, 2012, the Company recorded $37.0 million in revenue and recognized a net loss of $8.9 million from eBioscience.

Purchase price

The total purchase price for the Acquisition was $314.9 million, of which $8.3 million was accounted for as share-based compensation expense as a result of the accelerated vesting of certain eBioscience employee options immediately prior to the Acquisition and has been recognized in the accompanying Consolidated Statement of Operations under Selling, general and administrative expenses. The remaining $306.6 million was related to the fair value of the net assets acquired from eBioscience. The Acquisition was financed through a combination of cash on hand, the liquidation of available-for-sale securities, proceeds from third-party financing (the "Term Loan") and the issuance of 4.00% Convertible Senior Notes (the "4.00% Notes"). Refer to Note 13. "Long-Term Debt Obligations" for further information.

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The following table summarizes the accounting treatment of the purchase price paid (in thousands):

	Before					After
	Adjustment					Adjustment
	of Final		Measurement			of Final
	Determination		Period			Determination
	of Fair Value		Adjustments			of Fair Value
Purchase consideration	$	306,841	$	(215	)	$	306,626
Share-based compensation expense		8,265		-			8,265
Total purchase price	$	315,106	$	(215	)	$	314,891

Fair value of assets acquired and liabilities assumed

The following table summarizes the fair values of assets acquired, liabilities assumed and goodwill (in thousands), as well as retrospective measurement period adjustments made during the year ended December 31, 2012:

	Before						After
	Adjustment						Adjustment
	of Final			Measurement			of Final
	Determination			Period			Determination
	of Fair Value(1)			Adjustments(2)			of Fair Value
Cash and cash equivalents	$	7,095		$	-		$	7,095
Accounts receivable, net		9,488			(8	)		9,480
Inventories		52,060			(1,380	)		50,680
Prepaid expenses and other assets		7,844			575			8,419
Property and equipment		5,969			551			6,520
Intangible assets		159,755			(22,155	)		137,600
Other non-current assets		1,769			(328	)		1,441
Identifiable assets acquired		243,980			(22,745	)		221,235
Accounts payable and accrued liabilities		(18,681	)		(2,691	)		(21,372	)
Deferred tax liability		(55,542	)		8,658			(46,884	)
Other non-current liabilities		(3,241	)		(225	)		(3,466	)
Identifiable liabilities acquired		(77,464	)		5,742			(71,722	)
Goodwill		140,325			16,788			157,113
Purchase consideration	$	306,841		$	(215	)	$	306,626

(1) As previously reported in the notes to the Condensed Consolidated Financial Statements included in the Company's Quarterly Report on Form 10-Q as of June 30, 2012 and for the three and six months then ended.

(2) During the second half of 2012, the Company finalized the valuations of the fair value of certain asset and liabilities included in the Acquisition resulting in the measurement period adjustments detailed above, including reducing the fair  value of certain intangible assets by $22.2 million to better reflect market participant assumptions about the facts and circumstances existing as of the Acquisition Date.

The above change in domestic deferred tax liabilities resulted in a $7.6 million increase in the Company's domestic deferred tax asset valuation allowance. Adjustments to valuation allowances are further discussed in Note 16. "Income Taxes."

The above measurement period adjustments did not result from events that occurred after the Acquisition Date.

Inventories

The inventories acquired include an adjusted step-up in basis of approximately $29.0 million, which represents the fair value of the inventory less a reasonable profit margin on costs to complete and sell. The step-up in basis will be recognized as the inventory is sold, which is expected to be over a period of 12 to 23 months from the Acquisition Date.

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Intangible Assets

The following table summarizes the fair value of definite-lived intangible assets acquired at the Acquisition Date and their estimated useful lives (in thousands, except for estimated useful lives):

				Estimated
	Fair Value			Useful Life
Purchased intangible assets:
Customer base		$	61,100	12 years
Developed technologies			58,000	12 years
Trademarks and tradenames			15,500	5 years
Other contractual agreements			3,000	2 years
Total		$	137,600

Purchased intangible assets were recorded at fair value determined using an income approach, which recognizes that the fair value of an asset is premised upon the expected receipt of future economic benefits such as earnings and cash inflows based on current sales projections and estimated direct costs. Indications of value are developed by discounting these benefits to their present worth at a discount rate that reflects the current return requirements of market participants.

Purchased intangible assets are finite-lived intangible assets and are being amortized over their estimated useful lives.

Deferred tax liabilities

Deferred tax liabilities assumed are primarily comprised of the tax impact of the temporary difference between the fair values of assets acquired and the historical tax basis of those assets. These temporary differences will reverse as the assets are amortized.

Goodwill

The excess of Acquisition consideration over the fair value of assets acquired and liabilities assumed represents goodwill. The Company believes the factors that contributed to goodwill include synergies that are specific to the Company's consolidated business, and not available to market participants, and the acquisition of a talented workforce that expands the Company's expertise in business development and the commercialization of cell and protein analysis products. The Company does not expect any portion of this goodwill to be deductible for tax purposes.

Liabilities

The above determination of fair value excludes amounts related to certain litigation in which eBioscience is currently involved. The Acquisition Agreement provides that eBioscience security holders shall, subject to certain limitations, indemnify Affymetrix against damages arising out of or resulting from intellectual property litigation brought against eBioscience by Life Technologies Corporation. The net assets acquired and results of operations do not reflect the outcome of this litigation, which was unable to be estimated at December 31, 2012. Under the terms of the Acquisition Agreement, $25.2 million of the purchase price was placed into escrow to secure eBioscience security holders' indemnification obligations to the Company. During January 2013, the litigation was settled and $2.3 million was reimbursed to the Company out of escrow.

Transaction costs

The Company cumulatively incurred approximately $9.1 million of Acquisition-related costs that are recognized as Selling, general and administrative expense in the accompanying Consolidated Statements of Operations, of which $6.2 million and $2.9 million was recognized during the years ended December 31, 2012 and 2011, respectively.

Total underwriting and financing fees of approximately $8.5 million associated with the Term Loan and 4.00% Notes were also incurred and are discussed in Note 13. "Long-Term Debt Obligations."

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Share-based compensation costs

The share-based compensation expense of $8.3 million recognized for the accelerated vesting of certain eBioscience options immediately vested prior to the Acquisition was recognized in the accompanying Consolidated Statements of Operations as Selling, general and administrative expense in during the year ended December 31, 2012.

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information presents the combined results of operations for the years ended December 31, 2012 and 2011 as if the Acquisition had been completed on January 1, 2011, with adjustments to give effect to pro forma events that are directly attributable to the Acquisition. The unaudited pro forma results do not reflect any operating efficiencies or potential cost savings that may result from the consolidation of the operations of the Company and eBioscience. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the Acquisition had occurred at the beginning of the period presented, nor are they indicative of future results of operations (in thousands, except per share data):

	Years Ended December 31,
	2012			2011
Revenue	$	331,370		$	338,416
Net loss		(35,500	)		(24,529	)
Basic and diluted net loss per share		(0.50	)		(0.35	)

The unaudited pro forma financial information exclude non-recurring share-based compensation expense of $8.3 million recognized for the accelerated vesting of certain eBioscience stock options immediately prior to the Acquisition, and an income tax benefit of $37.1 million for the years ended December 31, 2012 and 2011.

The unaudited pro forma financial information for the year ended December 31, 2012 exclude non-recurring Acquisition-related transaction costs incurred by the Company of $6.2 million and by eBioscience of $5.5 million. For the year ended December 31, 2011, excluded non-recurring Acquisition costs incurred by the Company was $2.9 million and by eBioscience was $0.6 million.

NOTE 4—CONCENTRATIONS OF RISK

Cash equivalents and investments are financial instruments that potentially subject Affymetrix to concentrations of risk to the extent of amounts recorded in the accompanying Consolidated Balance Sheets. Company policy restricts the amount of credit exposure to any one issuer and to any one type of investment, other than securities issued by the United States Government.

The Company has not experienced significant credit losses from its accounts receivable. Affymetrix performs a regular review of its customer activity and associated credit risks and does not require collateral from its customers. The Company maintains an allowance for doubtful accounts receivable based upon the expected collectability of accounts receivable.

Certain raw materials or components used in the synthesis of probe arrays or the assembly of instrumentation are currently available only from a single source or limited sources. No assurance can be given that these raw materials or other components of the GeneChip^® system will be available in commercial quantities at acceptable costs from other vendors should the need arise. If the Company is required to seek alternative sources of supply, it could be time consuming and expensive.

In addition, the Company is dependent on its vendors to provide components of appropriate quality and reliability and to meet applicable regulatory requirements. Consequently, in the event that supplies from these vendors are delayed or interrupted for any reason, the Company's ability to develop and supply its products could be impaired, which could have a material adverse effect on the Company's business, financial condition and results of operations.

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For the years ended December 31, 2012, 2011 and 2010, approximately 42%, 47% and 43%, respectively, of the Company's total revenue was generated from sales outside the United States. The Company's results of operations are affected by such factors as changes in foreign currency exchange rates, trade protection measures, longer accounts receivable collection patterns and changes in regional or worldwide economic or political conditions. The risks of the Company's international operations are mitigated in part by the extent to which its sales are geographically distributed.

NOTE 5—FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and consider assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions and risk of nonperformance.

A fair value hierarchy was established which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of inputs that may be used to measure fair value are as follows:

Level 1: quoted prices in active markets for identical assets or liabilities;

Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or

Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company considers an active market to be one in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, and views an inactive market as one in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers. Where appropriate the Company's or the counterparty's non-performance risk is considered in determining the fair values of liabilities and assets, respectively.

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Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table represents the Company's fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2012 and 2011 (in thousands):

			Significant
	Quoted Prices		Other
	In Active		Observable
	Markets		Inputs
	(Level 1)		(Level 2)		Total
December 31, 2012
Assets:
U.S. government obligations and agency securities	$	-	$	6,829	$	6,829
U.S. corporate debt		-		664		664
Foreign corporate debt and equity securities		-		1,873		1,873
Total	$	-	$	9,366	$	9,366
Derivative assets	$	-	$	842	$	842
Liabilities:
Derivative liabilities	$	-	$	829	$	829
December 31, 2011:
Assets:
U.S. government obligations and agency securities	$	-	$	19,598	$	19,598
U.S. corporate debt		-		25,100		25,100
Foreign government obligations and agency securities		-		2,810		2,810
Foreign corporate debt and equity securities		105		14,825		14,930
Total	$	105	$	62,333	$	62,438
Derivative assets	$	-	$	940	$	940
Liabilities:
Derivative liabilities	$	-	$	217	$	217

The Company's Level 2 input assumptions are determined based on review of third-party sources.

The fair values of the Company's available-for-sale securities are based on quoted market prices and are included in cash and cash equivalents, available-for-sale securities—short-term and available-for-sale securities—long-term on the accompanying Consolidated Balance Sheets based on each respective security's maturity.

The fair value of the Company's derivative assets and liabilities is determined based on the estimated consideration the Company would pay or receive to terminate these agreements on the reporting date. The derivative assets and liabilities are located in Other current assets and Accrued expenses, respectively, in the accompanying Consolidated Balance Sheets.

As of December 31, 2012 and 2011, the Company had no financial assets or liabilities requiring Level 3 classification, including those that have unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets and liabilities.

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Debt Obligations

Debt obligations are not recorded at fair value on a recurring basis and are carried at amortized cost.

The fair values of the Company's 3.50% Senior Convertible Notes due 2039 (the "3.50% Notes") and 4.00% Notes are based on quoted market prices at the balance sheet date. At December 31, 2012, the fair value of the Company's remaining 3.50% Notes was $3.9 million and the fair value of the Company's 4.00% Notes was $87.3 million.

On June 25, 2012, the Company entered into a Credit Agreement and borrowed $85.0 million under the Term Loan. As of December 31, 2012, the fair value of the Term Loan approximated its carrying value of $73.3 million, as this was a recent transaction.

NOTE 6—FINANCIAL INSTRUMENTS

Investments in Debt and Equity Securities

As described in further detail in Note 3. "Acquisition", the Company liquidated the majority of its available-for-sale securities as part of the Acquisition in 2012.

The following is a summary of available-for-sale securities as of December 31, 2012 (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
U.S. government obligations and agency securities	$	6,775	$	54	$	-	$	6,829
U.S. corporate debt		651		13		-		664
Foreign corporate debt and equity securities		1,837		36		-		1,873
Total available-for-sale securities	$	9,263	$	103	$	-	$	9,366

The following is a summary of available-for-sale securities as of December 31, 2011 (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
U.S. government obligations and agency securities	$	19,421	$	177	$	-		$	19,598
U.S. corporate debt		24,942		259		(101	)		25,100
Foreign government obligations and agency securities		2,805		6		(1	)		2,810
Foreign corporate debt and equity securities		15,157		41		(268	)		14,930
Total available-for-sale securities	$	62,325	$	483	$	(370	)	$	62,438

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Contractual maturities of available-for-sale securities as of December 31, 2012 and 2011 are as follows (in thousands):

	December 31,		December 31,
	2012		2011
Less than one year	$	7,083	$	7,937
One to two years		664		25,785
More than two years		1,619		28,716
Total available-for-sale securities	$	9,366	$	62,438

Realized gains for the years ended December 31, 2012 and 2011 were $0.5 million and $0.6 million, respectively. Realized losses for the years ended December 31, 2012 and 2011 were $0.1 million and $1.6 million, respectively. Realized gains and losses are included in Interest income and other, net in the accompanying Consolidated Statements of Operations. During the year ended December 31, 2011, an equity security that experienced a decline in fair value was deemed other-than-temporarily impaired and impairment charges totaling $0.8 million were recorded. No significant facts or circumstances have arisen to indicate that there has been any deterioration in the creditworthiness of the issuers of the Company's other securities as of December 31, 2012.

Non-Marketable Securities

Non-marketable securities represents an investment in a limited partnership investment fund accounted for on the equity method. As of December 31, 2012 and 2011, the carrying amounts of the Company's non-marketable securities, totaling $4.4 million and $5.0 million, respectively, equaled their estimated fair values. The investments held by the limited partnership investment fund are in the life science industry and located in the United States. The investments are initially valued at the purchase price and subsequently on the basis of inputs that market participants would use in pricing such investments. The portfolio of investments includes Level 1 publicly traded equity securities and Level 3 equity securities and notes. During the year ended December 31, 2011, the Company recorded impairment charges on its non-marketable securities totaling $1.3 million. Net investment losses are included in Interest income and other, net in the accompanying Consolidated Statements of Operations. Depending on market conditions, the Company may incur additional charges on this investment in the future.

Derivative Financial Instruments

The Company derives a portion of its revenues in foreign currencies, predominantly in Europe and Japan, as part of its ongoing business operations. In addition, a portion of its assets are held in the nonfunctional currencies of its subsidiaries. The Company enters into foreign currency forward contracts to manage a portion of the volatility related to transactions that are denominated in foreign currencies. The Company's foreign currency forward contracts are entered into for periods consistent with the related underlying exposures and do not constitute positions that are independent of those exposures. The Company's accounting policies for these instruments are based on whether the instruments are classified as designated or non-designated hedging instruments. The Company records all derivatives on the accompanying Consolidated Balance Sheets at fair value. The effective portions of designated cash flow hedges are recorded in OCI until the hedged item is recognized in operations. As of December 31, 2012, the Company's existing foreign currency forward exchange contracts mature within 12 months. The deferred amount related to the Company's derivatives currently recorded in OCI and expected to be recognized into earnings over the next 12 months is a net gain of less than $0.1 million. Derivatives that are not designated as hedging instruments and the ineffective portions of cash flow hedges are adjusted to fair value through earnings.

Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur in the initially identified time period or within a subsequent two-month time period. Deferred gains and losses in other comprehensive income (loss) associated with such derivative instruments are reclassified immediately into operations through other income and expense. Any subsequent changes in fair value of such derivative instruments are reflected in Interest income and other, net unless they are re-designated as hedges of other transactions. The Company did not recognize any net gains or losses related to the loss of hedge designation on discontinued cash flow hedges during the years ended December 31, 2012 and 2011.

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Under the Credit Agreement as defined in Note 13. "Long-Term Debt Obligations", the Company is required to maintain derivative contracts to protect against fluctuations in interest rates with respect to at least 35% of the aggregate principal amount of the Term Loan then outstanding, with such derivative contracts being required to have at least a three-year term. Accordingly, the Company has entered into an interest rate swap (the "Interest Rate Swap") for which the notional amount was originally set at $27.5 million, with quarterly reduction to the notional amount consistent with the mandatory amortization schedule of the Term Loan. The Interest Rate Swap calls for fixed rate quarterly payments of 1.70% of the notional amount in exchange for a variable rate quarterly receipt equal to a 3 month LIBOR rate with a floor of 1.50%. The Interest Rate Swap terminates on June 25, 2015.

The Company did not designate the Interest Rate Swap as a hedging instrument and will recognize adjustments to fair value through Interest income and other, net on the accompanying Consolidated Statements of Operations at each reporting date. As of December 31, 2012, the fair value of the Interest Rate Swap was $0.1 million.

As of December 31, 2012 and 2011, the total notional values of the Company's derivative assets and liabilities that mature within 12 months are as follows (in thousands):

	December 31,		December 31,
	2012		2011
Euro	$	16,933	$	11,851
Japanese yen		10,542		7,008
British pound		4,278		4,459
Interest rate swap		27,519		-
Total	$	59,272	$	23,318

Other than the Interest Rate Swap, the Company did not have any derivative assets or liabilities that were not designated or qualifying as hedges as of December 31, 2012. As of December 31, 2011, the Company did not have any derivative assets or liabilities that were not designated or qualifying as hedges.

As a result of the use of derivative instruments, the Company is exposed to the risk that the counterparties may be unable to meet the terms of the agreements. To mitigate the risk, only contracts with carefully selected highly-rated major financial institutions are entered into. In the event of non-performance by these counterparties, the asset position carrying values of the financial instruments represent the maximum amount of loss that can be incurred, however, no losses as a result of counterparty defaults are expected. The Company does not require and is not required to pledge collateral for these financial instruments. The Company does not enter into foreign currency forward contracts for trading or speculative purposes and is not party to any leveraged derivative instruments.

The following table shows the Company's foreign currency derivatives measured at fair value as reflected on the accompanying Consolidated Balance Sheets as of December 31, 2012 and 2011 (in thousands):

	December 31,		December 31,		Balance Sheet
	2012		2011		Classification
Derivative assets:
Foreign exchange contracts	$	842	$	940	Other current assets
Derivative liabilities:
Foreign exchange contracts		752		217	Accrued liabilities
Interest rate swap		77		-	Accrued liabilities

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The following table shows the effect, net of tax, of the Company's derivative instruments on the accompanying Consolidated Statements of Operations and OCI for the years ended December 31, 2012, 2011 and 2010 (in thousands):

	Year ended December 31,
	2012			2011			2010
Derivatives in cash flow hedging relationships:
Net (loss) gain recognized in OCI, net of tax (1)	$	(794	)	$	826		$	-
Net gain reclassified from accumulated OCI into income, net of tax (2)		1,226			-			-
Net gain (loss) recognized in other income and expense (3)		109			(103	)		-
Derivatives not designated as hedging relationships:
Net (loss) gain recognized in income (4)		(539	)		(1,720	)		957

(1) Net change in the fair value of the effective portion classified in OCI

(2) Effective portion classified as revenue

(3) Ineffective portion and amount excluded from effectiveness testing classified as Interest and other, net

(4) Classified in Interest and other, net

NOTE 7—INVENTORIES

Inventories, net of reserves, consist of the following at December 31, 2012 and 2011 (in thousands):

	December 31,
	2012		2011
Raw materials	$	11,167	$	8,635
Work-in-process		35,562		10,554
Finished goods		37,734		23,662
Total	$	84,463	$	42,851
Short-term portion	$	72,691	$	42,851
Long-term portion	$	11,772	$	-

Inventory at December 31, 2012 includes $41.4 million of inventory acquired from eBioscience that includes the unamortized balance of the fair value step-up in basis of $19.5 million discussed in Note 3. "Acquisition." Amortization expense on the fair value step-up during the year ended December 31, 2012 was $9.4 million.

NOTE 8—PROPERTY AND EQUIPMENT

Property and equipment consists of the following as of December 31, 2012 and 2011 (in thousands):

	December 31,
	2012			2011 (1)
Property and equipment:
Construction-in-progress	$	1,790		$	838
Equipment and furniture		126,790			113,690
Building and leasehold improvements		54,579			96,390
Land		-			1,310
		183,159			212,228
Less: accumulated depreciation and amortization		(154,496	)		(172,645	)
Net property and equipment	$	28,663		$	39,583

(1) Included in the balance as of December 31, 2011 was the Company's West Sacramento facility that was reclassified to held-for-sale on the accompanying Consolidated Balance Sheets at an estimated fair value of $9.0 million at December 31, 2011. During the third quarter of 2012, the Company recognized an impairment of $4.0 million on the facility based on offers to purchase the property. During the fourth quarter of 2012, the Company sold the facility for gross proceeds of $5.8 million, which included $0.3 million in commissions and closing costs paid by the Company, and reduced the total impairment recognized in 2012 to $3.5 million.

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For the years ended December 31, 2012, 2011 and 2010, the Company recorded depreciation expense of $15.8 million, $19.0 million and $22.2 million, respectively.

NOTE 9—GOODWILL AND INTANGIBLE ASSETS

The gross carrying amounts and net book values of the Company's definite-lived intangible assets are as follows (in thousands):

	Carrying Value, Gross						Accumulated Amortization									Intangible Assets, Net				Weighted
	December 31,				December 31,		December 31,						December 31,			December 31,		December 31,		Average
	2011		Additions		2012		2011			Additions			2012			2011		2012		Useful Life
Customer relationships	$	14,600	$	62,274	$	76,874	$	(9,510	)	$	(4,836	)	$	(14,346	)	$	5,090	$	62,528	12 years
Developed technologies		17,653		59,161		76,814		(13,179	)		(5,310	)		(18,489	)		4,474		58,325	12 years
Trademarks and tradenames		2,300		15,518		17,818		(1,126	)		(1,883	)		(3,009	)		1,174		14,809	5 years
Other contractual agreements		-		3,055		3,055		-			(785	)		(785	)		-		2,270	2 years
Licenses		79,142		2,014		81,156		(60,355	)		(6,015	)		(66,370	)		18,787		14,786	Variable
Total definite-lived intangible assets	$	113,695	$	142,022	$	255,717	$	(84,170	)	$	(18,829	)	$	(102,999	)	$	29,525	$	152,718

The expected future annual amortization expense of the Company's intangible assets is as follows (in thousands):

	Amortization
For the Year Ending December 31,	Expense
2013	$	23,600
2014		20,867
2015		14,715
2016		13,861
2017		12,186
Thereafter		67,489
Total	$	152,718

The Company recognized goodwill of $157.1 million in connection with the Acquisition. Refer to Note 2. "Acquisition" for further details. Information in regards to changes in the Company's goodwill at December 31, 2012 is as follows (in thousands):

Balance at December 31, 2011	$	-
Additions:
Acquisition of eBioscience		157,113
Effects of foreign currency change		2,623
Balance at December 31, 2012	$	159,736

During the year ended December 31, 2012, the Company concluded that there were no indicators of impairment during its annual impairment test of goodwill and the balance at December 31, 2012 is expected to be recoverable.

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NOTE 10—ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities as of December 31, 2012 and 2011 consist of the following (in thousands):

	December 31,
	2012		2011
Accounts payable	$	13,716	$	15,629
Accrued compensation and related liabilities		15,760		12,169
Accrued interest		324		1,531
Accrued taxes		8,135		5,067
Accrued legal		594		1,808
Accrued audit and tax		1,106		963
Accrued warranties		802		1,500
Accrued royalties		1,608		1,206
Other		8,310		4,901
Total	$	50,355	$	44,774

NOTE 11—COMMITMENTS

Operating Leases

The Company leases laboratory, office and manufacturing facilities under non-cancelable operating leases that expire at various times through 2023. Some of these leases contain renewal options ranging from two to five years and escalation clauses. Rent expense related to operating leases for the years ended December 31, 2012, 2011 and 2010 was approximately $11.3 million, $11.0 million and $9.7 million, respectively. In connection with some of these facility leases, the Company has made security deposits totaling $3.6 million, which are included in other long-term assets in the accompanying Consolidated Balance Sheets.

Future minimum lease obligations, net of sublease income, at December 31, 2012 under all non-cancelable operating leases are as follows (in thousands):

For the Year Ending December 31,	Amount
2013	$	10,465
2014		8,429
2015		7,825
2016		5,128
2017		5,120
Thereafter		27,471
Total	$	64,438

Sublease income is expected to be approximately $0.5 million for the year ended December 31, 2013 and none thereafter.

Non-Cancelable Supply Agreements

As of December 31, 2012, the Company had approximately $0.9 million of non-cancelable inventory supply agreements that are in effect through 2013.

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Indemnifications

From time to time the Company has entered into indemnification provisions under certain of its agreements with other companies in the ordinary course of business, typically with business partners, customers, and suppliers. Pursuant to these agreements, the Company generally indemnifies, holds harmless, and agrees to reimburse the indemnified parties on a case by case basis for losses suffered or incurred by the indemnified parties in connection with any U.S. patent or other intellectual property infringement claim by any third party with respect to its products. The term of these indemnification provisions is generally perpetual from the time of the execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is unlimited. In addition, the Company has entered into indemnification agreements with its officers and directors. The Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. As of December 31, 2012, the Company had not accrued a liability for this guarantee, because the likelihood of incurring a payment obligation in connection with this guarantee is remote.

NOTE 12—WARRANTIES

The Company provides for anticipated warranty costs at the time the associated revenue is recognized. Product warranty costs are estimated based upon the Company's historical experience and the warranty period. The Company periodically reviews the adequacy of its warranty reserve and adjusts, if necessary, the warranty percentage and accrual based on actual experience and estimated costs to be incurred. Information regarding the changes in the Company's product warranty liability for the years ended December 31, 2012 and 2011 is as follows (in thousands):

	Amount
Balance at December 31, 2010	$	1,493
Additions charged to cost of product sales		879
Repairs and replacements		(872	)
Balance at December 31, 2011	$	1,500
Additions charged to cost of product sales		611
Repairs and replacements		(1,309	)
Balance at December 31, 2012	$	802

NOTE 13—LONG-TERM DEBT OBLIGATIONS

Term Loan

On June 25, 2012, the Company entered into a credit agreement (the "Credit Agreement") by, and among, Affymetrix and its domestic subsidiaries, and General Electric Capital Corporation ("GE Capital"), Silicon Valley Bank and other financial institutions party thereto from time to time (collectively, the "Lenders"), as well as certain securities affiliates of the Lenders. The Credit Agreement provides for the Term Loan in an aggregate principal amount of $85.0 million and a revolving credit facility in an aggregate principal amount of $15.0 million (the "Revolving Credit Facility" and, together with the Term Loan, the "Senior Secured Credit Facility"), each with a term of five years. As of December 31, 2012, the Company borrowed a total of $85.0 million under the Term Loan which was used to finance a portion of the Acquisition.

At the option of the Company (subject to certain limitations), borrowings under the Credit Agreement bear interest at either a base rate or at the London Interbank Offered Rate ("LIBOR"), plus, in each case, an applicable margin. Under the Base Rate Option, interest will be at the base rate plus 4.00% per annum, calculated on the basis of the actual number of days elapsed in a year of 365 or 366 days (as applicable) and payable quarterly in arrears. The base rate will be equal to the greatest of (a) the rate last quoted by The Wall Street Journal (or another national publication selected by GE Capital) as the U.S. "Prime Rate," (b) the federal funds rate, plus 0.50% per annum and (c) LIBOR for an interest period of one month, plus 1.00% per annum. However, the base rate will not be less than a floor of 2.50% per annum. Under the LIBOR Option, interest will be determined based on interest periods to be selected by Affymetrix of one, two, three or six months (and, to the extent available to all relevant lenders, nine or 12 months) and will be equal to LIBOR, plus 5.00%, calculated based on the actual number of days elapsed in a 360-day year. However, LIBOR will be deemed not to be less than a floor of 1.50% per annum. Interest will be paid at the end of each interest period or, in the case of interest periods longer than three months, quarterly. During the year ended December 31, 2012, the Company entered into its Interest Rate Swap as required by the terms of the Credit Agreement with a third-party lending institution. Refer to Note 6. "Financial Instruments–Derivative Financial Instruments" for further information. At December 31, 2012, the applicable interest rate was approximately 6.50%.

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The loans and other obligations under the Senior Secured Credit Facility are (i) guaranteed by substantially all of the Company's domestic subsidiaries (subject to certain exceptions and limitations) and (ii) secured by substantially all of the assets of Affymetrix and each guarantor (subject to certain exceptions and limitations).

The Credit Agreement requires the Company to maintain a fixed charge coverage ratio of at least 1.5 to 1.0, a senior leverage multiple not exceeding initially 2.00 to 1.00 and stepping down to 1.50 to 1.00 and a total leverage multiple not exceeding initially 4.75 to 1.00 and stepping down to 3.50 to 1.00. The Credit Agreement also includes other covenants, including negative covenants that, subject to certain exceptions, limit Affymetrix', and that of certain of its subsidiaries', ability to, among other things: (i) incur additional debt, including guarantees by the Company or its subsidiaries, (ii) make investments, pay dividends on capital stock, redeem or repurchase capital stock, redeem or repurchase the Company's senior convertible notes or any subordinated obligations, (iii) create liens and negative pledges, (iv) make capital expenditures, (v) dispose of assets, (vi) make acquisitions, (vii) create or permit restrictions on the ability of Affymetrix' subsidiaries to pay dividends or make distributions to Affymetrix, (viii) engage in transactions with affiliates, (ix) engage in sale and leaseback transactions, (x) consolidate or merge with or into other companies or sell all or substantially all the Company's assets and (xi) change their nature of business, their organizational documents or their accounting policies. As of December 31, 2012, the Company was in compliance with these covenants.

The Company is required to make the following mandatory prepayments: (a) annual prepayments in an amount equal to 50% of excess cash flow (as defined in the Credit Agreement), subject to a leverage-based stepdown, (b) prepayments in an amount equal to 100% of the net cash proceeds of issuances or incurrences of debt obligations of Affymetrix and its subsidiaries (other than debt incurrences expressly permitted by the Credit Agreement), (c) prepayments in an amount equal to 100% of the net proceeds of asset sales in excess of $2.5 million annually (subject to certain reinvestment rights) and (d) prepayments in an amount equal to any indemnification payments or similar payments received under the Acquisition Agreement, subject to certain exclusions. During the year ended December 31, 2012, the Company was not obligated to make aforementioned mandatory prepayments.

The Credit Agreement also contains events of default, including payment defaults, breaches of representations and warranties, covenant defaults, cross-default and cross-acceleration to other indebtedness in excess of specified amounts, monetary judgment defaults in excess of specified amounts, bankruptcy or insolvency, actual or asserted invalidity or impairment of any part of the credit documentation (including the failure of any lien on a material portion of the collateral to remain perfected) and change of ownership or control defaults. In addition, the occurrence of a "fundamental change" under the indenture governing the 4.00% Notes would be an event of default under the Credit Agreement. As of December 31, 2012, there have been no events of default under the Credit Agreement.

Additionally, the proceeds from the Term Loan are net of debt issuance costs of approximately $4.5 million that are being amortized over the 5-year term of the Senior Secured Credit Facility beginning on June 25, 2012.

As of December 31, 2012, the Company had an outstanding principal balance of $73.3 million and incurred $3.6 million in interest under the Senior Secured Credit Facility for the year ended December 31, 2012.

The Term Loan will amortize in quarterly installments in amounts resulting in an annual amortization of 10% during the first year, 15% during the second year, 15% during the third year, 20% during the fourth year and 40% during the fifth year after June 25, 2012. The principal amount of unpaid maturities per the Credit Agreement is as follows (in thousands):

For the Year Ending December 31,
2013	$	-
2014		12,713
2015		13,813
2016		17,000
2017		29,750
Total	$	73,276

The Company paid $11.7 million of quarterly installments representing both fiscal 2012 and 2013 installments under the Credit Agreement. The Company intends to continue to make quarterly payments during fiscal 2013 and has classified $12.7 million as current on the accompanying Consolidated Balance Sheet for the year ended December 31, 2012.

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4.00% Convertible Senior Notes

On June 25, 2012, the Company issued $105.0 million principal amount of 4.00% Convertible Senior Notes due July 1, 2019. The net proceeds, after debt issuance costs totaling $3.9 million from the 4.00% Notes offering, were $101.1 million. The 4.00% Notes bear interest of 4.00% per year payable semi-annually in arrears on January 1 and July 1 of each year, beginning on January 1, 2013 until the maturity date of July 1, 2019, unless converted, redeemed or repurchased earlier. The debt issuance costs are being amortized over the effective life of the 4.00% Notes, which is 7 years.

Holders of the 4.00% Notes may convert their 4.00% Notes into shares of the Company's stock at their option any time prior to the close of business on the business day immediately preceding the maturity date. The 4.00% Notes are initially convertible into approximately 170.0319 shares of the Company's common stock per $1,000 principal amount of notes, which equates to 17,857,143 shares of common stock, or an initial conversion price of $5.88 per share of common stock. The conversion rate is subject to certain customary anti-dilution adjustments. In addition, following certain corporate events that occur prior to the maturity date, the Company will increase the conversion rate for a holder who elects to convert its notes in connection with such a corporate event in certain circumstances. Holders may also require the Company to repurchase for cash their notes upon certain fundamental changes.

On or after July 1, 2017, the Company can redeem for cash all or part of the 4.00% Notes if the last reported sale price per share of the Company's common stock has been at least 130% of the conversion price then in effect for at least 20 trading days during any 30 consecutive trading day period ending within 5 trading days prior to the date on which the Company provides notice of redemption. The redemption price will be equal to 100% of the principal amount of the 4.00% Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

As of December 31, 2012, the outstanding balance on the 4.00% Notes was $105.0 million and interest incurred for the year ended December 31, 2012 was $2.5 million.

3.50% Senior Convertible Notes

During the first quarter of 2012, the Company repurchased approximately $91.6 million of aggregate principal amount of its 3.50% Notes in private transactions for total cash consideration of $92.1 million, including accrued interest of $0.5 million. Such notes were purchased at par and accelerated amortization of deferred financing costs of $0.3 million was recognized. The remaining $3.9 million aggregate principal amount of the 3.50% Notes was redeemed during the first quarter of 2013 as further discussed in Note 22. "Subsequent Events."

NOTE 14—STOCKHOLDERS' EQUITY AND SHARE-BASED COMPENSATION EXPENSE

Convertible Preferred Stock

The Company's Board of Directors has authorized 5.0 million shares of convertible preferred stock, $0.01 par value. At December 31, 2012 and 2011, there were no such shares issued or outstanding.

Share-based Compensation Plans

The Company has a share-based compensation program that provides the Board of Directors broad discretion in creating equity incentives for employees, officers, directors and consultants. This program includes incentive and non-qualified stock options and RSAs, granted under various stock plans. Stock options are issued at a price of at least 100% of the fair value of the Company's common stock on the date of grant (110% in certain circumstances), as determined by the Board of Directors. Options generally expire 7 to 10 years from the grant date and may be granted with different vesting terms from time to time as determined by the Board of Directors, usually over a period of four years on each anniversary of the grant date. In general, RSAs vest on an annual basis over a period of four years on each anniversary of the grant date, are subject to the employees' continued employment and are paid upon vesting in shares of the Company's common stock on a one-for-one basis. As of December 31, 2012, the Company had approximately 5.3 million shares of common stock reserved for future issuance under its share-based compensation plans. A more detailed description of the Company's current share-based compensation plans follows below:

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In 1998, the Board of Directors adopted the Affymetrix 1998 Stock Incentive Plan (the "1998 Stock Plan") under which nonqualified stock options and restricted stock may be granted to employees and outside consultants, except that members of the Board of Directors and individuals who are considered officers of the Company under the rules of the National Association of Securities Dealers shall not be eligible. Options granted under the 1998 Stock Plan expire no later than ten years from the date of grant. A total of 3.6 million shares of common stock are authorized for issuance under the 1998 Stock Plan.

In 2000, the Board of Directors adopted the Amended and Restated 2000 Equity Incentive Plan (the "2000 Stock Plan"), which was amended and restated in 2001, under which RSAs, stock options, performance-based shares and stock appreciation rights may be granted to employees, outside directors and consultants. In the second quarter of 2010, 4.5 million shares of common stock were added under the 2000 Stock Plan bringing the total shares of common stock authorized for issuance under the 2000 Stock Plan to 16.2 million.

In June 2012, the Board of Directors adopted the 2012 Inducement Plan (the "2012 Inducement Plan"), under which RSAs, stock options, performance-based shares and stock appreciation rights may be granted to employees. A total of 2.0 million shares of common stock is authorized for issuance under the 2012 Inducement Plan.

The following table sets forth the total share-based compensation expense resulting from stock options and RSAs included in the accompanying Consolidated Statements of Operations (in thousands):

	Year Ended December 31,
	2012		2011		2010
Costs of product sales	$	1,554	$	1,143	$	994
Research and development		1,337		1,850		2,136
Selling, general and administrative (1)		14,316		5,778		6,780
Total share-based compensation expense	$	17,207	$	8,771	$	9,910

(1) Includes $8.3 million of share-based compensation expense related to the acceleration of unvested stock options in connection with the Acquisition during the year ended December 31, 2012

As of December 31, 2012, $14.4 million of total unrecognized share-based compensation expense related to non-vested awards is expected to be recognized over the respective vesting terms of each award through 2016. The weighted‑average term of the unrecognized share-based compensation expense is 2.6 years.

Stock Options

The fair value of options was estimated at the date of grant using the BSM option pricing model with the following weighted‑average assumptions:

	Year Ended December 31,
	2012			2011			2010
Risk free interest rate		0.6	%		1.5	%		1.1	%
Expected dividend yield		0.0	%		0.0	%		0.0	%
Expected volatility		67	%		67	%		76	%
Expected option term (in years)		4.6			4.5			4.1

The risk free interest rate for periods within the contractual life of the Company's stock options is based on the U.S. Treasury yield curve in effect at the time of grant. The expected term is derived from an analysis of the Company's historical exercise trends over ten years. The expected volatility for the years ended December 31, 2012 and 2011 is based on a blend of historical and market‑based implied volatility. Using the assumptions above, the weighted‑average grant date fair value of options granted during the years ended December 31, 2012, 2011 and 2010 was $2.14, $2.86 and $2.66, respectively.

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Activity under the Company's stock plans for the year ended December 31, 2012 is as follows (in thousands, except per share amounts):

				Weighted-Average		Weighted-Average		Aggregate
				Exercise Price		Remaining		Intrinsic
	Shares			Per Share		Contractual Terms		Value
						(in years)
Outstanding at December 31, 2011		6,276		$	9.41
Grants		1,159			4.03
Exercises		(109	)		3.51
Forfeitures or expirations		(1,225	)		13.08
Outstanding at December 31, 2012		6,101		$	7.75		4.42	$	85,529
Exercisable at December 31, 2012		3,175		$	10.52		3.30	$	70,079
Vested and expected to vest at December 31, 2012		5,616		$	8.03		4.27	$	85,444

The following table summarizes information concerning currently outstanding and exercisable options at December 31, 2012:

Range of Exercise Prices				Options Outstanding						Options Exercisable
						Weighted-Average		Weighted-Average				Weighted-Average
						Remaining		Exercise Price				Exercise Price
Lower		Upper		Number		Contractual Life		Per Share		Number		Per Share
				(in thousands)		(in years)				(in thousands)
$	2.63	$	3.22		393		3.57	$	2.95		253	$	2.89
$	3.32	$	4.16		954		6.44	$	3.92		54	$	3.85
$	4.21	$	4.22		848		4.64	$	4.22		409	$	4.22
$	4.26	$	4.85		797		5.66	$	4.73		202	$	4.75
$	4.88	$	5.74		803		4.73	$	5.37		362	$	5.41
$	5.78	$	8.29		1,027		4.47	$	7.33		616	$	7.45
$	8.71	$	19.92		822		2.37	$	12.52		822	$	12.52
$	20.90	$	57.08		457		1.32	$	28.29		457	$	28.29
Total					6,101		4.42	$	7.75		3,175	$	10.52

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (i.e., the difference between the Company's closing stock price on the last trading day of its fourth quarter of 2012 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2012. The amount changes based on the fair market value of the Company's common stock. For the years ended December 31, 2012, 2011 and 2010, total intrinsic value of options exercised was $0.1 million, $0.4 million and $0.2 million, respectively.

Reserved Shares

At December 31, 2012, the Company has shares reserved for future issuance as follows (in thousands):

Options outstanding	6,101
Options available for future grants	5,262
Convertible notes	17,985
Total at December 31, 2012	29,348

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Restricted Stock

The following table summarizes the Company's RSAs activity for the year ended December 31, 2012 (in thousands, except per share amounts):

	Number			Weighted-Average
	of Shares			Grant Date Fair Value
Restricted stock awards
Outstanding at December 31, 2011		540		$	7.32
Granted		-			-
Vested		(310	)		8.22
Forfeited		(63	)		6.64
Outstanding at December 31, 2012		167		$	5.89
Restricted stock units
Outstanding at December 31, 2011		2,057		$	4.74
Granted		1,451			4.09
Vested		(515	)		5.20
Forfeited		(302	)		4.69
Outstanding at December 31, 2012		2,691		$	4.31

For the years ended December 31, 2012 and 2011, total fair value of RSAs vested was $16.2 million and $14.6 million, respectively.

Performance-Based Awards

In 2011, the Compensation Committee of the Company's Board of Directors approved a grant of performance-based restricted stock units ("PRSUs") under the Plan to the Company's Chief Executive Officer ("CEO") that is earned annually in four equal tranches based on his performance in the applicable fiscal year (the "Performance Period"). The PRSUs entitle the CEO to receive a certain number of shares of the Company's common stock based on the Company's satisfaction of certain financial and strategic performance goals as set and approved by the Board of Directors annually during the first quarter of the Company's fiscal year. Based on the achievement of the performance conditions during each Performance Period, the final settlement of the PRSU award will vest twelve months following the end of each Performance Period. The PRSU award will be forfeited if the performance goals are not met or if the executive officer is no longer employed at the vest date.

The number of shares underlying the PRSUs that were granted to the CEO during 2011 totaled 240,000 shares. As of December 31, 2012, performance conditions pertaining to 60,000 shares of the PRSUs with a grant date fair value of $6.71 per PRSU, and relating to a Performance Period ending December 31, 2011 were achieved. The Company expects that an additional 15,000 shares of the PRSUs, with a grant date fair value of $4.63 per PRSU, will vest with respect to the Performance Period ending December 31, 2012 and the fair value of such PRSU's is being amortized on a straight-line basis over the related service period. The total compensation cost related to PRSUs granted but not yet recognized was less than $0.1 million as of December 31, 2012.

During July 2012, the Compensation Committee granted certain PRSUs following the acquisition of eBioscience referred to as an Acquisition Performance Share Program (the "Program"). The purpose of the Program is to align key management and senior leadership with stockholders' interests and to retain key employees. The measurement periods for the Program are the twelve month periods ended June 30, 2013 and June 30, 2014, respectively. Members of eBioscience management and other key employees are participating in the Program. Awards granted under the Program are granted in the form of performance shares pursuant to the terms of our 2012 Inducement Plan. If pre-determined eBioscience specific performance goals are met, shares of stock will be granted to the recipient, vesting one month following the performance period representing the date of certification of achievement, contingent upon the recipient's continued service to the Company.

For the year ended December 31, 2012, the Company awarded 916,500 PRSUs under the Program at a grant date fair value of $4.16 per PRSU and expects 78% of the PRSUs will vest. The fair value of the PRSUs is being amortized on a straight-line basis over the related service period. The total compensation cost related to PRSUs granted but not yet recognized was approximately $1.6 million as of December 31, 2012.

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Employee Stock Purchase Plan

In August 2011, the Company's Board of Directors adopted the 2011 Employee Stock Purchase Plan ("ESPP") that was approved by the Company's stockholders on May 11, 2012. The ESPP reserved a total of 7.0 million shares of the Company's common stock for issuance under the plan and permits eligible employees to purchase common stock at a discount through payroll deductions.

The price at which stock is purchased under the ESPP is equal to 85% of the fair market value of the common stock on the first day of the offering period or the last day of the purchase period, whichever is lower. The offering periods are twelve months and include two six month purchase periods that result in a look-back for determining the purchase price of up to 12 months. Employees can invest up to 15% of their gross compensation through payroll deductions. In no event would an employee be permitted to purchase more than 750 shares of common stock during any six-month purchase period. The initial offering period commenced in November 2011. As of December 31, 2012, there were 347 participants in the plan and approximately 0.3 million shares were issued under the ESPP during the period at an average subscription date fair value of $3.37 per share. Included in total share-based compensation cost for the year ended December 31, 2012 was $0.6 million, related to the ESPP.

During the years ended December 31, 2012 and 2011, the fair value of shares under the ESPP was estimated using the following assumptions:

	2012			2011
Risk free interest rate		0.1	%		0.1	%
Expected dividend yield		0.0	%		0.0	%
Expected volatility		64	%		67	%
Expected term (in years)		0.7			0.7

NOTE 15—LEGAL PROCEEDINGS

The Company has been in the past, and continues to be, a party to litigation which has consumed, and may continue to consume, substantial financial and managerial resources. The Company could incur substantial costs and divert attention of management and technical personnel in defending against litigation, and any adverse ruling or perception of an adverse ruling could have a material adverse impact on the Company's stock price. In addition, any adverse ruling could have a material adverse impact on the Company's cash flow and financial condition. The results of any litigation or any other legal proceedings are uncertain and as of the date of this report, the Company has not accrued any liability with respect to any of the litigation matters listed below:

E8 Pharmaceuticals LLC

On July 1, 2008, the Company was named as a defendant in a complaint filed by plaintiffs E8 Pharmaceuticals LLC and Massachusetts Institute of Technology ("MIT") in the United States District Court of Massachusetts. In the complaint, the plaintiffs allege that the Company is infringing one patent owned by MIT and licensed to E8 Pharmaceuticals by making and selling the Company's GeneChip® products to customers and teaching its customers how to use the products. The plaintiffs seek a permanent injunction enjoining the Company from further infringement, unspecified monetary damages, enhanced damages pursuant to 35 U.S.C. §284, costs, attorneys' fees and other relief as the court deems just and proper. On September 4, 2012, the District Court issued its ruling construing key claims of the patent at issue. The parties thereafter stipulated to the dismissal of plaintiff's claims and in September, the District Court dismissed the lawsuit in its entirety. On September 26, 2012, the plaintiffs filed an appeal with the United States Court of Appeals for the Federal Circuit appealing the District Court's dismissal of the lawsuit. The Company will continue to vigorously defend against the plaintiffs' claims.

Enzo Litigation

Southern District of New York Case: On October 28, 2003, Enzo Life Sciences, Inc., a wholly-owned subsidiary of Enzo Biochem, Inc. (collectively "Enzo"), filed a complaint against the Company that is pending in the United States District Court for the Southern District of New York for breach of contract, injunctive relief and declaratory judgment. The Enzo complaint relates to a 1998 distributorship agreement with Enzo under which the Company served as a non-exclusive distributor of certain reagent labeling kits supplied by Enzo. In its complaint, Enzo seeks monetary damages and an injunction against the Company from using, manufacturing or selling Enzo products and from inducing collaborators and customers to use Enzo products in violation of the 1998 agreement. Enzo also seeks the transfer of certain Affymetrix patents to Enzo.

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On November 10, 2003, the Company filed a complaint against Enzo in the United States District Court for the Southern District of New York for declaratory judgment, breach of contract and injunctive relief relating to the 1998 agreement. In its complaint, the Company alleges that Enzo has engaged in a pattern of wrongful conduct against it and other Enzo labeling reagent customers by, among other things, asserting improperly broad rights in its patent portfolio, improperly using the 1998 agreement and distributorship agreements with others in order to corner the market for non-radioactive labeling reagents, and improperly using the 1998 agreement to claim ownership rights to the Company's proprietary technology. The court has not set a trial date for these actions, but has advised the parties to clear time for trials at the end of 2013 or the beginning of 2014, to potentially try these actions as well as other related actions between Enzo and other third parties

Delaware Case: On April 6, 2012, Enzo filed a complaint against the Company in the United States District Court for the District of Delaware. In the complaint, plaintiff alleges that Affymetrix is infringing U.S. Patent No. 7,064,197 by making and selling certain GeneChip® products. The plaintiff seeks a preliminary and permanent injunction enjoining the Company from further infringement and unspecified monetary damages. The Company will vigorously defend against the plaintiff's case. No trial date is set for this action.

Life Technologies Litigation

On October 12, 2010, Life Technologies Corporation filed a complaint against eBioscience in the United States District Court for the Southern District of California, alleging that eBioscience is infringing U.S. Patent Nos. 6,423,551, 6,699,723, and 6,927,069 related to certain eBioscience products. The parties reached a settlement of this lawsuit in January 2013. See Note 3. "Acquisition" for further details.

Administrative Proceedings

The Company's intellectual property is subject to a number of significant administrative actions. These proceedings could result in the Company's patent protection being significantly modified or reduced, and the incurrence of significant costs and the consumption of substantial managerial resources. For the year ended December 31, 2012, the Company did not incur significant costs in connection with administrative proceedings.

NOTE 16—INCOME TAXES

The following table presents the U.S. and foreign components of consolidated loss before income taxes (in thousands):

	Year Ended December 31,
	2012				2011				2010
(LOSS) INCOME BEFORE INCOME TAXES:
U.S.		$	(36,248	)		$	(26,778	)		$	(15,722	)
Foreign			(10,301	)			22				7,659
Loss before income taxes		$	(46,549	)		$	(26,756	)		$	(8,063	)

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The following table presents the (benefit) provision for income taxes (in thousands):

	Year Ended December 31,
	2012			2011		2010
(BENEFIT) PROVISION FOR INCOME TAXES:
Current:
Federal	$	(28	)	$	-	$	-
State		568			106		37
Foreign		1,104			1,038		2,222
Subtotal		1,644			1,144		2,259
Deferred:
Federal		(35,329	)		-		-
State		(1,811	)		-		-
Foreign		(357	)		261		(89	)
Subtotal		(37,497	)		261		(89	)
Income tax (benefit) provision	$	(35,853	)	$	1,405	$	2,170

The difference between the (benefit) provision for income taxes and the amount computed by applying the federal statutory income tax rate (35%) to loss before taxes is explained as follows (in thousands):

	Year Ended December 31,
	2012			2011			2010
Tax at federal statutory rate	$	(16,292	)	$	(9,364	)	$	(2,822	)
State taxes, net		(1,136	)		(1,740	)		(1,646	)
Non-deductible stock compensation		3,470			453			626
Non-deductible acquisition costs		410			878			-
Foreign rate differential		4,353			1,274			(547	)
Research credits		-			(692	)		(991	)
Change in valuation allowance		(26,795	)		10,461			7,026
Other		137			135			524
Income tax (benefit) provision	$	(35,853	)	$	1,405		$	2,170

During the year ended December 31, 2012, the Company recognized a reduction in the valuation allowance recorded against the Company's net deferred tax assets of $37.1 million. The reduction was related to net deferred tax liabilities recognized for the difference between the fair value and carrying basis of certain tangible and intangible assets obtained as part of the Acquisition, which can be used as a source of income to support realization of certain domestic deferred tax assets. Under US GAAP, changes in an acquirer's valuation allowances that stem from a business combination should be recognized as an element of the acquirer's deferred income tax expense (benefit) in the reporting period that includes the business combination. There were no changes to the valuation allowance recorded as deferred income tax expense (benefit) during the years ended December 31, 2011 and 2010.

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Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's assets and liabilities are as follows (in thousands):

	December 31,
	2012			2011
Deferred tax assets:
Net operating loss carryforwards	$	75,622		$	57,677
Tax credit carryforwards		50,704			47,513
Deferred revenue		1,537			1,632
Capitalized research and development costs		394			487
Intangibles		21,175			20,462
Share-based compensation		5,808			4,284
Accrued compensation		1,775			2,025
Accrued warranty		446			570
Inventory reserves		5,664			4,860
Reserves and other		13,216			10,928
Depreciation and amortization		6,731			21,323
Other, net		6,069			1,742
Total deferred tax assets		189,141			173,503
Valuation allowance for deferred tax assets		(130,979	)		(154,107	)
Net deferred tax assets		58,162			19,396
Net deferred tax liabilities:
Acquired intangible assets		(45,397	)		(2,459	)
Acquired tangible assets		(7,701	)		-
Cancellation of debt		(9,669	)		(9,669	)
Foreign earnings		(3,282	)		(5,139	)
Other, net		(1,296	)		(1,315	)
Total deferred tax liabilities		(67,345	)		(18,582	)
Net deferred tax (liabilities) assets	$	(9,183	)	$	814

The deferred tax liabilities for 2012 include amounts related to the Acquisition and therefore the change in total deferred tax liabilities in 2012 includes changes that are recorded to goodwill.

As of December 31, 2012, the Company had total U.S. net operating loss carryforwards of $356.1 million, comprised of $210.4 million for U.S. federal purposes, which expire in the years 2021 through 2032 if not utilized, and $145.7 million for state purposes, the majority of which expire in the years 2013 through 2032 if not utilized. Additionally, the Company has federal research and development tax credit carryforwards of approximately $23.7 million, which expire in the years 2017 through 2032 if not utilized. The Company also has state research and development tax credit carryforwards and other various tax credit carryforwards of approximately $41.3 million. Substantially all of the state tax credits can be carried forward indefinitely. Certain of the net operating loss and tax credit carryforwards are subject to annual limitations due to the ownership change provisions under Internal Revenue Code Section 382 and similar state provisions. The limitations will not result in significant expirations of the net operating loss carryforwards before utilization.

As of December 31, 2012, the Company has recorded a full valuation allowance against all U.S. and certain foreign deferred tax assets. The valuation allowance decrease of $23.1 million from $154.1 million in 2011 to $131.0 in 2012 is primarily attributable to the reduction in the valuation allowance recorded against the Company's net deferred tax assets of $37.1 million as part of the Acquisition, partially offset by U.S losses which was recorded as a tax benefit through the income statement. Approximately $26.5 million of the valuation allowance as of December 31, 2012 is attributable to the income tax benefits of share-based compensation, the benefit of which will be credited to stockholders' equity when, and if, realized. The valuation allowance increase of $11.5 million from $142.6 million in 2010 to $154.1 million in 2011 was primarily attributable to U.S. losses and a release in reserves related to uncertain tax positions.

Not included in the deferred tax assets as of December 31, 2012 is approximately $4.8 million of tax benefits related to share-based compensation. When, and if, realized the tax benefit of these assets will be accounted for as a credit to stockholders' equity, rather than a reduction of the income tax provision.

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Of the total tax benefits realized from the share-based compensation nominal amounts were recorded to stockholders' equity for the years ended December 31, 2012 and 2011, respectively.

The Company provides for U.S. income tax on the earnings of foreign subsidiaries unless the earnings are considered indefinitely reinvested outside the U.S. As of December 31, 2012, the Company has a nominal amount of previously untaxed earnings from its foreign subsidiaries which were not indefinitely reinvested outside the U.S. The potential federal and state taxes on these repatriations is nominal.

A portion of the Company's operations in Singapore operate under various tax holidays and tax incentive programs, which expire in whole or in part at various dates through 2017. There was a minimal net impact of these tax holidays and tax incentive programs for the year ended December 31, 2012.

The following table presents the Company's total amount of gross unrecognized tax benefits (in thousands):

	2012			2011
Unrecognized tax benefits, beginning of year	$	16,480		$	20,758
Gross increases - tax positions in prior period		3,027			517
Gross decreases - tax positions in prior period		(376	)		(201	)
Gross increases - current period tax positions		1,282			1,203
Settlements		-			(5,797	)
Unrecognized tax benefits, end of year	$	20,413		$	16,480

If recognized, the amount of unrecognized tax benefits that would impact income tax expense is $5.3 million. As of December 31, 2012, the Company does not anticipate any material changes to the amount of unrecognized tax benefits during the next 12 months. The Company classifies interest and penalties related to tax positions as components of income tax expense. For the year ended December 31, 2012, the amount of accrued interest and penalties related to tax uncertainties was approximately $0.2 million for a total cumulative amount included in non-current income taxes payable of $1.1 million as of December 31, 2012. A number of major tax jurisdictions are currently subject to examination. The amount of unrecognized tax benefits that could change in the next 12 months as a result is $1.9 million.

The Company files U.S. federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations. The Company's major tax jurisdictions are the U.S. federal, California, Singapore, the United Kingdom and Austria. The federal and California statute of limitations on assessments remain open for substantially all tax years. The major foreign jurisdictions remain open for primarily tax years 2007 through 2012.

NOTE 17—SEGMENT AND GEOGRAPHIC INFORMATION

The Company reports segment information on the "management" approach which designates the internal reporting used by management for making decisions and assessing performance as the source of the Company's reportable segments. The Company has determined that its Chief Executive Officer is the Company's chief operating decision maker ("CODM") as he is responsible for reviewing and approving investments in the Company's technology platforms and manufacturing infrastructure. Prior to 2012, the Company was organized as one reportable operating segment. Subsequent to the Acquisition, the Company's business was reorganized into two reportable operating segments for financial reporting purposes, Affymetrix Core and eBioscience.

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Beginning in 2012, prior to the Acquisition, the Company reorganized its business in the following four business units: Expression, Genetic Analysis and Clinical Applications, Life Science Reagents, which the Company categorized into its reportable operating segment, Affymetrix Core, and Corporate. The reorganization into business units represented a fundamental change for the Company. The necessary information for the year ended December 31, 2010 is not disclosed as the cost to develop it would be excessive. The Expression business unit develops and markets the Company's gene expression products and services, including in vitro transcription and other whole transcript arrays and QuantiGene line targeted at low-to-mid-plex products. The Genetic Analysis and Clinical Applications business unit develops and markets the Company's genotyping and cytogenetics products. The Life Science Reagents business unit targets the life science reagent markets, developing and marketing reagents, enzymes, purification kits and biochemicals used by life science researchers. The Corporate business unit is comprised primarily of revenue from royalty arrangements, and field revenue from services provided to customers by the Company. The Company has concluded that its manufacturing operations are based on platforms that are used to produce various products that serve multiple applications and markets. Its manufacturing and the majority of its supporting operations have not been reorganized into business units but is centralized and Affymetrix Core business units are aggregated into one reportable operating segment, except for the Corporate business unit which was not deemed to be an operating segment.

The Company's other reportable operating segment, eBioscience, was acquired in the second quarter of 2012 and will be operated as a separate business unit in order to minimize or avoid any disruption of services, while taking advantage of immediate opportunities to create efficiencies. Refer to Note 3. "Acquisition" for further information. eBioscience specializes in the development, manufacturing, marketing and distribution of research tools in the areas of flow cytometry, immunoassays, microscopic imaging and other protein-based analyses. The Acquisition allows the Company to expand addressable markets and continue to diversify the business beyond genomics discovery into cell and protein analysis.

The Company evaluates the performance of its reportable operating segments based on revenue and income (loss) from operations. Revenue are allocated to each business unit based on product codes. Excluding eBioscience whose business is primarily operated on a stand-alone basis except for certain cross-functional areas, operating expenses are allocated to Affymetrix Core in the following manner: Research and development costs are allocated to the business units based on respective products in which the research and development costs are incurred, with the remaining costs allocated to the Corporate business unit. Sales and marketing costs are allocated based on surveys with company personnel on the business unit in which employees incur their time. General and administrative costs are primarily allocated to the Corporate business unit.

The following table shows revenue and income (loss) from operations by reportable operating segment for the years ended December 31, 2012 and 2011 (in thousands):

	Year Ended December 31,
	2012			2011
Revenue (a):
Affymetrix Core	$	235,105		$	242,307
eBioscience		37,011			-
Totals	$	272,116		$	242,307
Income (loss) from operations (a):
Affymetrix Core	$	35,230		$	55,659
eBioscience		(8,792	)		-
Totals	$	26,438		$	55,659

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The following table reconciles total operating segment revenue and loss from operations to the accompanying Consolidated Statements of Operations

	Year Ended December 31,
	2012			2011
Total revenue from reportable operating segments	$	272,116		$	242,307
Other revenue (a)		23,507			25,167
Total revenue	$	295,623		$	267,474
Total income from operations from reportable operating segments	$	26,438		$	55,659
Other corporate expenses, net (b)		(65,529	)		(72,300	)
Total loss from operations	$	(39,091	)	$	(16,641	)

(a) Other revenue include field service revenue and royalty revenue

(b) Other corporate expenses, net include cost of goods sold directly associated with other revenue, research and development, corporate marketing, facilities and other separately-managed general and administrative expenses.

The Company reported total revenue by region as follows (in thousands):

	Year Ended December 31,
	2012		2011		2010
Customer location:
United States	$	171,176	$	142,508	$	178,029
Europe		71,526		76,286		80,914
Japan		21,039		19,989		22,248
Other		31,882		28,691		29,555
Total	$	295,623	$	267,474	$	310,746

There were no customers representing 10% or more of total revenue in 2012, 2011 and 2010.

The Company's long-lived assets other than purchased intangible assets, which the Company does not allocate to specific geographic locations as it is impracticable to do so, are composed principally of net property and equipment.

Net property and equipment, classified by major geographic areas in which the Company operates was as follows (in thousands):

	Year Ended December 31,
	2012		2011
Net property and equipment:
United States (1)	$	22,204	$	32,168
Singapore		4,260		6,022
Europe		1,770		1,059
Other countries		430		335
Total	$	28,663	$	39,583

(1) Included in the balance as of December 31, 2011 was the Company's West Sacramento facility that was reclassified to held-for-sale on the accompanying Consolidated Balance Sheets at an estimated fair value of $9.0 million at December 31, 2011.

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NOTE 18—DEFINED‑CONTRIBUTION SAVINGS PLANS

The Company maintains a defined‑contribution savings plan which is qualified under Section 401(k) of the Internal Revenue Code. The plan covers substantially all full-time U.S. employees. Participating employees may defer a portion of their pretax earnings, up to the Internal Revenue Service annual contribution limit. The Company's expense associated with matching employee contributions, including eBioscience, for the years ended December 31, 2012, 2011 and 2010 totaled $3.0 million, $3.0 million and $2.8 million, respectively. Company contributions to employees vest ratably over four years.

NOTE 19—RELATED PARTY TRANSACTIONS

In December 2011, the Company entered into an agreement under which it assigned one patent application and related know-how to Cellular Research, Inc. ("Cellular Research"), a company founded by the Company's Chairman, Dr. Stephen P.A. Fodor. Dr. Fodor also owns a majority of the shares of Cellular Research. Pursuant to the agreement, Cellular Research shall pay single digit royalties to Affymetrix on sales of products covered by the assigned technology, and starting in December 2015, an annual minimum fee of $100,000. Affymetrix shall also have a right of first refusal to collaborate with Cellular Research for the development of certain new products and to supply arrays to Cellular Research under certain terms and conditions. As of December 31, 2012, no royalties were earned pertaining to this agreement.

NOTE 20—UNAUDITED QUARTERLY FINANCIAL INFORMATION

	2012											2011
	Fourth			Third			Second		First			Fourth			Third			Second			First
	Quarter			Quarter			Quarter (1)		Quarter			Quarter			Quarter			Quarter			Quarter
	(in thousands, except per share amounts)
Total revenue	$	84,349		$	79,624		$	66,403	$	65,247		$	65,104		$	63,987		$	64,659		$	73,724
Total cost of goods sold		39,171			37,938			27,682		27,344			30,412			27,648			25,793			27,099
Net (loss) income		(12,269	)		(17,859	)		23,649		(4,217	)		(14,739	)		(9,789	)		(3,672	)		39
Basic net (loss) income per common share		(0.17	)		(0.25	)		0.34		(0.06	)		(0.21	)		(0.14	)		(0.05	)		0.00
Diluted net (loss) income per common share		(0.17	)		(0.25	)		0.33		(0.06	)		(0.21	)		(0.14	)		(0.05	)		0.00

(1) During the third quarter of 2012, the Company recast its income tax benefit for the second quarter of 2012, lowering it by $7.2 million from net $44.3 million to net $37.1 million with a corresponding increase in valuation allowance as a result of the retrospective adjustments related to the determination of the fair value of assets acquired and liabilities assumed and related income tax valuation adjustments.

NOTE 21—RESTRUCTURING

In late 2012, the Company initiated a cost reduction action that included workforce. In January 2013, approximately 100 employees were notified of their involuntary termination. The Company estimates that the total restructuring charge associated with the plan will be approximately $6.8 million, substantially all of which is compensation and benefits afforded to terminated employees. The restructuring charges is expected to be recognized during the first quarter of 2013 in Restructuring expenses except for $1.8 million related to employees who were notified prior to December 31, 2012 and accrued and recognized in the accompanying Consolidated Financial Statements for the year ended December 31, 2012. The Company anticipates substantially all of the cash expenditures will be released during the first quarter of 2013. As of December 31, 2012, the Company had $1.8 million outstanding in Accounts payable and accrued liabilities on the accompanying Consolidated Balance Sheets.

NOTE 22—SUBSEQUENT EVENTS

During the first quarter of 2013, the Company redeemed its remaining outstanding 3.50% Notes due on January 15, 2015 for $3.9 million in total cash consideration, including accrued interest of $0.1 million. The notes were redeemed at par and the related deferred financing costs written off.

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

Not applicable.

ITEM 9A.  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15, Affymetrix' management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation as of the end of the period covered by this report, of the effectiveness of Affymetrix' disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and 15d-15(e). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that Affymetrix' disclosure controls and procedures were effective as of the end of the period covered by this report.

Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision of our Chief Executive Officer and Chief Financial Officer and with the participation of our management, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2012 based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). We have excluded from our evaluation, the internal control over financial reporting of eBioscience and subsidiaries, which we acquired on June 25, 2012 and is included in the fiscal year 2012 consolidated financial statements of Affymetrix and constituted $329.3 million and $308.3 million of total and net assets, respectively, as of December 31, 2012 and $37.0 million and $8.9 million of revenues and net loss, respectively, for the year then ended. Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2012.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

The effectiveness of our internal control over financial reporting as of December 31, 2012, has been audited by Ernst & Young LLP, our independent registered public accounting firm, as stated in their report which is included as follows.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Affymetrix, Inc.

We have audited Affymetrix, Inc.'s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the "COSO criteria"). Affymetrix, Inc.'s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed 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. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As indicated in the accompanying Management's Report on Internal Control Over Financial Reporting, management's assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of eBioscience, Inc., which is included in the 2012 consolidated financial statements of Affymetrix, Inc. and constituted $329.3 million and $308.3 million of total and net assets, respectively, as of December 31, 2012 and$37.0 million and $8.9 million of revenues and net loss, respectively, for the year then ended. Our audit of internal control over financial reporting ofAffymetrix, Inc. also did not include an evaluation of the internal control over financial reporting of eBioscience, Inc.

In our opinion, Affymetrix, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Affymetrix, Inc. as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive loss, stockholders' equity, and cash flows for each of the three fiscal years in the period ended December 31, 2012 of Affymetrix, Inc. and our report dated March 1, 2013 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Redwood City, California

March 1, 2013

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ITEM 9B.  OTHER INFORMATION

None.

PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information regarding our directors and executive officers is incorporated by reference to the sections of the Company's proxy statement for the 2013 Annual Meeting of Stockholders (the "Proxy Statement") entitled "Election of Directors" and "Management."

The information concerning our corporate governance, including our audit committee, required by this Item is incorporated by reference to the sections of the Proxy Statement entitled "Governance of the Company" and "Report of the Audit Committee."

The information concerning compliance with Section 16(a) of the Exchange Act required by this Item is incorporated by reference to the section of the Proxy Statement entitled "Section 16(a) Beneficial Ownership Reporting Compliance."

CODE OF ETHICS

Affymetrix has adopted a code of business conduct and ethics for directors, officers (including Affymetrix' Chief Executive Officer, Chief Financial Officer and Corporate Controller) and employees, known as the Code of Business Conduct and Ethics. The Code of Business Conduct and Ethics is available on Affymetrix' website at www.affymetrix.comin the Corporate Governance section under the "Investors" link. Stockholders may request a free copy of the Code of Business Conduct and Ethics by sending an email request to investor@affymetrix.com.

ITEM 11.  EXECUTIVE COMPENSATION

Incorporated by reference to the sections of the Proxy Statement entitled "Executive Compensation," "Compensation Discussion and Analysis," "Compensation Committee Report," "Certain Transactions" and "Compensation of Directors."

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Incorporated by reference to the section of the Proxy Statement entitled "Stock Ownership of Principal Stockholders and Management."

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Incorporated by reference to the sections of the Proxy Statement entitled "Certain Transactions" and "Governance of the Company."

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

Information about principal accountant fees and services as well as related pre-approval policies appears under "Fees Paid to Ernst & Young LLP" and "Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm" in the Proxy Statement. Those portions of the Proxy Statement are incorporated by reference into this report.

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PART IV

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1)Financial Statements. The financial statements as set forth under Item 8 of this Report on Form 10-K are incorporated herein by reference.

(a)(2)Financial Statement Schedule—Schedule II—Valuation and Qualifying Accounts. All other schedules have been omitted as they are not required, not applicable or the information is otherwise included.

(a)(3)Exhibits. The exhibits listed in the accompanying Index to Exhibits are filed or incorporated by reference as part of this Report on Form 10-K.

95

AFFYMETRIX, INC.

Schedule II—Valuation and Qualifying Accounts

(in thousands)

			Additions
	Balance at		Charged to
	Beginning of		Operations or			Write-offs, net			Balance at
	Period		Other Accounts			of recoveries			End of Period
Allowance for Doubtful Accounts:
Year Ended December 31, 2012 (1)	$	496	$	590		$	(395	)	$	691
Year Ended December 31, 2011	$	949	$	(282	)	$	(171	)	$	496
Year Ended December 31, 2010	$	1,853	$	(685	)	$	(219	)	$	949

(1) Activity in 2012 includes the addition of eBioscience since the Acquisition Date

96

SIGNATURES

Pursuant to the requirements of Section 13 of 15(d) 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.

	Affymetrix, Inc. (Registrant)
March 1, 2013	By:	/s/ frank witney
		Frank WitneyDIRECTOR, PRESIDENT ANDCHIEF EXECUTIVE OFFICER

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

Each individual whose signature appears below constitutes and appoints Frank Witney, John F. Runkel, Jr., Timothy C. Barabe, and Siang H. Chin and each of them singly, his or her true and lawful attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission, hereby ratifies and confirms all that said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue thereof.

	Name	Title	Date
By:	/s/ Frank Witney	Director, President and Chief Executive Officer	March 1, 2013
	Frank Witney	(Principal Executive Officer)
By:	/s/ Timothy C. Barabe	Executive Vice President and Chief Financial	March 1, 2013
	Timothy C. Barabe	Officer (Principal Financial and Accounting
		Officer)
By:	/s/ Stephen P.A. Fodor, Ph.D.	Founder and Chairman of the Board	March 1, 2013
	Stephen P.A. Fodor, Ph.D.
By:	/s/ Nelson C. Chan	Director	March 1, 2013
	Nelson C. Chan
By:	/s/ John D. Diekman, Ph.D.	Director	March 1, 2013
	John D. Diekman, Ph.D.
By:	/s/ Gary S. Guthart, Ph.D.	Director	March 1, 2013
	Gary S. Guthart, Ph.D.
By:	/s/ Jami Dover Nachtsheim	Director	March 1, 2013
	Jami Dover Nachtsheim
By:	/s/ Robert H. Trice, Ph.D.	Director	March 1, 2013
	Robert H. Trice, Ph.D.
By:	/s/ Robert P. Wayman	Director	March 1, 2013
	Robert P. Wayman

97

INDEX TO EXHIBITS

EXHIBIT NUMBER	DESCRIPTION OF DOCUMENT
2.1(1)	Agreement and Plan of Merger by and among Panomics, Inc., the Company, Panda Acquisition Corporation and the Equityholders' Representative dated as of November 11, 2008.
2.2(2)	Agreement and Plan of Merger dated as of November 29, 2011 among the Company, eBioscience Holding Company, Inc., Excalibur Acquisition Sub, Inc. and the Securityholders' Representative.
2.3(3)	Amended and Restated Agreement and Plan of Merger dated as of May 3, 2012 among the Company, eBioscience Holding Company, Inc., Excalibur Acquisition Sub, Inc. and the Securityholders' Representative.
3.1(4)	Restated Certificate of Incorporation.
3.2(5)	Amended and Restated Bylaws.
4.1(6)	Indenture dated as of June 25, 2012 by and between the Company and The Bank of New York Mellon Trust Company, N.A. as Trustee.
4.2(6)	First Supplemental Indenture dated as of June 25, 2012 by and between the Company and The Bank of New York Mellon Trust Company, N.A. as Trustee.
4.3(6)	Form of 4.00% Convertible Senior Note Due 2019 (included in Exhibit 4.2).
10.1(7)‡	1996 Nonemployee Directors Stock Option Plan.
10.2(8)‡	1998 Stock Incentive Plan.
10.3(9)‡	Amendment No. 1 to the 1996 Nonemployee Directors Stock Option Plan of the Company.
10.4(10)‡	Amended and Restated 1996 Non-Employee Directors Stock Plan.
10.5(11)‡	Affymetrix, Inc. Amended and Restated 2000 Equity Incentive Plan, as adopted effective March 9, 2000 and amended through May 14, 2010.
10.6(12)‡	Form of Non-Qualified Stock Option Agreement under the Affymetrix, Inc. Amended and Restated 1996 Non-Employee Directors Stock Plan.
10.7(24)‡	Form of Stock Option Agreement under the Affymetrix, Inc. Amended and Restated 2000 Equity Incentive Plan.
10.8(24)‡	Form of Restricted Stock Unit Agreement under the Affymetrix, Inc. Amended and Restated 2000 Equity Incentive Plan.
10.9(13)‡	First Amendment to Affymetrix, Inc. 1998 Stock Incentive Plan.
10.10(24)‡	Form of Performance Based Restricted Stock Unit Grant Notice and Agreement under the Affymetrix, Inc. Amended and Restated 2000 Equity Incentive Plan
10.11(14)‡	2011 Employee Stock Purchase Plan.
10.12(15)‡	2012 Inducement Plan.
10.13(16)	Lease between Sobrato Interests and the Company dated June 12, 1996 (3380 Central Expressway, Santa Clara, CA).
10.14(17)	Fifth Amendment to Lease between Sobrato Interests and the Company dated July 3, 2002 (3380 Central Expressway, Santa Clara, CA).
10.15(18)	Sixth Amendment to Lease between SI 34, LLC, as successor in interest to Sobrato Interests, and the Company dated July 11, 2011 (3380 Central Expressway, Santa Clara, CA).
10.16(16)	Lease between Sobrato Interests and the Company dated May 31, 1996 (3450 Central Expressway, Santa Clara, CA).
10.17(17)	First Amendment to Lease between Sobrato Interests and the Company dated July 3, 2002 (3450 Central Expressway, Santa Clara, CA).
10.18(18)	Second Amendment to Lease between SI 34, LLC, as successor in interest to Sobrato Interests, and the Company dated July 11, 2011 (3450 Central Expressway, Santa Clara, CA).
10.19(19)	Lease between Sobrato Interests and the Company dated July 3, 2002 (3420 Central Expressway, Santa Clara, CA).
10.20(19)	First Amendment to Lease between Sobrato Interests and the Company dated September 30, 2003 (3420 Central Expressway, Santa Clara, CA).
10.21(18)	Second Amendment to Lease between SI 34, LLC, as successor in interest to Sobrato Interests, and the Company dated July 11, 2011 (3420 Central Expressway, Santa Clara, CA).
10.22(20)	Lease between Keppel Logistics Pte Ltd. and Affymetrix Pte Ltd. dated as of January 1, 2006 (7 Gul Circle, Singapore 629363).
10.23(21)	Addendum to Lease Agreement between Keppel Logistics Pte Ltd. and Affymetrix Pte Ltd. dated June 1, 2010 (7 Gul Circle, Singapore 629363).

98

10.24(22)	Lease Agreement between SBP Limited Partnership and the Company dated August 10, 2008 (26309 Miles Road, Warrensville Heights, OH).
10.25(22)	First Amendment and Lease Expansion Agreement between SBP Limited Partnership and the Company dated May 20, 2009 (26309 Miles Road, Warrensville Heights, OH).
10.26(22)	Lease Agreement between OTR, acting as the duly authorized nominee of The State Teacher Retirement System of Ohio and Anatrace, Inc. dated February 14, 2001 (434 Dussel Drive, Maumee, OH).
10.27(22)	Assignment and Assumption of Lease between Anatrace, Inc. and USB Acquisition dated April 30, 2005 (434 Dussel Drive, Maumee, OH).
10.28(23)	Lease Agreement between the Company and Miles/Commerce Ltd. dated April 1, 2010 (26101 Miles Road, Warrensville Heights, OH).
10.29(23)	Lease Agreement between the Company and 26111 Miles Road Ltd. dated April 1, 2010 (26111 Miles Road, Warrensville Heights, OH).
10.30(24)	Sublease Agreement between eBioscience, Inc. and STMicroelectronics, Inc. dated as of January 11, 2013 (4690 Executive Drive, San Diego, CA).
10.31(24)	Office Lease by and between eBioscience, Inc. and Kilroy Realty, L.P., dated as of January 9, 2013 (4690 Executive Drive, San Diego, CA).
10.32(24)	Sublease by and between and eBioscience, Inc. and Ligand Pharmaceuticals Incorporated dated as of December 6, 2007 (10255 Science Center Drive). (Attached as Annex A: Lease by and between Chevon/Nexus Partnership (Lot 13) and Ligand Pharmaceuticals, Inc. dated as of July 6, 1994).
10.33(24)‡	Lease between VBC Vienna Bio Center Errichtungs GmBH and Competence Investment AG, as Landlord and Medsystems Diagnostics GmBH (former name of Bender MedSystems GmBH), as Tenant, dated December 2, 2002 (Portion of Vienna Bio Center Building EZ 4335, Land Register 1006 Highway, District Court Innere Stadt, Vienna, Austria), as amended on June 2, 2004 (Landlord is Blue Capital Europa Immbilien GmBH & Co. Fünfte Objekte Österreich KG), October 2007, October 2008 and October 2010.
10.34(25)‡	Offer Letter from the Company to John F. (Rick) Runkel dated October 6, 2008.
10.35(22)‡	Offer Letter from the Company to Andrew J. Last, Ph.D. dated November 2, 2009.
10.36(23)‡	Offer Letter from the Company to Timothy C. Barabe dated March 9, 2010.
10.37(26)‡	Offer Letter from the Company to Frank Witney, Ph.D. dated May 26, 2011.
10.38(8)‡	Form of Officer and Director Indemnification Agreement.
10.39(27)‡	Affymetrix, Inc. Change of Control Plan, as amended through May 14, 2010.
10.40(28)‡	Executive Severance Policy (Amended as of May 11, 2012).
10.41(29)	Settlement and Release Agreement dated January 9, 2008 between the Company and Illumina, Inc.
10.42(30)	Stipulation of Settlement regarding the Affymetrix Derivative Litigation in the United States District Court, Northern District of California.
10.43(31)	Letter Agreement dated as of January 21, 2012 between the Company and Tang Capital Partners, LP.
10.44(6)	Credit Agreement dated as of June 25, 2012 by and among the Company and its subsidiaries, General Electric Capital Corporation, Silicon Valley Bank and the other financial institutions and their securities affiliates party thereto.
10.45(24)	First Amendment to Credit Agreement dated as of July 20, 2012.
10.46(24)	Second Amendment to Credit Agreement dated as of December 5, 2012.
12	Statement regarding computation of Consolidated Ratio of Earnings to Fixed Charges
21	List of Subsidiaries.
23	Consent of Independent Registered Public Accounting Firm.
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
32	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
EX-101.INS	XBRL Instance Document
EX-101.SCH	XBRL Taxonomy Extension Schema Document
EX-101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
EX-101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
EX-101.LAB	XBRL Taxonomy Extension Label Linkbase Document
EX-101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

(1) Incorporated by reference to Registrant's Annual Report on Form 10-K as filed on March 2, 2009 (File No. 000-28218).

99

(2) Incorporated by reference to Registrant's Annual Report on Form 10-K as filed on February 28, 2012 (File No. 000-28218).

(3) Incorporated by reference to Registrant's Current Report on Form 8-K as filed on May 31, 2012 (File No. 000-28218).

(4) Incorporated by reference to Registrant's Current Report on Form 8-K as filed on June 13, 2000 (File No. 000-28218).

(5) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q as filed on August 7, 2009 (File No. 000-28218).

(6) Incorporated by reference to Registrant's Current Report on Form 8-K as filed on June 25, 2012 (File No. 000-28218).

(7) Incorporated by reference to Registrant's Registration Statement on Form S-1 (File No. 333-3648), as amended.

(8) Incorporated by reference to Registrant's Annual Report on Form 10-K as filed on March 31, 1999 (File No. 000-28218).

(9) Incorporated by reference to Registrant's Registration Statement on Form S-3 as filed on July 12, 1999 (File No. 333-82685), as amended.

(10) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q as filed on May 15, 2001 (File No. 000-28218).

(11) Incorporated by reference to Registrant's Registration Statement on Form S-8 as filed on May 17, 2010 (File No. 333-166894).

(12) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q as filed on November 9, 2004 (File No. 000-28218).

(13) Incorporated by reference to Registrant's Registration Statement on Form S-8 as filed on April 18, 2001 (File No. 333-59158).

(14) Incorporated by reference to Registrant's Registration Statement on Form S-8 as filed on September 1, 2011 (File No. 333-176638).

(15) Incorporated by reference to Registrant's Registration Statement on Form S-8 as filed on June 29, 2012 (File No. 333-182456).

(16) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q as filed on August 14, 1996 (File No. 000-28218).

(17) Incorporated by reference to Registrant's Annual Report on Form 10-K as filed on March 16, 2005 (File No. 000-28218).

(18) Incorporated by reference to Registrant's Current Report on Form 8-K as filed on July 15, 2011 (File No. 000-28218).

(19) Incorporated by reference to Registrant's Annual Report on Form 10-K as filed on March 15, 2004 (File No. 000-28218).

(20) Incorporated by reference to Registrant's Annual Report on Form 10-K as filed on March 9, 2006 (File No. 000-28218).

(21) Incorporated by reference to Registrant's Annual Report on Form 10-K as filed on February 28, 2011 (File No. 000-28218).

100

(22) Incorporated by reference to Registrant's Annual Report on Form 10-K as filed on March 1, 2010 (File No. 000-28218).

(23) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q as filed on May 6, 2010 (File No. 000-28218).

(24) Filed herewith.

(25) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q as filed on November 7, 2008 (File No. 000-28218).

(26) Incorporated by reference to Registrant's Current Report on Form 8-K/A as filed on August 4, 2011 (File No. 000-28218).

(27) Incorporated by reference to Registrant's Current Report on Form 8-K as filed on May 18, 2010 (File No. 000-28218).

(28) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q as filed on August 9, 2012 (File No. 000-28218).

(29) Incorporated by reference to Registrant's Annual Report on Form 10-K as filed on February 29, 2008 (File No. 000-28218).

(30) Incorporated by reference to Registrant's Current Report on Form 8-K as filed on May 20, 2009 (File No. 000-28218).

(31) Incorporated by reference to Registrant's Schedule TO as filed on February 3, 2012 (File No. 005-48829).

‡ Management contract, compensatory plan, contract or arrangement

101

EX-10.7

EXHIBIT 10.7

AFFYMETRIX, INC.

NON-QUALIFIED STOCK OPTION GRANT NOTICE AND AGREEMENT

[Name]Option Number:[Option Number]

[Address]ID:[Employee Identifier]

                                                            Plan:                       Affymetrix, Inc. Amended and

                                                                                          Restated 2000 Equity Incentive Plan

                                                                                          (the "Plan")

1. Grant of Option.  AFFYMETRIX, INC., a Delaware corporation (the "Company") hereby grants to [Name] ("Optionee") a Non-Qualified Stock Option (the "Option") to purchase shares of common stock of the Company as specified below, subject to (i) the Terms and Conditions of Stock Options attached as Exhibit A, and (ii) the Plan incorporated herein by reference.

2. Definitions.  As used in this Agreement, including the Terms and Conditions of Stock Options, the following terms shall have the meanings set forth in this section 2.

Grant Date:[Grant Date]

Number of Shares of Common Stock Covered:[Number of Shares]

Option Termination Date:[Termination Date]

Exercise Price:[Exercise Price]

Vesting Schedule:

SharesVest Date

[Number of Shares][Vest Date]

AFFYMETRIX, INC.

/s/ Frank Witney

___________________________________

Frank Witney

Exhibit A

Affymetrix, Inc.

Terms and Conditions of Stock Options

Defined Terms	Capitalized terms used but not defined herein shall have the meanings set forth in the Grant Notice (the "Grant Notice") or the Plan, as applicable.
Tax Treatment	This Option is intended to be a nonstatutory stock option or an incentive stock option ("ISO"), as provided in the Grant Notice to which these Terms and Conditions are attached (together with the Grant Notice, this "Agreement").  If specified as an ISO, such ISO will only be granted up to the allowable limit under Section 422 of the Code.
Vesting	This Option becomes exercisable in installments, as shown in the Grant Notice. No additional Common Shares become exercisable after Optionee's service in any one of the positions of Employee, Consultant or director of the Company (or a Subsidiary or Affiliate) has terminated for any reason.
Term	This Option expires in any event on the Option Termination Date set forth in the Grant Notice, which in any event shall be no more than seven (7) years following the Grant Date set forth in the Grant Notice, subject to earlier termination as described below or in the Plan.
Regular Termination	If Optionee's service in any one of the positions of an Employee, Consultant or director of the Company or a Subsidiary or Affiliate terminates for any reason except death or total and permanent disability, then this Option will expire at the close of business at Company headquarters on the date that is (1) 90 days after Optionee's termination date if the Option is issued under the Company's 2000 Equity Incentive Plan, or (2) three (3) months after Optionee's termination date if the Option is issued under the Company's 1998 Stock Incentive Plan.  The Company determines when Optionee's service terminates for this purpose.
Death	If Optionee dies as an Employee, Consultant or director of the Company or a Subsidiary or Affiliate, then this Option will expire at the close of business at Company headquarters on the date 12 months after the date of death.
Disability	If Optionee's service as an Employee, Consultant or director of the Company or a Subsidiary or Affiliate terminates because of Optionee's total and permanent disability, then this Option will expire at the close of business at Company headquarters on the date 12 months after Optionee's termination date. For all purposes under this Agreement, "total and permanent disability" means that Optionee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of not less than one year.  Subject to the foregoing, the Committee shall have the exclusive discretion to determine when an Optionee terminates due to total and permanent disability.
Leaves of Absence	For purposes of this Option, Optionee's service does not terminate when Optionee goes on a military leave, a sick leave or another bona fide leave of absence, if the leave was approved by the Company in writing and if continued crediting of service is required by the terms of the leave or by applicable law; provided that Optionee's service terminates when the approved leave ends, unless Optionee immediately returns to active work or unless otherwise required by applicable law.  Vesting may be suspended during leave of absence unless required by applicable law or continued vesting was approved by the Company in writing.
Restrictions on Exercise	The Company will not permit Optionee to exercise this Option if the issuance of Common Shares at that time would violate any applicable law or regulation.
Notice of Exercise	When Optionee wishes to exercise this Option, Optionee must contact the Company's preferred broker.  The preferred broker will notify the Company of Optionee's intent to exercise.  With the Company's approval, Optionee may notify the Company by filing the proper "Notice of Exercise" form.  Optionee's notice must specify how many Common Shares Optionee wishes to purchase.  Optionee's notice must also specify method of receipt of Common Shares (physical certificate or transferred electronically to Optionee's broker).  The notice will be effective when it is received along with the full payment of the Exercise Price and any Tax-Related Items (as defined below) by the Company. If someone else wants to exercise this Option after Optionee's death, that person must prove to the Company's satisfaction that he or she is entitled to do so.
Form of Payment	When Optionee submits a Notice of Exercise, Optionee must include payment of the Exercise Price for the Common Shares Optionee is purchasing.  Payment may be made in cash or cash equivalents (Optionee's personal check, a cashier's check or a money order) or, unless otherwise determined by the Committee, by the following means: ·Irrevocable directions to a securities broker approved by the Company to sell all or part of the Common Shares subject to the exercised portion of the Option and to deliver to the Company from the sale proceeds an amount sufficient to pay the Exercise Price and any Tax-Related Items (as defined below).  (The balance of the sale proceeds, if any, will be delivered to Optionee.)  The directions must be given by signing a special "Notice of Exercise" form provided by the Company. In addition, to the extent permitted by the Committee and applicable law, payment may be made by one of the following means: ·Certificates for Common Shares that Optionee owns, along with any forms needed to effect a transfer of those shares to the Company.  The value of the Common Shares, determined as of the effective date of the option exercise, will be applied to the Exercise Price and any Tax-Related Items (as defined below).  Instead of surrendering Common Shares, Optionee may attest to the ownership of those shares on a form provided by the Company and have the same number of Common Shares subtracted from the shares to be issued to Optionee upon exercise of the Option.  However, Optionee may not surrender, or attest to the ownership of, Common Shares in payment of the Exercise Price if Optionee's action would cause the Company to recognize compensation expense (or additional compensation expense) with respect to this Option for financial reporting purposes. ·Such other form as approved by the Committee, or any combination of the foregoing.
Withholding Taxes and Stock Withholding	Regardless of any action the Company (or Optionee's employer, if different) takes with respect to any and all income or withholding tax (including federal, state and local tax), social insurance, payroll tax or other tax-related items related to Optionee's participation in the Plan and legally applicable to him or her ("Tax-Related Items"), Optionee acknowledges that the ultimate liability for all Tax-Related Items is and remains Optionee's responsibility and may exceed the amount, if any, actually withheld by the Company.  Optionee further acknowledges that the Company (a) makes no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Option grant, including the grant, vesting or exercise of the Option, the subsequent sale of Common Shares acquired pursuant to such exercise and the receipt of any dividends; and (b) does not commit to and is under no obligation to structure the terms of the grant or any aspect of this Option to reduce or eliminate Optionee's liability for Tax-Related Items or achieve any particular tax result.  Further, if Optionee has become subject to tax in more than one jurisdiction between the Grant Date and the date of any taxable or tax withholding event, as applicable, Optionee acknowledges that the Company may be required to withhold or account for Tax-Related Items in more than one jurisdiction. Prior to any relevant taxable or tax withholding event, as applicable, Optionee shall pay or make adequate arrangements satisfactory to the Company to satisfy all Tax-Related Items.  In this regard, Optionee authorizes the Company or its agent, at the Company's discretion, to satisfy the obligations with regard to all Tax-Related Items by one of the methods set forth above for form of payment of the Exercise Price and/or by one or a combination of the following methods: ·Withholding from Optionee's wages or other cash compensation otherwise payable to Optionee by the Company, and/or ·Withholding in Common Shares to be issued upon exercise of the Option. To avoid negative accounting treatment, the Company may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding amounts or other applicable withholding rates.  If the obligation for Tax-Related Items is satisfied by withholding in Common Shares, for tax purposes, Optionee is deemed to have been issued the full number of Common Shares subject to the exercised portion of the Option, notwithstanding that a number of the Common Shares are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of Optionee's participation in the Plan. The Company may refuse to honor the exercise and refuse to deliver the Common Shares if Optionee fails to comply with his or her obligations in connection with the Tax-Related Items as described in this section.
No Advice Regarding Grant	The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding Optionee's participation in the Plan, or Optionee's acquisition or sale of the underlying Common Shares.  Optionee is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding Optionee's participation in the Plan before taking any action related to the Plan
Restrictions on Resale	By exercising the Option, Optionee agrees not to sell any Common Shares acquired upon exercise of the Option at a time when applicable laws, Company policies (including the Insider Trading Policy) or an agreement between the Company and its underwriters prohibit a sale.  This restriction will apply as long as Optionee is an Employee, Consultant or director of the Company or a Subsidiary or Affiliate.
Transfer of Option	Prior to Optionee's death, only Optionee may exercise this Option.  Optionee cannot transfer or assign this Option.  For instance, Optionee may not sell this Option or use it as security for a loan.  If Optionee attempts to do any of these things, this Option will immediately become invalid.  Optionee may, however, dispose of this Option in Optionee's will or a beneficiary designation.
Exchange of Unexercised Options for SAR	To the extent permitted under the Plan, the Company shall have the ability at any time, to substitute stock appreciation rights ("SARs") for all of Optionee's unexercised Options. The grant price of a substitute SAR shall be equal to the Exercise Price of the replaced Option.  Upon exercise of a SAR, Optionee shall receive from the Company an amount equal to (i) the number of Common Shares with respect to which the SAR is exercised multiplied by (ii) the excess of the Fair Market Value of a Common Share on the exercise date over the grant price of the SAR, payable in Common Shares.
Retention Rights	Neither the Option nor this Agreement gives Optionee the right to be retained by the Company or a Subsidiary or Affiliate in any capacity.  The Company and its Subsidiaries and Affiliates reserve the right to terminate Optionee's employment or service at any time, with or without cause.
Stockholder Rights	Optionee, or Optionee's estate or heirs, has no rights as a stockholder of the Company until Optionee has exercised this Option by giving the required notice to the Company and paying the Exercise Price and any Tax-Related Items.  No adjustments are made for dividends or other rights if the applicable record date occurs before Optionee exercises this Option, except as described in the Plan.
Adjustments	In the event of a stock split, a stock dividend or a similar change in Company stock, the number of Common Shares covered by this Option and the Exercise Price per Common Share may be adjusted pursuant to the Plan.
Data Privacy	Optionee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of his or her personal data as described in the Grant Notice by and among, as applicable, the Company and its Subsidiaries and Affiliates and any stock plan service provider that may assist the Company with the Plan (presently or in the future) for the exclusive purpose of implementing, administering and managing Optionee's participation in the Plan.
Electronic Delivery	The Company may, in its sole discretion, decide to deliver any documents related to this Option granted under the Plan or future stock options that may be granted under the Plan by electronic means or to request Optionee's consent to participate in the Plan by electronic means.  Optionee hereby consents to receive such documents by electronic delivery and, if requested, agrees to participate in the Plan through an on-line, web-based or electronic system established and maintained by the Company or another third-party designated by the Company.
Imposition of Other Requirements	If Optionee relocates to another country, any special terms and conditions applicable to stock options granted in such country will apply to Optionee, to the extent the Company determines that the application of such terms and conditions is necessary or advisable in order to comply with local law or facilitate the administration of the Plan. In addition, the Company reserves the right to impose other requirements on the Option and any Common Shares acquired under the Plan, to the extent the Company determines it is necessary or advisable in order to comply with local law or facilitate the administration of the Plan, and to require Optionee to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.
Applicable Law and Choice of Venue	This Agreement will be interpreted and governed by the laws of the State of Delaware (except for their choice-of-law provisions). For purposes of litigating any dispute that arises directly or indirectly from the relationship of the parties evidenced by this Option and this Agreement, the parties hereby submit to and consent to the exclusive jurisdiction of the State of California and agree that such litigation shall be conducted only in the courts of Santa Clara County, California, or the federal courts for the Northern District of California, and no other courts where the grant of this Option is made and/or to be performed.
Severability	The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
The Plan and Other Agreements	The text of the Plan is incorporated in this Agreement by reference. This Agreement and the Plan constitute the entire understanding between Optionee and the Company regarding this Option.  Any prior agreements, commitments or negotiations concerning this Option are superseded.  This Agreement may be amended only by another written agreement.

By accepting this Award, Optionee agrees to all of the terms and conditions described in this Agreement and in the Plan.

EX-10.8

EXHIBIT 10.8

AFFYMETRIX, INC.

RESTRICTED STOCK UNIT GRANT NOTICE AND AGREEMENT

[Name]Award Number:[Award Number]

[Address]ID:[Employee Identifier]

                                                 Plan:Affymetrix, Inc. Amended and Restated

2000 Equity Incentive Plan (the "Plan)

1.Grant of Restricted Stock Units.  AFFYMETRIX, INC., a Delaware corporation (the "Company") hereby grants to [Name] ("Recipient") the number of restricted stock units as specified below (the "RSUs"), subject to (i) the Terms and Conditions of RSUs attached as Exhibit A, and (ii) the Plan incorporated herein by reference.

2.Definitions.  As used in this Agreement, including the Terms and Conditions of RSUs attached as Exhibit A, the following terms shall have the meanings set forth in this Section 2.

Grant Date:[Grant Date]

Number of Shares:[Number of Shares]

Vesting Commencement Date:[Vesting Commencement Date]

Settlement Date:                            For each RSU, except as otherwise provided in Exhibit A hereto, the date on which such RSU

                                                    becomes vested in accordance with the vesting schedule set forth below.

Vesting Schedule:

SharesVest Date

[Number of Shares][Vest Date]

AFFYMETRIX, INC.

/s/ Frank Witney

______________________________

Frank Witney

Exhibit A

TERMS AND CONDITIONS OF RSUs

1.Grant.  Pursuant to the Restricted Stock Unit Grant Notice (the "Grant Notice") to which these Terms and Conditions are attached (together with the Grant Notice, this "Agreement"), AFFYMETRIX, INC., a Delaware corporation (the "Company"), has granted to Recipient the right to receive the number of Restricted Stock Units (the "RSUs") under the Plan as set forth in the Grant Notice (terms used but not defined herein have the meaning set forth in the Grant Notice or the Plan).  Each RSU represents the right to receive on a date determined in accordance with this Agreement one (1) Common Share.

2.Settlement of RSUs.  The Company shall issue to Recipient, on the Settlement Date with respect to each RSU to be settled on such date, one (1) Common Share.  The Company will not issue any shares hereunder if the issuance of shares at that time would violate any law or regulation and shall not be required to issue any fractional shares.

3.Tax Treatment.  Any withholding tax liabilities incurred in connection with the grant or vesting of the RSUs or the issuance of the Common Shares or otherwise incurred in connection with the RSUs and any other amounts or rights hereunder shall be satisfied by (x) only at the option and request of the Company, Recipient paying to the Company in cash or by check an amount equal to the minimum amount of taxes that the Company concludes it is required to withhold under applicable law within one business day of the day the tax event arises or (y) unless not permitted by the Committee or the Board, the Company withholding a portion of the Common Shares that would be issued on settlement of the vested RSUs having a fair market value approximately equal to the minimum amount of taxes that the Company concludes it is required to withhold under applicable law.  Notwithstanding the foregoing, Recipient acknowledges and agrees that he or she is responsible for all taxes that arise in connection with the RSUs.  The Company shall not be obligated to release any shares to Recipient unless and until satisfactory arrangements to pay such withholding taxes have been made and shall be entitled to withhold from any amounts or shares due to Recipient hereunder or otherwise in an amount sufficient to pay its withholding obligations.  This Agreement and the RSUs are intended to comply with the short-term deferral rules of Section 409A of the Code and the Treasury Regulations thereunder and shall be interpreted in a manner consistent with that intention.

4.Vesting.  The RSUs shall become vested in installments, as shown in the Grant Notice.  No additional shares become vested after Recipient's service in any one of the positions of an employee, consultant or director of the Company (or a subsidiary of the Company) has terminated for any reason.

5.Termination of Service.  If Recipient's service in any one of the positions of an employee, consultant or director of the Company or a subsidiary of the Company terminates for any reason, then all RSUs that have not vested on or before the date of termination of service shall automatically be forfeited to the Company and all of Recipient's rights with respect thereto shall cease immediately upon termination. The Company determines when Recipient's service terminates for this purpose.

6.Leaves of Absence.  For purposes of this Agreement, service does not terminate as a result of a military leave, a sick leave or another bona fide leave of absence, if the leave was approved by the Company in writing and if continued crediting of service is required by the terms of the leave or by applicable law; provided that service shall terminate when the approved leave ends, unless Recipient immediately returns to active work.

7.Restrictions on Transfer.  Recipient may not sell, transfer, pledge or otherwise dispose of any of the Common Shares underlying the RSUs until after the applicable shares have been issued to Recipient on the schedule set forth in the Grant Notice and may not sell, transfer, pledge or otherwise dispose of the RSUs, other than transfer by will or by the laws of descent and distribution.  Recipient further agrees not to sell, transfer or otherwise dispose of any shares at a time when applicable laws or Company policies prohibit a sale, transfer, pledge or other disposition.  Recipient agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent.

8.Stock Certificates.  Certificates evidencing the Common Shares that are issued hereunder shall be registered in the name of Recipient on the stock transfer books of the Company.

9.Stockholder Rights.  Recipient will have no voting or other rights with respect to the Common Shares underlying the RSUs until such shares are issued in accordance with this Agreement.

10.No Retention Rights.  The RSUs and this Agreement do not give Recipient the right to be retained by the Company or a subsidiary of the Company in any capacity. The Company and its subsidiaries reserve the right to terminate Recipient's service at any time, with or without cause.

11.Adjustments.  In the event of a stock split, a stock dividend or a similar change in Company stock, the number of shares covered by this Agreement may be adjusted pursuant to the Plan.

12.Applicable Law.  This Agreement will be interpreted and enforced under the laws of the State of Delaware (without regard to their choice-of-law provisions).

13.The Plan and Other Agreements.  The text of the Plan is incorporated in this Agreement by reference.

This Agreement and the Plan constitute the entire understanding between Recipient and the Company regarding this Agreement. Any prior agreements, commitments or negotiations concerning the RSUs are superseded. This Agreement may be amended only by another written agreement.

BY ACCEPTING THIS AWARD, RECIPIENT AGREES TO ALL OF THE TERMS AND CONDITIONS DESCRIBED IN THIS AGREEMENT AND IN THE PLAN.

EX-10.10

EXHIBIT 10.10

AFFYMETRIX, INC.

PERFORMANCE BASED RESTRICTED STOCK UNIT GRANT NOTICE AND AGREEMENT

[Name]Award Number:[Award Number]

[Address]ID:[Employee Identifier]

                                                        Plan:Affymetrix, Inc. Amended and Restated

  2000 Equity Incentive Plan (the "Plan)

1.Grant of Performance Based Restricted Stock Units.  AFFYMETRIX, INC., a Delaware corporation (the "Company") hereby grants to [Name] ("Recipient") the number of performance based restricted stock units as specified below (the "PRSUs"), subject to (i) the Terms and Conditions of PRSUs attached as Exhibit A, and (ii) the Plan incorporated herein by reference.

2.Definitions.  As used in this Agreement, including the Terms and Conditions of PRSUs attached as Exhibit A, the following terms shall have the meanings set forth in this Section 2.

Grant Date:[Date]

Number of Shares:[Number of Shares]

Settlement Date: For each PRSU, except as otherwise provided in Exhibit A hereto, the date on which such PRSU becomes vested in accordance with the performance condition and vesting date set forth below.

3.Performance Goals and Vesting Schedule:The PRSUs are eligible to be earned based on the performance conditions specified in the following table, the PRSUs shall remain unvested until the Vesting Date specified in the following table:

[Table]

4.    To the extent the performance goal for any performance period is not met, the applicable installment of PRSUs shall be forfeited (in whole or in part, as applicable) as of the end of such performance period. For the avoidance of doubt,  there shall be no "catch up" in any future performance period to the extent any portion of an installment for a prior performance period is not earned.

AFFYMETRIX, INC.

/s/ /Frank Witney

___________________________________

Frank Witney

Exhibit A

TERMS AND CONDITIONS OF PRSUs

1.Grant.  Pursuant to the Performance Based Restricted Stock Unit Grant Notice (the "Grant Notice") to which these Terms and Conditions are attached (together with the Grant Notice, this "Agreement"), AFFYMETRIX, INC., a Delaware corporation (the "Company"), has granted to Recipient the right to receive the number of Performance Based Restricted Stock Units (the "PRSUs") under the Plan as set forth in the Grant Notice (terms used but not defined herein have the meaning set forth in the Grant Notice or the Plan).  Each PRSU represents the right to receive on a date determined in accordance with this Agreement one (1) Common Share.

2.Settlement of PRSUs.  The Company shall issue to Recipient, on the Settlement Date with respect to each PRSU to be settled on such date, one (1) Common Share.  The Company will not issue any shares hereunder if the issuance of shares at that time would violate any law or regulation and shall not be required to issue any fractional shares.

3.Tax Treatment.  Any withholding tax liabilities incurred in connection with the grant or vesting of the PRSUs or the issuance of the Common Shares or otherwise incurred in connection with the PRSUs and any other amounts or rights hereunder shall be satisfied by (x) only at the option and request of the Company, Recipient paying to the Company in cash or by check an amount equal to the minimum amount of taxes that the Company concludes it is required to withhold under applicable law within one business day of the day the tax event arises or (y) unless not permitted by the Compensation Committee or the Board, the Company withholding a portion of the Common Shares that would be issued on settlement of the vested PRSUs having a fair market value approximately equal to the minimum amount of taxes that the Company concludes it is required to withhold under applicable law.  Notwithstanding the foregoing, Recipient acknowledges and agrees that he or she is responsible for all taxes that arise in connection with the PRSUs.  The Company shall not be obligated to release any shares to Recipient unless and until satisfactory arrangements to pay such withholding taxes have been made and shall be entitled to withhold from any amounts or shares due to Recipient hereunder or otherwise in an amount sufficient to pay its withholding obligations.  This Agreement and the PRSUs are intended to comply with the short-term deferral rules of Section 409A of the Code and the Treasury Regulations thereunder and shall be interpreted in a manner consistent with that intention.

4.Vesting.  The PRSUs shall become vested in installments, as shown in the Grant Notice.  No additional shares become vested after Recipient's service in any one of the positions of an employee, consultant or director of the Company (or a subsidiary of the Company) has terminated for any reason.

5.Termination of Service.  If Recipient's service in any one of the positions of an employee, consultant or director of the Company or a subsidiary of the Company terminates for any reason, then all PRSUs that have not vested on or before the date of termination of service shall automatically be forfeited to the Company and all of Recipient's rights with respect thereto shall cease immediately upon termination. The Company determines when Recipient's service terminates for this purpose.

6.Leaves of Absence.  For purposes of this Agreement, service does not terminate as a result of a military leave, a sick leave or another bona fide leave of absence, if the leave was approved by the Company in writing and if continued crediting of service is required by the terms of the leave or by applicable law; provided that service shall terminate when the approved leave ends, unless Recipient immediately returns to active work.

7.Restrictions on Transfer.  Recipient may not sell, transfer, pledge or otherwise dispose of any of the Common Shares underlying the PRSUs until after the applicable shares have been issued to Recipient on the schedule set forth in the Grant Notice and may not sell, transfer, pledge or otherwise dispose of the PRSUs, other than transfer by will or by the laws of descent and distribution.  Recipient further agrees not to sell, transfer or otherwise dispose of any shares at a time when applicable laws or Company policies prohibit a sale, transfer, pledge or other disposition.  Recipient agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent.

8.Stock Certificates.  Certificates, if any, evidencing the Common Shares that are issued hereunder shall be registered in the name of Recipient on the stock transfer books of the Company.

9.Stockholder Rights.  Recipient will have no voting or other rights with respect to the Common Shares underlying the PRSUs until such shares are issued in accordance with this Agreement.

10.No Retention Rights.  The PRSUs and this Agreement do not give Recipient the right to be retained by the Company or a subsidiary of the Company in any capacity. The Company and its subsidiaries reserve the right to terminate Recipient's service at any time, with or without cause.

11.Adjustments.  In the event of a stock split, a stock dividend or a similar change in Company stock, the number of shares covered by this Agreement may be adjusted pursuant to the Plan.

12.Applicable Law.  This Agreement will be interpreted and enforced under the laws of the State of Delaware (without regard to their choice-of-law provisions).

13.The Plan and Other Agreements.  The text of the Plan is incorporated in this Agreement by reference.

This Agreement and the Plan constitute the entire understanding between Recipient and the Company regarding this Agreement. Any prior agreements, commitments or negotiations concerning the PRSUs are superseded. This Agreement may be amended only by another written agreement.

BY ACCEPTING THIS AWARD, RECIPIENT AGREES TO ALL OF THE TERMS AND CONDITIONS DESCRIBED IN THIS AGREEMENT AND IN THE PLAN.

EX-10.30

EXHIBIT 10.30

SUBLEASEAGREEMENT

1.PARTIES

This Sublease Agreement (the"Sublease")isenteredintoasofthe 11^th day of January, 2013byandbetweenSTMICROELECTRONICS,INC.,aDelawarecorporation with principal place of business at 750 Canyon Drive, Coppell, Texas 75019 ("Sublessor"), and EBIOSCIENCE, INC., a California corporation with its principal place of business at 10255 Science Center Drive, San Diego, California 92121 ("Sublessee"), as subject to the terms and conditions of the Main Lease (herein defined). For the purposes of this Sublease, "Main Lease" means, collectively, that certain Office Lease dated June 4, 2004 between Kilroy Realty, L.P., as landlord ("Landlord"), and Sublessor, as tenant, as amended by that First Amendment to Office Lease dated January 1, 2006, that Second Amendment to Office Lease, dated May 13, 2009, and that Third Amendment to Office Lease, dated August 1, 2009. A copy of the Main Lease is attached and hereby made a part of this Sublease as ExhibitA. Pursuant to and in accordance with the terms and conditions of the Main Lease, Landlord leases to Sublessor certain premises (the "Main Lease Premises" or "Premises"), comprising approximately 19,398 rentable square feet of space, in that certain building located at 4690 Executive Drive, San Diego, CA 92121.

2.         PROVISIONS CONSTITUTING SUBLEASE

Sublessor hereby warrants and represents that (i) attached hereto as ExhibitA is a true, correct and complete copy of the Main Lease, (ii) there are no amendments or modifications of the Main Lease except as set forth in ExhibitA, (iii) the Main Lease is in full force and effect, (iv) Sublessor is not in default under the Main Lease, (v) Sublessor has no knowledge of any default by Landlord under the Main Lease, (vi) the Main Lease is to expire on July 31, 2014, (vii) Sublessor has not previously assigned, sublet or otherwise transferred its interest in the Main Lease, (vii) Landlord has not provided notice to Sublessor that it will require the removal of any alteration or improvement installed in the Main Lease Premises, and (viii) Sublessor has not performed any alteration or improvements in the Main Lease Premises without first obtaining Landlord's prior written consent. Sublessee hereby covenants and agrees to accept and abide by all of the terms and conditions contained in the Main Lease (except for the Excluded Provisions (as defined below) and as expressly otherwise provided herein) and this Sublease. Subject to the foregoing, on and after the Commencement Date, all applicable terms and conditions of the Main Lease are incorporated into and made a part of this Sublease as if Sublessee were the Tenant thereunder; provided, however, that the following sections or provisions of the Main Lease (the "Excluded Provisions") are not incorporated into this Sublease and do not form a part of this Sublease (except to the extent they contain defined terms which are used herein): (a) any provisions that are superseded by or in direct conflict with the provisions of this Sublease; (b) any provisions relating to obligations regarding initial preparation of the Premises or the payment of an improvement or other allowance; and (c) any provisions not applicable to a sublessee including but not limited to options or rights to extend or renew the lease term, expand the Premises or rights of first refusal or other similar rights. Subject to the foregoing, on and after the Commencement Date, (i) Sublessee assumes and agrees to perform the Tenant's incorporated obligations under the Main Lease except as otherwise provided herein and (ii) Sublessee hereby covenants and agrees not to commit or suffer any act or omission that will violate any provisions of the Main Lease; provided, however, nothing herein shall reduce or affect the amount of rental payable by the Sublessor to Landlord pursuant to the Main Lease. Rights in favor of the Landlord in the Main Lease shall apply in favor of both Landlord and Sublessor. Obligations of the Landlord contained in the Main Lease shall be obligations of the Landlord and not of the Sublessor. Sublessor shall only be responsible for its obligations under this Sublease and any and all outstanding obligation under the Main Lease arising before the Commencement Date. Sublessor shall not be responsible for any acts or omissions of Landlord.

Except as expressly set forth herein and subject to any agreement with the Landlord as may be outlined within the Landlord Consent document, this Sublease is subject and subordinate, fully in all respects, to the terms and conditions of the Main Lease. In the event that the Main Lease shall terminate or be canceled for any reason whatsoever (and irrespective, at the time of such termination or cancellation, as to whether Sublessee shall be in default with respect to any of its agreements, covenants, obligations or undertakings in this Sublease), this Sublease shall terminate, fully and in all respects, immediately as of the date and time of termination or cancellation of the Main Lease, whereupon Sublessee shall have no further right whatsoever, pursuant to the Sublease or otherwise, to use or occupy the Premises, and thereupon Sublessee shall vacate the Premises and remove from the Premises all of its machinery, equipment, furnishings, furniture, inventory and personal property pursuant to the terms of the Main Lease, subject to Landlord's right to have Sublessee attorn to the Landlord pursuant to Section 14.7 of the Main Lease.

Capitalized terms which are not otherwise defined in this Sublease shall have the meaning given such terms in the Main Lease.

3.         PREMISES

Sublessor leases to Sublessee the premises in its entirety consisting of approximately 19,398 rentable square feet ("RSF") (the "Premises"). The Premises comprises all of the Main Lease Premises and is a portion of the building known as Suite 200 at 4690 Executive Drive, San Diego, CA 92121 (the "Building"), as depicted on Exhibit B.

4.         TERM

4.1Term

Subject to Landlord's consent to this Sublease (including a waiver of any prior notice or other applicable provisions), the term (the "Term") of this Sublease shall be for a period commencing on February 1, 2013 ("Commencement Date"), and expiring on the earlier of July 31,2014, or earlier termination in accordance with the terms of this Sublease or the Main Lease (any such date being the "Termination Date"). Sublessee shall reimburse Sublessor for any amounts in excess of $750 due to Landlord as a result of the review and consent process related to this Sublease pursuant to Section 14 of the Main Lease.

5.RENT

5.1Fixed Rent.

From the date which is two (2) months from the Commencement Date (currently estimated as April 1, 2013) and continuing through the Termination Date, Sublessee shall pay to Sublessor, equal monthly installments, in advance, on the first day of each month of the Term hereof (or, for the first rent payment due, if the Commencement Date is not the first day of the month, on the day of rent commencement in a pro rata amount for the remainder of the month) in the amount of $1.65 per RSF per month ("Fixed Rent") (partial months shall be prorated). The rent abatement set forth in this Sublease shall be in lieu of any other similar provision in the Main Lease.

Fixed Rent shall be payable without notice or demand and without any deduction, offset, or abatement, except as provided for in this Sublease, in lawful money of the United States of America to Sublessor at the address stated herein or to such other persons or at such other places as Sublessor may designate in writing. If so required by Landlord, the Fixed Rent shall be paid directly to Landlord upon Sublessee's receipt of written notice to that effect executed by both the Landlord and the Sublessor.

Concurrent with the delivery of the executed Sublease by Sublessee to Sublessor, Sublessee shall also deliver to Sublessor a security deposit in the amount of one (1) month's rent as well as the first month's rent to be applied to month three (3) of the Term.

5.2Other Charges

Except as provided in Section 5.3, as of the Commencement Date, Sublessee shall be responsible for other charges under the Main Lease including but not limited to the payment of utilities and janitorial services.

5.3Additional Rent.

As defined in Article 4 of the Main Lease, Sublessor will promptly pay to Landlord the amount of Tenant's Share of Direct Expenses charged by Landlord and attributable to Sublessor.

6.USE

The Premises shall be used pursuant to  the Main Lease and in compliance with all applicable laws, codes and ordinances, and Rules and Regulations attached to the Main Lease.

7.DEFAULT BY SUBLESSEE

Any breach of this Sublease shall be subject to the same rights and remedies applicable to a similar breach of the Main Lease.

8.INSURANCE

Sublessee covenants and agrees that from and after the Commencement Date of this Sublease, Sublessee will carry and maintain, at its sole cost and expense, primary insurance as required under the Main Lease, naming Sublessor as an additional insured. Sublessor shall not be required to maintain any insurance. References to insurance applicable to the Landlord shall be references to insurance maintained by the Landlord and not Sublessor.

9.ASSIGNMENT AND SUBLETTING

9.1Assignments and Subleases.

Subject to Section 14 of the Main Lease, Sublessee may not assign or sublet the Premises or any part thereof without first obtaining the prior written consent thereto of both Sublessor and the Landlord.

10. GENERAL

10.1   Entire Agreement.

This Sublease (and the provisions of the Main Lease incorporated by reference herein) embodies the entire agreement between the parties hereto relative to the subject matter hereof and supersedes all previous agreements by and between Sublessor and Sublessee. This Sublease shall not be modified, changed or altered in any respect except in writing signed by both parties hereto, and if required pursuant to the Main Lease, the approval by the Landlord.

10.2Notice.

To the extent the Main Lease requires notice to be given by the Landlord to the Sublessor thereunder, Sublessor shall transmit such notice to the Sublessee within two (2) business days following receipt of such notice by the Sublessor and the applicable notice period to the Sublessee shall be reduced by such two (2) business day period plus the time period to transmit the notice from Sublessor to Sublessee. Whenever under this Sublease a provision is made for notice of any kind, such notice, to be effective upon the recipient, must comply with the provisions of Section 29.18 of the Main Lease, as amended from time to time. All notices to be given to Sublessee

hereunder shall be given to it at the Premises or until some other place is designated in writing by the Sublessee. All notices to be given to Sublessor hereunder shall be given to it at:

Attn:  Cheryl Woods

STMicroelectronics, Inc.

750 Canyon Drive, Suite 300

Coppell, TX 75019

with a copy to:

Attn:  General Counsel

STMicroelectronics, Inc.

750 Canyon Drive, Suite 300

Coppell, TX 75019

or until some other place is designated in writing by the Sublessor.

10.3Furniture.

As part of the consideration for Sublessee's agreement to enter into this Sublease, Sublessor and Sublessee have agreed that Sublessor will transfer to Sublessee certain furniture, fixtures and equipment, including but not limited to network cabling, patch panels and racking, ("FF&E") located in the Premises as of the Commencement Date. Such FF&E is outlined on Schedule 1 to the Bill of Sale attached hereto as Exhibit C and Sublessor will execute and deliver the Bill of Sale to Sublessee on or before the Commencement Date. In the event this Agreement is terminated prior to Sublessee's  occupancy of the Main Lease Premises, Sublessee will reconvey the FF&E to Sublessor.

10.4Signage.

Sublessee shall be entitled to all signage rights pursuant to the Main Lease. All costs associated with installation, maintenance and eventual removal of said signage shall be at Sublessee's sole cost and expense.

All costs associated with the removal of Sublessor's existing signage shall be at Sublessor's sole cost and expense and shall be completed within thirty (30) days after the Commencement Date.

10.5Restoration.

Sublessee shall not make any alterations to the Main Lease Premises without first obtaining Landlord consent in accordance with the Main Lease. In the event that Landlord agrees that such alterations may remain in the Main Lease Premises at the expiration of the Term of this Sublease, Sublessor shall not require such alterations to be removed. Sublessee shall remove any alterations that Landlord requires be removed at the end of the Term.

10.6Indemnification.

Sublessor shall defend, indemnify and hold Sublessee harmless from any and all Landlord or third party claims, demands, causes of action, losses, costs (including, without limitation, reasonable court costs and attorneys' fees), liabilities and damages of any kind or nature whatsoever that Sublessee may sustain by reason of Sublessor's breach or non-fulfillment (whether by action or inaction) at any time of any covenant or obligation under the Main Lease to be performed by Sublessor at any time prior to the Commencement Date or under this Sublease.

Sublessee shall defend, indemnify and hold Sublessor harmless from any and all Landlord or third party claims, demands, causes of action, losses, costs (including, without limitation, reasonable court costs and attorneys' fees), liabilities and damages of any kind or nature whatsoever that Sublessor may sustain by reason of Sublessee's breach or non-fulfillment (whether by action or inaction) at any time of any covenant or obligation under the Main Lease or this Sublease to be performed by Sublessee at any time on and after the Commencement Date.

The indemnification obligation under this Section shall be conditioned upon the indemnified party giving notice to the indemnifying party promptly after the indemnified party receives notice of the claim, the indemnified party cooperating with the indemnifying party, at the indemnifying party's expense, and giving the indemnifying party control over the settlement or negotiation of the claim. This Section 10 shall survive the expiration or termination of the Sublease.

11.BROKERAGE

Sublessor and Sublessee represent that other than Colliers International and CBRE, there were no other brokers instrumental in consummating this transaction and that no conversation or negotiations took place between Sublessor or Sublessee and any other broker concerning this transaction. Sublessee and Sublessor agree to indemnify, defend and hold each other harmless from any expenses, obligations or liabilities arising from claims for leasing commissions or similar fees by any other broker or salesperson arising out of any agreement made by such party. Sublessor shall pay to such brokers leasing commissions in connection with this Sublease pursuant to separate written agreements between Sublessor and such brokers.

12.CONDITION OF PREMISES

The Main Lease Premises shall be delivered by Sublessor to Sublessee broom clean and free of Sublessor's personal property (other than the "FF&E" as defined above) and otherwise in "As Is" condition with all built-in cabinets, book shelves, appliances, and all other leasehold improvements located thereon remaining in place.

Sublessor represents and warrants to Sublessee that Sublessor has not caused or allowed any Hazardous Materials to be released or otherwise placed on or under the Premises in violation of the Main Lease.

13.LANDLORD'S CONSENT

Sublessor must obtain the consent of Landlord to any subletting pursuant to the Main Lease. Accordingly, this Sublease shall not be effective unless, on or before 30 days after the date hereof, Landlord signs and delivers to Sublessor its consent to this Sublease. Sublessee specifically acknowledges and agrees to the terms of Section 14 of the Main Lease including the waiver of damage claims under the last paragraph of Section 14.2.

14.GOVERNING LAW

This Agreement will in all respects be governed by and interpreted in accordance with the laws of the State of California, without reference to its conflict of law provisions.  The parties hereby agree that all disputes arising out of this Agreement will be subject to the exclusive jurisdiction of and venue in the federal and state courts located in the County of San Diego, State of California.  Each party hereby consents to the personal and exclusive jurisdiction and venue of these courts.

IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties have duly executed this Sublease with the Exhibits attached hereto as of the date first written above.

SUBLESSEE:

EBIOSCIENCE, INC.

By:/s/ Anthony Ward

Name:Anthony Ward

Title:VP Commercial Affairs

Date:1/1/2013

SUBLESSOR:

STMICROELECTRONICS, INC.

By:/s/ Geoff West

Name:Geoff West

Title:VP Finance, CFO

Date:1/17/2013

Landlord hereby consents to the Sublease; provided, however, such consent is granted by Landlord only upon the terms and conditions set forth in this Sublease and the Landlord Consent document.

KILROY REALTY, L.P.

By:/s/ Robert Virysiak

Name:Robert Virysiak

Title:President and CEO

Date:Jan 28, 2013

Exhibit A

Main Lease

OFFICE LEASE KILROY REALTY

4690 EXECUTIVE DRIVE

KILROY REALTY, L.P.,

a Delaware limited partnership,as Landlord,

and

STMICROELECTRONICS,

a Delaware corporation,

as Tenant.

KILROY REALTY

571981.06/WLA4690 Executive Drive

K4064-066/6-8-04/pjr/pjr[STMicroelectronics, Inc.]

TABLE OF CONTENTS

                                                   TITLE Page

ARTICLE 1PREMISES, BUILDING, PROJECT, AND COMMON AREAS 4

ARTICLE 2LEASE TERM; OPTION TERM 5

ARTICLE 3BASE RENT9

ARTICLE 4ADDITIONAL RENT 9

ARTICLE 5USE OF PREMISES 17

ARTICLE 6SERVICES AND UTILITIES18

ARTICLE 7REPAIRS21

ARTICLE 8ADDITIONS AND ALTERATIONS 22

ARTICLE 9COVENANT AGAINST LIENS24

ARTICLE 10INSURANCE25

ARTICLE 11DAMAGE AND DAMAGES 29

ARTICLE 12                      NONWAIVER31

ARTICLE 13                      CONDEMNATION32

ARTICLE 14                     ASSIGNMENT AND SUBLETTING32

ARTICLE 15SURRENDER OF PREMISES; OWNERSHIP AND REMOVAL OF TRADE FIXTURES 37

ARTICLE 16HOLDING OVER38

ARTICLE 17ESTOPPEL CERTIFICATES38

ARTICLE 18SUB ORDINATION39

ARTICLE 19DEFAULTS; REMEDIES39

ARTICLE 20COVENANT OF QUIET ENJOYMENT42

ARTICLE 21SECURITY DEPOSIT43

ARTICLE 22TELECOMMUNICATIONS EQUIPMENT43

ARTICLE 23SIGNS44

KILROY REALTY

571981.06/WLAK4064-066/6-8-04/pjr/pjr

(i)

4690 Executive Drive[STMicroelectronics, Inc.]

ARTICLE 24                       COMPLIANCE WITH LAW46

ARTICLE 25                       LATE CHARGES47

ARTICLE 26                       LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT47

ARTICLE 27                       ENTRY BY LANDLORD48

ARTICLE 28                       TENANT PARKING49

ARTICLE 29                       MISCELLANEOUS PROVISIONS49

KILROY REALTY

571981.06/WLA4690 Executive Drive

K4064-066/6-8-04/pjr/pjr[STMicroelectronics, Inc.]

INDEX

       Title Page

Accountant16

Additional Notice21

Additional Rent 9

Alterations22

Applicable Laws46

Award8

Bank Prime Loan47

Base Building23

Base Rent9

BOMA5

Brokers54

B S/B S Exception21

Building Hours18

Building Monument Sign44

Building Structure21

Building Systems21

CC&Rs17

Common Areas5

Comparable Area7

Comparable Buildings7

Comparable Deals6

Comparable Term7

Control37

Cosmetic Alterations22

Damage Termination Date30

Damage Termination Notice30

Direct Expenses9

Eligibility Period21

Environmental Laws56

Estimate15

Estimate Statement15

Estimated Direct Expenses15

Excess14

Exercise Notice7

Expense Year10

Force Majeure52

Hazardous Material(s)56

Head-Stone Sign45

Holidays18

HVAC18

Indemnification Requirements56

Initial Notice21

Interest Rate47

Landlord1

KILROY REALTY

571981.06/WLA4690 Executive Drive

K4064-066/6-8-04/pjr/pjr[STMicroelectronics, Inc.]

Page(s)

Landlord Default21

Landlord Parties25

Landlord Repair Notice29

Landlord Response Date7

Landlord Response Notice7

Landlord's Market Rent Calculation7

Lease1

Lease Commencement Date5

Lease Expiration Date5

Lease Term5

Lease Year5

Lines55

Mail52

Market Rent6

Neutral Arbitrator8

Nondisturbance Agreement39

Notices52

Objectionable Name45

Operating Expenses10

Option Rent6

Option Term5

Option Term TI Allowance7

Original Improvements27

Original Tenant5

Outside Agreement Date8

Permitted Transferee 37

Premises4

Proposition 1313

Refurbishment Alterations1

Renovations55

Rent Concessions6

Rent 9

Review Period16

Sign Specifications45

Statement14

Subject Space33

Summary1

Tax Expenses13

Telecommunications Equipment43

Tenant1

Tenant Parties25

Tenant Work Letter4

Tenant's Market Rent Calculation7

Tenant's Share14

Tenant's Signage44

KILROY REALTY

57198106/WLA4690 Executive Drive

K4064-066/6-8-04/pjr/pjr(iv)[STMicroelectronics, Inc.]

Page(s)

Transfer36

Transfer Notice32

Transfer Premium34

Transferee32

Transfers32

KILROY REALTY

571981.06/WLA4690 Executive Drive

K4064-066/6-8-04/pjr/pjr(v)[STMicroelectronics, Inc.]

4690 EXECUTIVE DRIVEOFFICE LEASE

This Office Lease(the "Lease"), dated as of the date set forth in Section 1 of the Summary of Basic Lease Information (the "Summary"), below, is made by and between KILROY REALTY, L.P., a Delaware  limited partnership("Landlord"),and STMICROELECTRONICS, INC., a Delaware corporation ("Tenant").

SUMMARY OF BASIC LEASE INFORMATION

TERMS OF LEASEDESCRIPTION

1.Date:June 4, 2004.

2.Premises:

2.1Building:

That  certain  two(2)-story  building(the "Building") located at 4690 Executive Drive, San Diego, California 92121, which Building contains 50,929 rentable square feet of space.

2.2Premises:

25,464   rentable   square   feet   of   space comprising all of the second (2nd) floor of the Building and commonly known as Suite 200, as further set forth in Exhibit Ato the Office Lease. The Building is part of a single-building office project known as "4690 Executive Drive," as further set forth in Section 1.1.2 of this Lease.2.3Project:

3.Lease Term (Article 2):

3.1Length of Term:

Approximately  five  (5)  years  and  no  (0) months.

3.2Lease Commencement Date:

July 19, 2004.

3.3Lease Expiration Date:

July 31, 2009.

3.4Option Term:

                   One (1) five (5)-year option to renew, as more particularly set forth in Section 2.2 of this Lease.

57I981.06/WLAK4064-066/6-8-04/pjr/pjr

KILROY REALTY4690 Executive Drive[STMicroelectronics, Inc.]

      4.              Base rent (Article 3):

                                                                                                                                              Monthly

                                                                                                 Monthly                            Rental Rate

                                                     Annual                             Installment                         per Rentable

        Lease Year                        Base Rent                        of Base Rent                        Square Foot

* The initial Annual Base Rent (and Monthly Installment of Base Rent) was calculated by multiplying  the initial Monthly Rental Rate per Rentable Square Foot by the number of  rentable square feet of space in the Premises.  In all subsequent Lease Years, the calculation of Annual Base Rent (and Monthly Installment of Base Rent) reflects an annual increase of 3.25%.  Notwithstanding the calculations identified above, in each instance the resulting Monthly Installment of Base Rent was rounded up or down, as applicable, to the nearest twenty-five cents ($0.25), and the Annual Base Rent is, therefore, an amount equal to exactly twelve (12) times such rounded Monthly Installment of Base Rent amount.

      5.              Intentionally Omitted

             (Article 4):

      6.              Tenant's Share 50.00%      

      (Article 4):

      7.Permitted Use

(Article 5): Provided any such use is legally permissible, Tenant shall use Premises solely for (i) general office use, (ii) engineering office use, (iii) research and development/testing laboratory use, and (iv) uses incidental thereto to the extent the same comply with applicable laws and zoning and are consistent with the character of the Project as a first-class office building Project.

      8.Security Deposit

(Article 21): None

      9.Parking Pass Ratio

(Article 28): Three (3) unreserved parking passes for every 1,000 rentable square feet of the Premises.

10.Address of Tenant

(Section 29.18):

STMicroelectronics, Inc.4690 Executive Drive, Suite 200 San Diego, California 92121 Attention: Aldo Cometti

(Prior to and after Lease Commencement Date) with a copy to:

STMicroelectronics, Inc.

1310 Electronics Drive, MS 2346 Carrollton, Texas 75006

Attention: General Counsel

11.Address of Landlord

(Section 29.18):

See Section 29.18 of the Lease.

12.Broker

(Section 29.24):

The Staubach Company

11988 El Camino Real, Suite 150 San Diego, California 92130

Attention: Mr. John Jarvis

13.Refurbishment Allowance

(Exhibit B):

$509,280.00  (which  amount was  calculated based upon $20.00 per Rentable Square Foot for each of the 25,464 Rentable Square Feet of space in the Premises).

57I981.06/WLAK4064-066/6-8-04/pjr/pjr-3-

KILROY REALTY4690 Executive Drive[STMicroelectronics, Inc.]

ARTICLE 1

PREMISES, BUILDING, PROJECT, AND COMMON AREAS

1.1Premises, Building, Project and Common Areas.

1.1.1The Premises.  Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the premises set forth in Section 2.2 of the Summary (the "Premises"). The outline of the Premises is set forth in Exhibit Aattached hereto and each floor or floors of the Premises has the number of rentable square feet as set forth in Section 2.2 of the Summary. The parties hereto agree that the lease of the Premises is upon and subject to the terms, covenants and conditions (the "TCCs") herein set forth, and Tenant covenants as a material part of the consideration for this Lease to keep and perform each and all of such TCCs by it to be kept and performed and that this Lease is made upon the condition of such performance.  The parties hereto hereby acknowledge that the purpose of Exhibit Ais to show the approximate location of the Premises in the "Building," as that term is defined in Section 1.1.2, below, only, and such Exhibit is not meant to constitute an agreement, representation or warranty as to the construction of the Premises, the precise area thereof or the specific location of the "Common Areas," as that term is defined in Section 1.1.3, below, or the elements thereof or of the accessways to the Premises or the "Project," as that term is defined in Section 1.1.2, below. Landlord and Tenant acknowledge that Tenant has been occupying the Premises pursuant to that certain lease (the "Prior Lease") dated as of April 27, 1998, by and between University Center LLC, a California limited   liability   company,   predecessor-in-interest   to   Landlord,   and   SGS-Thomson Microelectronics, Inc., a Delaware corporation, predecessor-in-interest to Tenant (as such Prior Lease was amended by that certain "First Amendment to Lease" dated June 16, 1999 and that certain "Second Amendment to Lease" dated July 23, 1999, the "Prior Lease Agreement"), and therefore except as specifically set forth in this Lease and in the Tenant Work Letter attached hereto as Exhibit B(the "Tenant Work Letter"), Tenant shall continue to accept the Premises in its presently existing, "as is" condition, and Landlord shall not be obligated to provide or pay for any improvement work or services related to the improvement of the Premises. Tenant also acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty regarding the condition of the Premises, the Building or the Project or with respect to the suitability of any of the foregoing for the conduct of Tenant's business, except as specifically set forth in this Lease and the Tenant Work Letter.

1.1.2The Building and The Project. The Premises are a part of the building set forth in Section 2.1 of the Summary (the "Building"). The Building constitutes the primary element of that certain single-building office project known as "4690 Executive Drive." The term "Project," as used in this Lease, shall mean (i) the Building and the Common Areas, and

(ii) the land (which is improved with landscaping, parking facilities and other improvements) upon which the Building and the Common Areas are located.

1.1.3Common Areas.  Tenant shall have the non-exclusive right to use in common with Landlord and any other tenants in the Project (if any), and subject to the rules and regulations referred to in Article 5 of this Lease, those portions of the Project which are provided, from time to time, for use in common by Landlord, Tenant and any other tenants of the Project (such areas, together with such other portions of the Project designated by Landlord, in

KILROY REALTY

57I981.06/WLA4690 Executive Drive

K4064-066/6-8-04/pjr/pjr-4-[STMicroelectronics, Inc.]

its discretion, including certain areas designated for the exclusive use of certain tenants, or to be shared by Landlord and certain tenants, are collectively referred to herein as the "Common Areas"). The manner in which the Common Areas are maintained and operated shall be at the sole discretion of Landlord and the use thereof shall be subject to such rules, regulations and restrictions as Landlord may make from time to time, provided that such rules, regulations and restrictions do not unreasonably and materially interfere with the rights granted to Tenant under this Lease and the permitted use granted under Section 5.1, below. Landlord reserves the right to close temporarily, make alterations or additions to, or change the location of elements of the Common Areas; provided that no such changes shall be permitted which materially reduce Tenant's rights or access hereunder.   Except when and where Tenant's right of access is specifically excluded in this Lease, Tenant shall have the right of access to the Premises, the Building, and the Project parking facility twenty-four (24) hours per day, seven (7) days per week during the "Lease Term," as that term is defined in Section 2.1, below.

1.2Stipulation of Rentable Square Feet of Premises and Building. For purposes of this Lease, "rentable square feet" of the Premises shall be deemed as set forth in Section 2.2 of the Summary and the rentable square feet of the Building shall be deemed as set forth in Section 2.1 of the Summary.  Landlord and Tenant hereby acknowledge and agree that such determination was calculated pursuant to Standard Method of Measuring Floor Area in Office Building, ANSI Z65.1 - 1996 ("BOMA").

ARTICLE 2

LEASE TERM; OPTION TERM

2.1Initial Lease Term.The TCCs and provisions of this Lease shall be effective as of the date of this Lease.  The term of this Lease (the "Lease Term") shall be as set forth in Section 3.1 of the Summary, shall commence on the date set forth in Section 3.2 of the Summary (the "Lease Commencement Date"), and shall terminate on the date set forth in Section 3.3 of the Summary (the "Lease Expiration Date") unless this Lease is sooner terminated as hereinafter provided.   For purposes of this Lease, the term "Lease Year" shall mean each consecutive twelve (12) month period during the Lease Term; provided, however, that (i) the first Lease Year shall commence on the Lease Commencement Date and end on the last day of the calendar month in which the first anniversary of such Lease Commencement Date occurs (i.e., July 19, 2004 through July 31, 2005), and the second and each succeeding Lease Year shall commence on the first day of the next calendar month (i.e., from August 1 to following July); and further provided that the last Lease Year shall end on the Lease Expiration Date.  At any time during the Lease Term, Landlord may deliver to Tenant a notice in the form as set forth in Exhibit C,attached hereto, as a confirmation only of the information set forth therein, which Tenant shall execute and return to Landlord within five (5) days of receipt thereof.

2.2Option Term.

2.2.1Option Right.Landlord hereby grants the Tenant originally named in this

Lease (the "Original Tenant") and any "Permitted Transferee," as that term is set forth in Section 14.8 of this Lease, one (1) option to extend the Lease Term for the entire Premises by a period of five (5) years (the "Option Term"). Such option shall be exercisable only by Notice

KILROY REALTY

571981.06/WLA4690 Executive Drive

K4064-066/6-8-04/pjr/pjr-5-[STMicroelectronics, Inc.]

delivered by Tenant to Landlord as provided below, provided that, as of the date of delivery of such Notice, (i) Tenant is not then in economic or material non-economic default under this Lease (beyond any applicable notice and cure periods), (ii) Tenant has not been in economic or material non-economic default under this Lease (beyond any applicable notice and cure periods) more than once during the prior twelve(12) month period, and (iii) Tenant has not been in economic or material non-economic default under this Lease (beyond any applicable notice and cure periods) more than three (3) times during the Lease Term. Upon the proper exercise of such option to extend, and provided that, as of the end of the Lease Term, (A) Tenant is not in economic or material non-economic default under this Lease (beyond any applicable notice and cure periods), (B) Tenant has not been in economic or material non-economic default under this Lease (beyond any applicable notice and cure periods) more than once during the prior twelve(12) month period, and (C) Tenant has not been in economic or material non-economic default under this Lease (beyond any applicable notice and cure periods) more than three (3) times during the Lease Term, then the Lease Term, as it applies to the entire Premises, shall be extended for a period of five (5) years.  The rights contained in this Section 2.2 shall only be exercised by the Original Tenant or its Permitted Transferee (and not any other assignee, sublessee or other transferee of the Original Tenant's interest in this Lease) if Original Tenant and/or its Permitted Transferee is in occupancy of no less than fifty percent (50%) of the Premises.

2.2.2 Option Rent. The Rent payable by Tenant during the Option Term (the "Option Rent") shall be equal to ninety-five percent (95%) of the Market Rent as set forth below.   For purposes of this Lease, the term "Market Rent" shall mean rent (including additional rent and considering any "base year" or "expense stop" applicable thereto), including all escalations, at which tenants, as of the commencement of the applicable term are, pursuant to transactions completed within the twenty-four (24) months prior to the first day of the Option Term, leasing non-sublease, non-encumbered, non-synthetic, non-equity space (unless such space was leased pursuant to a definition of "fair market" comparable to the definition of Market Rent) comparable in size, location and quality to the Premises for a "Comparable Term," as that term is defined in this Section 2.2.2 (the "Comparable Deals"), which comparable space is located in the "Comparable Buildings," as that term is defined in this Section 2.2.2, giving appropriate consideration to the annual rental rates per rentable square foot (adjusting the base rent component of such rate to reflect a net value after accounting for whether or not utility expenses are directly paid by the tenant such as Tenant's direct utility payments provided for in Section 6.1 of this Lease), the standard of measurement by which the rentable square footage is measured, the ratio of rentable square feet to usable square feet, and taking into consideration only, and granting only, the following concessions (provided that the rent payable in Comparable Deals in which the terms of such Comparable Deals are determined by use of a discounted fair market rate formula shall be equitably increased in order that such Comparable Deals will not reflect a discounted rate) (collectively,  the "Rent  Concessions"): (a) rental  abatement concessions or build-out periods, if any, being granted such tenants in connection with such comparable spaces; (b) tenant improvements or allowances provided or to be provided for such comparable space, taking into account the value of the existing improvements in the Premises to the extent paid for with the Tenant Improvement Allowance (such value to be based upon the age, quality and layout of the improvements and the extent to which the same could be utilized by general office users as contrasted with this specific Tenant), (c) Proposition 13 protection, if any, being granted such tenants, and (d) all other monetary concessions, if any, being granted

KILROY REALTY

571981.06/WLA4690 Executive Drive

K4064-066/6-8-04/pjr/pjr-6-[STMicroelectronics, Inc.]

such tenants in connection with such comparable space; provided, however, that notwithstanding anything to the contrary herein, no consideration shall be given to the fact that Landlord is or is not required to pay a real estate brokerage commission in connection with the applicable term or the fact that the Comparable Deals do or do not involve the payment of real estate brokerage commissions. The term "Comparable Term" shall refer to the length of the lease term, without consideration of options to extend such term, for the space in question.   In addition, the determination of the Market Rent shall include a determination as to whether, and if so to what extent, Tenant must provide Landlord with financial security, such as a letter of credit or guaranty, for Tenant's rent obligations during any Option Term.  Such determination shall be made by reviewing the extent of financial security then generally being imposed in Comparable Transactions upon tenants of comparable financial condition and credit history to the then existing financial condition and credit history of Tenant (with appropriate adjustments to account for differences in the then-existing financial condition of Tenant and such other tenants)  If in determining the Market Rent, Tenant is entitled to a tenant improvement or comparable allowance for the improvement of the Premises (the "Option Term TI Allowance"), Landlord may, at Landlord's sole option, elect any or a portion of the following: (A) to grant some or all of the Option Term TI Allowance to Tenant in the form as described above (i.e., as an improvement allowance), and/or (B) to reduce the rental rate component of the Market Rent to be an effective rental rate which takes into consideration that Tenant will not receive the total dollar value of such excess Option Term TI Allowance (in which case the Option Term TI Allowance evidenced in the effective rental rate shall not be granted to Tenant).  The term "Comparable Buildings" shall mean the Building and other first-class office buildings which are comparable to the Building in terms of age (based upon the date of completion of construction or major renovation as to the building containing the portion of the Premises in question), quality of construction, level of services and amenities (including the type (e.g., surface, covered, subterranean) and amount of parking), size and appearance, and are located in the UTC (i.e., the area from two (2) blocks to the North of La Jolla Village Drive to two (2) blocks to the South of La Jolla Village Drive between the 1-5 and 1-805 freeways) and Del Mar areas of San Diego, California (the ("Comparable Area").

2.2.3 Exercise of Option. The option contained in this Section 2.2 shall be exercised by Tenant, if at all, only in the manner set forth in this Section 2.2.3.  Tenant shall deliver notice (the "Exercise Notice") to Landlord not more than fifteen (15) months nor less than twelve (12) months prior to the expiration of the initial Lease Term, stating that Tenant is exercising its option. Concurrently with such Exercise Notice, Tenant shall deliver to Landlord Tenant's calculation of the Market Rent (the "Tenant's Market Rent Calculation"). Landlord shall deliver notice (the "Landlord Response Notice") to Tenant on or before the date which is nine (9) months prior to the expiration of the initial Lease Term (the "Landlord Response Date"), stating that (A) Landlord is accepting Tenant's Market Rent Calculation as the Market Rent, or (B) rejecting Tenant's Market Rent Calculation and setting forth Landlord's calculation of the Market Rent (the "Landlord's Market Rent Calculation"). Within ten (10) business days of its receipt of the Landlord Response Notice, Tenant may, at its option, accept the Market Rent contained in the Landlord's Market Rent Calculation.  If Tenant does not affirmatively accept or Tenant rejects the Market Rent specified in the Landlord's Market Rent Calculation, the parties shall follow the procedure, and the Market Rent shall be determined as set forth in

Section 2.2.4.

KILROY REALTY

57198 I.06/WLA4690 Executive Drive

K4064-066/6-8-04/pjr/pjr-7-[STMicroelectronics, Inc.]

2.2.4 Determination of Market Rent.  In the event Tenant objects or is deemed to have objected to Landlord's Market Rent Calculation, Landlord and Tenant shall attempt to agree upon the Market Rent using reasonable good-faith efforts.  If Landlord and Tenant fail to reach agreement within sixty (60) days following Tenant's objection or deemed objection to the Landlord's Market Rent Calculation (the "Outside Agreement Date"), then in connection with the Option Rent, Landlord's Market Rent Calculation and Tenant's Market Rent Calculation, each as previously delivered to the other party, shall be submitted to the arbitrators pursuant to the TCCs of this Section 2.2.4.  The submittals shall be made concurrently with the selection of the arbitrator pursuant to this Section 2.2.4 and shall be submitted to arbitration in accordance with Section 2.2.4.1 through 2.2.4.7 of this Lease, but subject to the conditions, when appropriate, of Section 2.2.2.

2.2.4.1 Landlord and Tenant mutually and reasonably select one arbitrator

("Neutral Arbitrator") who shall by profession be a real estate broker, appraiser or attorney who shall have been active over the five (5) year period ending on the date of such appointment in the leasing (or appraisal, as the case may be) of first-class office properties in the Comparable Area.   The determination of the arbitrators shall be limited solely to the issue of whether Landlord's Market Rent Calculation or Tenant's Market Rent Calculation is the closest to the actual Market Rent as determined by the Neutral Arbitrator, taking into account the requirements of Section 2.2.2 of this Lease.  Such Neutral Arbitrator shall be appointed within fifteen (15) days after the Outside Agreement Date.   Neither the Landlord or Tenant or either party's Advocate Arbitrator may, directly or indirectly, consult with the Neutral Arbitrator prior to subsequent to his or her appearance. The Neutral Arbitrator shall be retained via an engagement letter jointly prepared by Landlord's counsel and Tenant's counsel.

2.2.4.2 The Neutral Arbitrator shall, within thirty(30) days of his/her

appointment, reach a decision as to Market Rent and determine whether the Landlord's Market Rent Calculation or Tenant's Market Rent Calculation, as submitted pursuant to Section 2.2.4.1 and Section 2.2.3 of this Lease, is closest to Market Rent as determined by such Neutral Arbitrator and simultaneously publish a ruling ("Award") indicating whether Landlord's Market Rent Calculation or Tenant's Market Rent Calculation is closest to the Market Rent as so determined by the Neutral Arbitrator.   Following notification of the Award, the Landlord's Market Rent Calculation or the Tenant's Market Rent Calculation, whichever is selected by the Neutral Arbitrator as being closest to Market Rent shall become the then applicable Market Rent (and the Option Rent shall be established as ninety-five percent (95%) of such Market Rent (with applicable escalations)).

2.2.4.3 The Award issued by the Neutral Arbitrator shall be binding upon Landlord and Tenant.

2.2.4.4 If Landlord and Tenant fail to reasonably and mutually select the

Neutral Arbitrator within fifteen (15) days after the Outside Agreement Date, either party may petition the presiding judge of the Superior Court of San Diego County to appoint such Advocate Arbitrator subject to the criteria in Section 2.2.4.1 of this Lease, or if he or she refuses to act, either party may petition any judge having jurisdiction over the parties to appoint such Advocate Arbitrator.

KILROY REALTY

571981.06/WLA4690 Executive Drive

K4064-066/6-8-04/pjr/pjr-8-[STMicroelectronics, Inc.]

2.2.4.5 The cost of arbitration shall be paid by Landlord and Tenant

equally.

ARTICLE 3 BASE RENT

Tenant shall pay, without prior notice or demand, to Landlord or Landlord's agent at the management office of the Project, or, at Landlord's option, at such other place as Landlord may from time to time designate in writing, by a check for currency which, at the time of payment, is legal tender for private or public debts in the United States of America, base rent ("Base Rent") as set forth in Section 4 of the Summary, payable in equal monthly installments as set forth in Section 4 of the Summary in advance on or before the first day of each and every calendar month during the Lease Term, which payment shall be, except as expressly provided in this Lease to the contrary, without any setoff or deduction whatsoever. The Base Rent for the first full month of the Lease Term which occurs after the expiration of any free rent period shall be paid at the time of Tenant's execution of this Lease. If any Rent payment date (including the Lease Commencement Date) falls on a day of the month other than the first day of such month or if any payment of Rent is for a period which is shorter than one month, the Rent for any such fractional month shall accrue on a daily basis during such fractional month and shall total an amount equal to the product of (i) a fraction, the numerator of which is the number of days in such fractional month and the denominator of which is the actual number of days occurring in such calendar month, and (ii) the then-applicable Monthly Installment of Base Rent.  All other payments or adjustments required to be made under the TCCs of this Lease that require proration on a time basis shall be prorated on the same basis.

ARTICLE 4

ADDITIONAL RENT

4.1General Terms.In addition to paying the Base Rent specified in Article 3 of this Lease, Tenant shall pay "Tenant's Share" of the annual "Direct Expenses," as those terms are defined in Sections 4.2.6 and 4.2.2, respectively, of this Lease.   Such payments by Tenant, together with any and all other amounts payable by Tenant to Landlord pursuant to the TCCs of this Lease, are hereinafter collectively referred to as the "Additional Rent," and the Base Rent and the Additional Rent are herein collectively referred to as "Rent." All amounts due under this Article 4 as Additional Rent shall be payable for the same periods and in the same manner as the Base Rent. Without limitation on other obligations of Tenant which survive the expiration of the Lease Term, the obligations of Tenant to pay the Additional Rent provided for in this Article 4 shall survive the expiration of the Lease Term.

4.2Definitions of Key Terms Relating to Additional Rent.  As used in this Article 4, the following terms shall have the meanings hereinafter set forth:

4.2.1Intentionally Omitted.

4.2.2 "Direct Expenses" shall mean "Operating Expenses" and "Tax Expenses."

KILROY REALTY

57I981.06/WLA4690 Executive Drive

K4064-066/6-8-04/pjr/pjr-9-[STMicroelectronics, Inc.]

4.2.3"Expense Year" shall mean each calendar year in which any portion of

the Lease Term falls, through and including the calendar year in which the Lease Term expires, provided that Landlord, upon notice to Tenant, may change the Expense Year from time to time to any other twelve (12) consecutive month period, and, in the event of any such change, Tenant's Share of Direct Expenses shall be equitably adjusted for any Expense Year involved in any such change.

4.2.4 "Operating Expenses" shall mean all expenses, costs and amounts of every kind and nature which Landlord pays or accrues during any Expense Year because of or in connection with the management, maintenance, security, repair, replacement, restoration or operation of the Project, or any portion thereof. Without limiting the generality of the foregoing, Operating Expenses shall specifically include any and all of the following: (i) the cost of supplying all utilities, the cost of operating, repairing, maintaining, and renovating the utility, telephone,  mechanical,  sanitary,  storm drainage,  and  elevator systems,  and the cost  of maintenance and service contracts in connection therewith; (ii) the cost of licenses, certificates, permits and inspections and the cost of contesting any governmental enactments which may affect Operating Expenses, and the costs incurred in connection with a governmentally mandated transportation system management program or similar program; (iii) the cost of all insurance carried by Landlord in connection with the Project; (iv) the cost of landscaping, relamping, and all supplies, tools, equipment and materials used in the operation, repair and maintenance of the Project, or any portion thereof; (v) costs incurred in connection with the parking areas servicing the Project; (vi) fees and other costs, including a management fee (which management fee shall equal three and one-half percent (31/2%) of the Base Rent due under this Lease), consulting fees, legal fees and accounting fees, of all contractors and consultants in connection with the management, operation, maintenance and repair of the Project; (vii) payments under any equipment rental agreements and the fair rental value of any management office space; (viii) wages, salaries and other compensation and benefits, including taxes levied thereon, of all persons (other than persons generally considered to be higher in rank than the position of Regional Asset Manager) engaged in the operation, maintenance and security of the Project; (ix) costs under any instrument pertaining to the sharing of costs by the Project; (x) operation, repair, maintenance and replacement of all systems and equipment and components thereof of the Building; (xi) the cost of janitorial, alarm, security and other services, replacement of wall and floor coverings, ceiling tiles and fixtures in common areas, maintenance and replacement of curbs and walkways, repair to roofs and re-roofing; (xii) amortization (including interest on the unamortized cost) of the cost of acquiring or the rental expense of personal property used in the maintenance, operation and repair of the Project, or any portion thereof, to the extent of cost savings reasonably anticipated by Landlord at the time of such expenditure to be incurred in connection therewith; (xiii) the cost of capital  improvements  or other costs  incurred in connection with the Project (A) which are intended to effect economies in the operation or maintenance of the Project, or any portion thereof, (B) that are required to comply with present or  anticipated  conservation  programs, (C) which  are  replacements  or  modifications  of nonstructural items located in the Common Areas required to keep the Common Areas in good order or condition, or (D) that are required under any governmental law or regulation by a federal, state or local governmental agency, except for capital repairs, replacements or other improvements to remedy a condition existing prior to the Lease Commencement Date which an applicable governmental authority, if it had knowledge of such condition prior to the Lease Commencement Date, would have then required to be remedied pursuant to then-current

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governmental laws or regulations in their form existing as of the Lease Commencement Date and pursuant to the then-current interpretation of such governmental laws or regulations by the applicable governmental authority as of the Lease Commencement Date; provided, however, that any capital expenditure shall be shall be amortized with interest at the "Interest Rate," as that term is set forth in Article 25 of this Lease, over the shorter of (1) seven (7) years, or (2) its useful life as Landlord shall reasonably determine in accordance with sound real estate management and accounting principles; (xiv) costs, fees, charges or assessments imposed by, or resulting from any mandate imposed on Landlord by, any federal, state or local government for fire and police protection, trash removal, community services, or other .services which do not constitute "Tax Expenses" as that term is defined in Section 4.2.5, below; and (xv) payments under  any  easement,  license,  operating  agreement,  declaration,  restrictive  covenant,  or instrument pertaining to the sharing of costs by the Building. Notwithstanding the foregoing, for purposes of this Lease, Operating Expenses shall not, however, include:

(a)costs, including marketing costs, legal fees, space planners' fees, advertising and promotional expenses, and brokerage fees incurred in connection with the original construction or development, or original or future leasing of the Project, and costs, including permit, license and inspection costs, incurred with respect to the installation of tenant improvements made for new tenants initially occupying space in the Project after the Lease Commencement Date or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space for tenants or other occupants of the Project (excluding, however, such costs relating to any common areas of the Project or parking facilities);

(b)except  as  set  forth  in  items (xii),(xiii),  and(xiv)  above, depreciation, interest and principal payments on mortgages and other debt costs, if any, penalties and interest;

(c)costs for which the Landlord is reimbursed by any tenant or occupant of the Project or by insurance by its carrier or any tenant's carrier or by anyone else, and electric power costs for which any tenant directly contracts with the local public service company;

(d)any bad debt loss, rent loss, or reserves for bad debts or rent loss;

(e)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 (which shall specifically include, but not be limited to, accounting costs associated with the operation of the Project).  Costs associated with the operation of the business of the partnership or entity which constitutes the Landlord include costs of partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee (except as the actions of the Tenant may be in issue), costs of selling, syndicating, financing, mortgaging or hypothecating any of the Landlord's interest in the Project, and costs incurred in connection with any disputes between Landlord and its employees, between Landlord and Project management, or between Landlord and other tenants or occupants, and Landlord's general corporate overhead and general and administrative expenses;

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(f)the wages and benefits of any employee who does not devotesubstantially all of his or her employed time to the Project unless such wages and benefits are prorated to reflect time spent on operating and managing the Project vis-a-vis time spent on matters unrelated to operating and managing the Project; provided, that in no event shall Operating Expenses for purposes of this Lease include wages and/or benefits attributable to personnel above the level of Project manager;

(g)amount paid as ground rental for the Project by the Landlord;

(h)overhead  and  profit  increment paid  to  the  Landlord  or to subsidiaries or affiliates of the Landlord for services in the Project to the extent the same exceeds the costs of such services rendered by qualified, first-class unaffiliated third parties on a competitive basis;

(i)any compensation paid to clerks, attendants or other persons in commercial concessions operated by the Landlord, provided that any compensation paid to any concierge at the Project shall be includable as an Operating Expense;

(j)rentals  and  other  related  expenses  incurred  in  leasing  air conditioning systems, elevators or other equipment which if purchased the cost of which would be excluded from Operating Expenses as a capital cost, except equipment not affixed to the Project which is used in providing janitorial or similar services and, further excepting from this exclusion such equipment rented or leased to remedy or ameliorate an emergency condition in the Project ;

(k)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;

(1)costs, other than those incurred in ordinary maintenance and repair, for sculpture, paintings, fountains or other objects of art;

(m)any costs expressly excluded from Operating Expenses elsewherein this Lease;

(n)rent  for  any  office  space  occupied  by  Project  management personnel to the extent the size or rental rate of such office space exceeds the size or fair market rental value of office space occupied by management personnel of the Comparable Buildings in the vicinity of the Building, with adjustment where appropriate for the size of the applicable project;

(o)costs arising from the gross negligence or willful misconduct of Landlord or its agents, employees, vendors, contractors, or providers of materials or services;

and

(p)costs incurred to comply with laws relating to the removal of hazardous material (as defined under applicable law) which was in existence in the Building or on the Project prior to the Lease Commencement Date, and was of such a nature that a federal,

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State or municipal governmental authority, if it had then had knowledge of the presence of such hazardous material, in the state, and under the conditions that it then existed in the Building or on the Project, would have then required the removal of such hazardous material or other remedial or containment action with respect thereto; and costs incurred to remove, remedy, contain, or treat hazardous material, which hazardous material is brought into the Building or onto the Project after the date hereof by Landlord or any other tenant of the Project and is of such a nature, at that time, that a federal, State or municipal governmental authority, if it had then had knowledge of the presence of such hazardous material, in the state, and under the conditions, that it then exists in the Building or on the Project, would have then required the removal of such hazardous material or other remedial or containment action with respect thereto.

If Landlord is not furnishing any particular work or service(the cost of which, if performed by Landlord, would be included in Operating Expenses) to a tenant who has undertaken to perform such work or service in lieu of the performance thereof by Landlord, Operating Expenses shall be deemed to be increased by an amount equal to the additional Operating Expenses which would reasonably have been incurred during such period by Landlord if it had at its own expense furnished such work or service to such tenant.

4.2.5 Taxes.

4.2.5.1 "Tax Expenses" shall mean all federal, state, county, or local governmental or municipal taxes, fees, charges or other impositions of every kind and nature, whether general, special, ordinary or extraordinary, (including, without limitation, real estate taxes, general and special assessments, transit taxes, leasehold taxes or taxes based upon the receipt of rent, including gross receipts or sales taxes applicable to the receipt of rent, unless required to be paid by Tenant, personal property taxes imposed upon the fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances, furniture and other personal property used in connection with the Project, or any portion thereof), which shall be paid or accrued during any Expense Year (without regard to any different fiscal year used by such governmental or municipal authority) because of or in connection with the ownership, leasing and operation of the Project, or any portion thereof.

4.2.5.2 Tax Expenses shall include, without limitation:(i) Any tax on the  rent, right to rent or other income from the Project, or any portion thereof; or as against the business of leasing the Project, or any portion thereof; (ii) Any assessment, tax, fee, levy or charge in addition to, or in substitution, partially or totally, of any assessment, tax, fee, levy or charge previously included within the definition of real property tax, it being acknowledged by Tenant and Landlord that Proposition 13 was adopted by the voters of the State of California in the June 1978 election ("Proposition 13") and that assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such services as fire protection, street, sidewalk and road maintenance, refuse removal and for other governmental services formerly provided without charge to property owners or occupants, and, in further recognition of the decrease in the level and quality of governmental services and amenities as a result of Proposition 13, Tax Expenses shall also include any governmental or private assessments or the Project's contribution towards a governmental or private cost-sharing agreement for the purpose of augmenting or improving the quality of services and amenities normally provided by governmental agencies; (iii) Any assessment, tax, fee, levy, or charge allocable to or measured by the area of the

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Premises or the Rent payable hereunder, including, without limitation, any business or gross income tax or excise tax with respect to the receipt of such rent, or upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof; and (iv) Any assessment, tax, fee, levy or charge, upon this transaction or any document to which Tenant is a party, creating or transferring an interest or an estate in the Premises.

4.2.5.3 Any costs and expenses (including, without limitation, reasonable

attorneys' fees) incurred in attempting to protest, reduce or minimize Tax Expenses shall be included in Tax Expenses in the Expense Year such expenses are paid.  Except as set forth in Section 4.2.5.4, below, refunds of Tax Expenses shall be credited against Tax Expenses and refunded to Tenant regardless of when received, based on the Expense Year to which the refund is applicable, provided that in no event shall the amount to be refunded to Tenant for any such Expense Year exceed the total amount paid by Tenant as Additional Rent under this Article 4 for such Expense Year.  If Tax Expenses for any period during the Lease Term or any extension thereof are increased after payment thereof for any reason, including, without limitation, error or reassessment by applicable governmental or municipal authorities, Tenant shall pay Landlord upon demand Tenant's Share of any such increased Tax. Expenses included by Landlord as Building Tax Expenses pursuant to the TCCs of this Lease.  Notwithstanding anything to the contrary contained in this Section 4.2.8 (except as set forth in Section 4.2.8.1, above), there shall be excluded from Tax Expenses (i) all excess profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and succession taxes, estate taxes, federal and state income taxes, and other taxes to the extent applicable to Landlord's general or net income (as opposed to rents, receipts or income attributable to operations at the Project), (ii) any items included as Operating Expenses, and (iii) any items paid by Tenant under Section 4.5 of this Lease.

4.2.6  "Tenant's Share" shall mean the percentage set forth in Section 6 of the Summary.

4.3Intentionally Omitted.

4.4Calculation and Payment of Additional Rent. Tenant shall pay to Landlord, in the manner set forth in Section 4.4.1, below, and as Additional Rent, an amount equal to the excess (the "Excess").

4.4.1Statement of Actual Building Direct Expenses  and Payment by Tenant. Landlord shall give to Tenant following the end of each Expense Year, a statement (the "Statement") which shall state in general major categories the Building Direct Expenses incurred or accrued for such preceding Expense Year, and which shall indicate the amount of Tenant's Share of Direct Expenses.   Landlord shall use commercially reasonable efforts to deliver such Statement to Tenant on or before May 1 following the end of the Expense Year to which such Statement relates. Upon receipt of the Statement for each Expense Year commencing or ending during the Lease Term, Tenant shall pay, within thirty (30) days after receipt of the Statement, the full amount of Tenant's Share of Direct Expenses for such Expense Year, less the amounts, if any, paid during such Expense Year as "Estimated Direct Expenses," as that term is defined in Section 4.4.2, below, and if Tenant paid more as Estimated Direct Expenses than the actual Tenant's Share of Direct Expenses (an "Excess"), Tenant shall receive a

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credit in the amount of such Excess against Rent next due under this Lease.  The failure of Landlord to timely furnish the Statement for any Expense Year shall not prejudice Landlord or Tenant from enforcing its rights under this Article 4.  Even though the Lease Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant's Share of Direct Expenses for the Expense Year in which this Lease terminates, if Tenant's Share of Direct Expenses is greater than the amount of Estimated Direct Expenses previously paid by Tenant to Landlord, Tenant shall, within thirty (30) days after receipt of the Statement, pay to Landlord such amount, and if Tenant paid more as Estimated Direct Expenses than the actual Tenant's Share of Direct Expenses (again, an Excess), Landlord shall, within thirty (30) days, deliver a check payable to Tenant in the amount of such Excess. The provisions of this Section 4.4.1 shall survive  the expiration or earlier termination of the Lease Term. Notwithstanding the immediately preceding sentence, Tenant shall not be responsible for Tenant's Share of any Building Direct Expenses attributable to any Expense Year which are first billed to Tenant more than two (2) calendar years after the Lease Expiration Date, provided that in any event Tenant shall be responsible for Tenant's Share of Direct Expenses levied by any governmental authority or by any public utility companies at any time following the Lease Expiration Date which are attributable to any Expense Year.

4.4.2 Statement  of Estimated Building Direct Expenses.In addition, Landlord shall give Tenant a yearly expense estimate statement (the "Estimate Statement") which shall set forth in general major categories Landlord's reasonable estimate (the "Estimate") of what the total amount of Direct Expenses for the then-current Expense Year shall be and the estimated Tenant's Share of Direct Expenses (the "Estimated Direct Expenses"). Landlord shall use commercially reasonable efforts to deliver such Estimate Statement to Tenant on or before May 1 following the end of the Expense Year to which such Estimate Statement relates. The failure of Landlord to timely furnish the Estimate Statement for any Expense Year shall not preclude Landlord from enforcing its rights to collect any Estimated Direct Expenses under this Article 4, nor shall Landlord be prohibited from revising any Estimate Statement or Estimated Direct Expenses theretofore delivered to the extent necessary.  Thereafter, Tenant shall pay, within thirty (30) days after receipt of the Estimate Statement, a fraction of the Estimated Direct Expenses for the then-current Expense Year (reduced by any amounts paid pursuant to the second to last sentence of this Section 4.4.2).  Such fraction shall have as its numerator the number of months which have elapsed in such current Expense Year, including the month of such payment, and twelve (12) as its denominator. Until a new Estimate Statement is furnished (which Landlord shall have the right to deliver to Tenant at any time), Tenant shall pay monthly, with the 'monthly Base Rent installments, an amount equal to one-twelfth (1/12) of the total Estimated Direct Expenses set forth in the previous Estimate Statement delivered by Landlord to Tenant. Throughout the Lease Term Landlord shall maintain books and records with respect to Building Direct Expenses in accordance with generally accepted real estate accounting and management practices, consistently applied.

4.5Taxes and Other Charges for Which Tenant Is Directly Responsible.

4.5.1Tenant shall be liable for and shall pay ten (10) days before delinquency, taxes levied against Tenant's equipment, furniture, fixtures and any other personal property located in or about the Premises. If any such taxes on Tenant's equipment, furniture, fixtures and any other personal property are levied against Landlord or Landlord's property or if the assessed

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value of Landlord's property is increased by the inclusion therein of a value placed upon such equipment, furniture, fixtures or any other personal property and if Landlord pays the taxes based upon such increased assessment, which Landlord shall have the right to do regardless of the validity thereof but only under proper protest if requested by Tenant, Tenant shall upon demand repay to Landlord the taxes so levied against Landlord or the proportion of such taxes resulting from such increase in the assessment, as the case may be.

4.5.2If the tenant improvements in the Premises, whether installed and/or paid for by Landlord or Tenant and whether or not affixed to the real property so as to become a part thereof, are assessed for real property tax purposes at a valuation higher than the valuation at which tenant improvements conforming to Landlord's "building standard" in other space in the Building are assessed, then the Tax Expenses levied against Landlord or the property by reason of such excess assessed valuation shall be deemed to be taxes levied against personal property of Tenant and shall be governed by the provisions of Section 4.5.1, above.

4.5.3Notwithstanding any contrary provision herein, Tenant shall pay prior to delinquency any (i) rent tax or sales tax, service tax, transfer tax or value added tax, or any other applicable tax on the rent or services herein or otherwise respecting this Lease, (ii) taxes assessed upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion of the Project, including the Project parking facility; or (iii) taxes assessed upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises.

4.6Landlord's Books and Records.Upon Tenant's written request given not more than ninety (90) days after Tenant's receipt of a Statement for a particular Expense Year, and provided that Tenant is not then in default under this Lease beyond the applicable cure period provided in this Lease, Landlord shall furnish Tenant with such reasonable supporting documentation in connection with said Building Direct Expenses as Tenant may reasonably request. Landlord shall provide said information to Tenant within sixty (60) days after Tenant's written request therefor.  Within one hundred eighty (180) days after receipt of a Statement by Tenant (the "Review Period"), if Tenant disputes the amount of Additional Rent set forth in the Statement, an independent certified public accountant (which accountant (A) is a member of a nationally or regionally recognized accounting firm, and (B) is not working on a contingency fee basis), designated and paid for by Tenant, may, after reasonable notice to Landlord and at reasonable times, inspect Landlord's records with respect to the Statement at Landlord's offices, provided that Tenant is not then in default under this Lease (beyond any applicable notice and cure periods) and Tenant has paid all amounts required to be paid under the applicable Estimate Statement and Statement, as the case may be.  In connection with such inspection, Tenant and Tenant's agents must agree in advance to follow Landlord's reasonable rules and procedures regarding inspections of Landlord's records, and shall execute a commercially reasonable confidentiality agreement regarding such inspection.  Tenant's failure to dispute the amount of Additional Rent set forth in any Statement within the Review Period shall be deemed to be Tenant's approval of such Statement and Tenant, thereafter, waives the right or ability to dispute the amounts set forth in such Statement.  If after such inspection, Tenant still disputes such Additional Rent, a determination as to the proper amount shall be made, at Tenant's expense, by an independent certified public accountant (the "Accountant") selected by Landlord and subject to Tenant's reasonable approval; provided that if such determination by the Accountant proves

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that Direct Expenses were overstated by more than five percent(5%), then the cost of the Accountant and the cost of such determination shall be paid for by Landlord. Tenant hereby acknowledges that Tenant's sole right to inspect Landlord's books and records and to contest the amount of Direct Expenses payable by Tenant shall be as set forth in this Section 4.6, and Tenant hereby waives any and all other rights pursuant to applicable law to inspect such books and records and/or to contest the amount of Direct Expenses payable by Tenant.

ARTICLE 5

USE OF PREMISES

5.1Permitted Use. Tenant shall use the Premises solely for the Permitted Use set forth in Section 7 of the Summary and Tenant shall not use or permit the Premises or the Project to be used for any other purpose or purposes whatsoever without the prior written consent of Landlord, which may be withheld in Landlord's sole discretion.

5.2Prohibited Uses. The uses prohibited under this Lease shall include, without limitation, use of the Premises or a portion thereof for (i) offices of any agency or bureau of the United States or any state or political subdivision thereof; (ii) offices or agencies of any foreign governmental or political subdivision thereof; (iii) offices of any health care professionals or service organization; (iv) schools or other training facilities which are not ancillary to corporate, executive or professional office use; (v) retail or restaurant uses; or (vi) communications firms such as radio and/or television stations. Tenant shall not allow occupancy density of use of the Premises which is greater than the average density of the other tenants of the Building. Tenant further covenants and agrees that Tenant shall not use, or suffer or permit any person or persons to use, the Premises or any part thereof for any use or purpose contrary to the provisions of the Rules and Regulations set forth in Exhibit D,attached hereto, or in violation of the laws of the United States of America, the State of California, or the ordinances, regulations or requirements of the local municipal or county governing body or other lawful authorities having jurisdiction over the Project) including, without limitation, any such laws, ordinances, regulations or requirements relating to hazardous materials or substances, as those terms are defined by applicable laws now or hereafter in effect; provided, however, Landlord shall not enforce, change or modify the Rules and Regulations in a discriminatory manner and Landlord agrees that the Rules and Regulations shall not be unreasonably modified or enforced in a manner which will unreasonably interfere with the normal and customary conduct of Tenant's business. Tenant shall not do or permit anything to be done in or about the Premises which will in any way damage the reputation of the Project or obstruct or interfere with the rights of other tenants or occupants of the Building, or injure or annoy them or use or allow the Premises to be used for any improper, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises.   Tenant shall comply with all recorded covenants, conditions, and restrictions now or hereafter affecting the Project.

5.3CC&Rs.Landlord represents and warrants that as of the date of this Lease there are no  recorded  covenants,  conditions,  and restrictions  affecting the  Project. Tenant acknowledges that the Project may be subject to any future covenants, conditions, and restrictions (the "CC&Rs") which Landlord,  in Landlord's  discretion,  deems reasonably necessary or desirable, and Tenant agrees that, to the extent such CC&Rs do not materially

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adversely affect Tenant's use of the Premises for the Permitted Use and Tenant's access to the Premises, (i) this Lease shall be subject and subordinate to such CC&Rs, (ii) Tenant shall comply with all such CC&Rs, and (iii) Landlord shall have the right to require Tenant to execute and acknowledge, within fifteen (15) business days of a request by Landlord, a "Recognition of Covenants, Conditions, and Restriction," in a form substantially similar to that attached hereto as Exhibit F,agreeing to and acknowledging such CC&Rs.

ARTICLE 6

SERVICES AND UTILITIES

6.1Standard Tenant Services.Landlord shall provide the following services on all days (unless otherwise stated below) during the Lease Term.

6.1.1Subject to limitations imposed by all governmental rules, regulations and guidelines applicable thereto, Landlord shall provide heating and air conditioning ("HVAC") when necessary for normal comfort for normal office use in the Premises from 7:30 A.M. to 6:00 P.M. Monday through Friday, and on Saturdays from 8:00 A.M. to 12:00 P.M. (collectively, the "Building Hours"), except for the date of observation of New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day and, at Landlord's discretion, other locally or nationally recognized holidays (collectively,  the "Holidays"); provided, however, in no event shall Martin Luther King Day, Columbus Day, or Veterans Day be included as Holidays.

6.1.2Landlord  shall provide  adequate  electrical wiring  and  facilities  for connection to Tenant's lighting fixtures and incidental use equipment, provided that (i) the connected electrical load of the incidental use equipment does not exceed an average of five (5) watts per usable square foot of the Premises during the Building Hours on a monthly basis, and the electricity so furnished for incidental use equipment will be at a nominal one hundred twenty (120) volts and no electrical circuit for the supply of such incidental use equipment will require a current capacity exceeding twenty (20) amperes, and (ii) the connected electrical load of Tenant's lighting fixtures does not exceed an average of one and one-half (11/2) watts per usable square foot of the Premises during the Building Hours on a monthly basis, and the electricity so furnished for Tenant's lighting will be at a nominal two hundred seventy-seven (277) volts, which electrical usage shall be subject to applicable laws and regulations, including Title 24. Tenant will design Tenant's electrical system serving any equipment producing nonlinear electrical loads to accommodate such nonlinear electrical loads, including, but not limited to, oversizing neutral  conductors,  derating transformers  and/or providing power-line filters. Engineering plans shall include a calculation of Tenant's fully connected electrical design load with and without demand factors and shall indicate the number of watts of unmetered and submetered loads.  Tenant shall bear the cost of replacement of lamps, starters and ballasts for non-Building standard lighting fixtures within the Premises. Tenant shall be provided access to the lighting controls for each floor of the Building within the Premises.

6.1.3Landlord shall provide city water from the regular Building outlets for drinking, lavatory and toilet purposes in the Building Common Areas.

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6.1.4Landlord shall provide exterior window washing services in a manner consistent with other comparable buildings in the vicinity of the Building.

6.1.5Subject to Landlord's reasonable maintenance and repair requirements for the Building elevators, Landlord shall provide nonexclusive, non-attended automatic passenger elevator service at all times. Tenant shall cooperate fully with Landlord at all times and abide by all regulations and requirements that Landlord may reasonably prescribe for the proper functioning and protection of the HVAC, electrical, mechanical and plumbing systems.

6.2Above Standard Tenant Services. Notwithstanding anything to the contrary set forth in Section 4.2.4 or this Article 6, Tenant shall directly pay to Landlord one hundred percent (100%) of the total cost (including any permitting and/or other implementation costs) of providing all services (and related equipment) required by Tenant which are in excess of the services set forth in Section 6.1, above, including, but not limited to, (i) twenty-four (24) hour security services to the Project, (ii) parking management systems, equipment and/or personnel, and (iii) twenty-four (24) hour porter service.

6.3Direct Payment of Premises Utility Costs.  Notwithstanding anything to the contrary set forth in Section 4.2.4 or this Article 6, Tenant shall pay one hundred percent (100%) of the cost of all utilities (including without limitation, electricity, gas, sewer and water) attributable to its use of the entire Premises and shall also itself provide (or otherwise directly contract for) its own janitorial services for the Premises.   Tenant's utility use shall include electricity, water, and gas use for lighting, incidental use and HVAC. All such Premises utility and janitorial payments (as opposed to corresponding payments attributable to the Common Areas) shall be excluded from Operating Expenses and shall be paid directly by Tenant prior to the date on which the same are due to the utility provider and/or janitorial company, as applicable.  Landlord and Tenant hereby acknowledge and agree that the Premises has been separately metered.

6.4Tenant Maintained Janitorial & Security.  Tenant hereby acknowledges that Landlord shall have no obligation to provide janitorial services for the Premises, and no obligation to provide guard service or other security measures for the benefit of the Premises, the Building or the Project. Tenant shall directly contract for, or itself provide, janitorial services for the Premises, which janitorial services shall be at Tenant's sole cost and expense and which shall be consistent with janitorial standards for first class office buildings and the Comparable Buildings.  Any such security measures for the benefit of the Premises, the Building or the Project shall be provided by Tenant, at Tenant's sole cost and expense. Tenant hereby assumes all responsibility for the protection of Tenant and its agents, employees, contractors, invitees and guests, and the property thereof, from acts of third parties, including keeping doors locked and other means of entry to the Premises closed.

6.5Overstandard Tenant Use.

6.5.1Generally. Tenant shall not, without Landlord's prior written consent, use heat-generating machines, machines other than normal fractional horsepower office machines, or

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equipment or lighting other than Building standard lights in the Premises, which may affect the temperature otherwise maintained by the air conditioning system or increase the water normally furnished for the Premises by Landlord pursuant to the terms of Section 6.1 of this Lease.  If such consent is given, Landlord shall have the right to install supplementary air conditioning units or other facilities in the Premises, including supplementary or additional metering devices, and the cost thereof, including the cost of installation, operation and maintenance, increased wear and tear on existing equipment and other similar charges, shall be paid by Tenant to Landlord upon billing by Landlord. If Tenant uses water, electricity, heat or air conditioning in excess of that supplied by Landlord pursuant to Section 6.1 of this Lease, Tenant shall pay to Landlord, upon billing, the cost of the installation, operation, and maintenance of equipment which is installed in order to supply such excess consumption.  Tenant's use of electricity shall never exceed the capacity of the feeders to the Project or the risers or wiring installation.

6.5.2 HVAC.  Tenant shall be provided access to the HVAC controls for the second (2nd) floor of the Building.  If Tenant uses HVAC in excess of two hundred forty (240) cumulative hours during any calendar month of the Lease Term, such excess-hours of HVAC (the "After Hours HVAC") shall be provided to Tenant subject to Tenant's payment to Landlord of an amount reasonably determined by Landlord to be its actual cost of providing such service (which cost shall specifically include, but not be limited to, a reasonable administration expense, electrical costs, and the amount directly attributable to increased wear and tear on existing Building Systems caused by such After Hours HVAC); provided, however, promptly following Tenant's request therefore, Landlord shall provide reasonable backup documentation in support of Landlord's determination of such excess-hours charge; provided further, however, Tenant's use of After Hours HVAC (i.e., for hours other than the Building Hours) shall be for a minimum of four (4) consecutive hours per such use. As of the execution of this Lease, the excess-hours charge is anticipated to total approximately $15.00 per floor per hour.  Amounts payable by Tenant to Landlord for such excess-hours use shall be deemed Additional Rent and shall be paid within thirty (30) days after Tenant's receipt of an invoice therefor.

6.6Interruption of Use. Except as otherwise provided in this Lease, Tenant agrees that Landlord shall not be liable for damages, by abatement of Rent or otherwise, for failure to furnish or delay in furnishing any service (including telephone and telecommunication services), or for any diminution in the quality or quantity thereof, when such failure or delay or diminution is occasioned, in whole or in part, by breakage, repairs, replacements, or improvements, by any strike, lockout or other labor trouble, by inability to secure electricity, gas, water, or other fuel at the Building or Project after reasonable effort to do so, by any riot or other dangerous condition, emergency, accident or casualty whatsoever, by act or default of Tenant or other parties, or by any other cause beyond Landlord's reasonable control; and such failures or delays or diminution shall never be deemed to constitute an eviction or disturbance of Tenant's use and possession of the Premises or relieve Tenant from paying Rent or performing any of its obligations under this Lease, except as otherwise provided in this Lease.  Furthermore, Landlord shall not be liable under any circumstances for a loss of, or injury to, property or for injury to, or interference with, Tenant's business, including, without limitation, loss of profits, however occurring, through or in connection with or incidental to a failure to furnish any of the services or utilities as set forth in this Article 6.

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6.7Rent Abatement.   If Landlord fails to perform the obligations required of Landlord under the TCCs of this Lease and such failure causes all or a portion of the Premises to be untenantable and unusable by Tenant and such failure relates to the nonfunctioning of the heat, ventilation, and air conditioning system in the Premises, the electricity in the Premises, the nonfunctioning of the elevator service to the Premises, or a failure to provide access to the Premises, Tenant shall give Landlord notice (the "Initial Notice"), specifying such failure to perform by Landlord (the "Landlord Default").   If Landlord has not cured such Landlord Default within five (5) business days after the receipt of the Initial Notice (the "Eligibility Period"), Tenant may deliver an additional notice to Landlord (the "Additional Notice"), specifying such Landlord Default and Tenant's intention to abate the payment of Rent under this Lease. If Landlord does not cure such Landlord Default within five (5) business days of receipt of the Additional Notice, Tenant may, upon written notice to Landlord, immediately abate Rent payable under this Lease for that portion of the Premises rendered untenantable and not used by Tenant, for the period beginning on the date five (5) business days after the Initial Notice to the earlier of the date Landlord cures such Landlord Default or the date Tenant recommences the use of such portion of the Premises.  Such right to abate Rent shall be Tenant's sole and exclusive remedy at law or in equity for a Landlord Default.  Except as provided in this Section 6.4, nothing contained herein shall be interpreted to mean that Tenant is excused from paying Rent due hereunder.

ARTICLE 7 REPAIRS

Landlord shall maintain in first-class condition and operating order and keep in good repair  and  condition the  structural  portions  of the  Building,  including  the  foundation, floor/ceiling slabs, roof structure (as opposed to roof membrane), curtain wall, exterior glass and mullions, columns, beams, shafts (including elevator shafts), stairs, parking areas, landscaping, exterior Project signage, stairwells, elevator cab, Building mechanical, electrical and telephone closets, and all common and public areas (collectively, "Building Structure") and the Base Building mechanical, electrical, life safety, plumbing, sprinkler systems and HVAC systems which were not constructed by Tenant Parties (collectively, the "Building Systems") and the Project Common Areas. Notwithstanding anything in this Lease to the contrary, Tenant shall be required to repair the Building Structure and/or the Building Systems to the extent caused due to Tenant's use of the Premises for other than normal and customary business office operations, unless and to the extent such damage is covered by insurance carries or required to be carried by Landlord pursuant to Article 10 and to which the waiver of subrogation is applicable (such obligation to the extent applicable to Tenant as qualified and conditioned will hereinafter be defined as the "BS/BS Exception"). Tenant shall, at Tenant's own expense, keep the entire Premises (specifically  including,   without  limitation,  the  following: (x) all   "Tenant Improvements" constructed pursuant to the Tenant Work Letter attached to this Lease as Exhibit B , all "Alterations," as that term is defined in Article 8, below, (y) the floor or floors of the Building on which the Premises are located, and (z) interior glass, doors, frames, hardware, locks, light bulbs, ballasts, and all other improvements, fixtures and furnishings within the Premises) in good order, repair and condition at all times during the Lease Term; provided, however, Tenant's obligation shall not extend to the Building Structure and the Building Systems except pursuant to the BS/BS Exception. In addition, Tenant shall, at Tenant's own expense, but

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under the supervision and subject to the prior approval of Landlord, and within any reasonable period of time specified by Landlord, promptly and adequately repair all damage to the Premises and replace or repair all damaged, broken, or worn fixtures and appurtenances, except for damage caused by ordinary wear and tear or beyond the reasonable control of Tenant; provided however, that, at Landlord's option, or if Tenant fails to make such repairs, Landlord may (after written notice to Tenant and Tenant's failure to (A) commence repair within five (5) business days thereafter, or (B) diligently pursue the such repair to completion), but need not, make such repairs and replacements, and Tenant shall pay Landlord the cost thereof, including a percentage of the cost thereof (to be uniformly established for the Building and/or the Project) sufficient to reimburse Landlord for all overhead, general conditions, fees and other costs or expenses arising from Landlord's involvement with such repairs and replacements forthwith upon being billed for same; provided further, however, that any such repairs to the Building Structure and the Building Systems which are required to be performed by Tenant pursuant to the BS/BS Exception shall be under the supervision and subject to the prior approval of Landlord. Landlord may, but shall not be required to, enter the Premises at all reasonable times to make such repairs, alterations, improvements or additions to the Premises or to the Project or to any equipment located in the Project as Landlord shall reasonably desire or deem necessary or as Landlord may be required to do by governmental or quasi-governmental authority or court order or decree; provided, however, except for (i) emergencies, (ii) repairs, alterations, improvements or additions required by governmental or quasi-governmental authorities or court order or decree, or (iii) repairs which are the obligation of Tenant hereunder, any such entry into the Premises by Landlord shall be performed in a manner so as not to materially interfere with Tenant's use of, or access to, the Premises;  provided that, with respect to  items (ii)  and (iii)  above,  Landlord shall use commercially reasonable efforts to not materially interfere with Tenant's use of or access to, 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 under any similar law, statute, or ordinance now or hereafter in effect.

ARTICLE 8

ADDITIONS AND ALTERATIONS

8.1Landlord's Consent to Alterations.  Tenant may not make any improvements, alterations, additions or changes to the Premises or any mechanical, plumbing or HVAC facilities or systems pertaining to the Premises (collectively, the "Alterations") without first procuring the prior written consent of Landlord to such Alterations, which consent shall be requested by Tenant not less than fifteen (15) business days prior to the commencement thereof, and which consent shall not be unreasonably withheld by Landlord, provided it shall be deemed reasonable for Landlord to withhold its consent to any Alteration which adversely affects the structural portions or the systems or equipment of the Building or is visible from the exterior of the Building.  Notwithstanding the foregoing, Tenant shall be permitted to make Alterations following ten (10) business days notice to Landlord, but without Landlord's prior consent, to the extent that such Alterations do not adversely affect the systems and equipment of the Building, exterior appearance of the Building, or structural aspects of the Building (the "Cosmetic Alterations").  The construction of the initial improvements to the Premises shall be governed by the terms of the Tenant Work Letter and not the terms of this Article 8.

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8.2Manner of Construction. Landlord may impose, as a condition of its consent to any and all Alterations or repairs of the Premises or about the Premises, such requirements as Landlord in its reasonable discretion may deem desirable, including, but not limited to, the requirement that Tenant utilize for such purposes only contractors reasonably approved by Landlord, and the requirement that upon Landlord's timely request (as more particularly set forth in Section 8.5, below), Tenant shall, at Tenant's expense, remove such Alterations upon the expiration or any early termination of the Lease Term and return the affected portion of the Premises to a building standard tenant improved condition as determined by Landlord.  Tenant shall construct such Alterations and perform such repairs in a good and workmanlike manner, in conformance with any and all applicable federal, state, county or municipal laws, rules and regulations and pursuant to a valid building permit, issued by the City of San Diego, all in conformance with Landlord's construction rules and regulations; provided, however, that prior to commencing to construct any Alteration, Tenant shall meet with Landlord to discuss Landlord's design parameters and code compliance issues. In the event Tenant performs any Alterations in the Premises which require or give rise to governmentally required changes to the "Base Building," as that term is defined below, then Landlord shall, at Tenant's expense, make such changes to the Base Building.  The "Base Building" shall include the structural portions of the Building, and the public restrooms, elevators, exit stairwells and the systems and equipment located in the internal core of the Building on the floor or floors on which the Premises are located. In performing the work of any such Alterations, Tenant shall have the work performed in such manner so as not to obstruct access to the Project or any portion thereof, by any other tenant of the Project, and so as not to obstruct the business of Landlord or other tenants in the Project.  Tenant shall not use (and upon notice from Landlord shall cease using) contractors, services, workmen, labor, materials or equipment that, in Landlord's reasonable judgment, would disturb labor harmony with the workforce or trades engaged in performing other work, labor or services in or about the Building or the Common Areas.  In addition to Tenant's obligations under Article 9 of this Lease, upon completion of any Alterations, Tenant agrees to cause a Notice of Completion to be recorded in the office of the Recorder of the County of San Diego in accordance with Section 3093 of the Civil Code of the State of California or any successor statute, and Tenant shall deliver to the Project construction manager a reproducible copy of the "as built" drawings of the Alterations, to the extent applicable, as well as all permits, approvals and other documents issued by any governmental agency in connection with the Alterations.

8.3Payment for Improvements. If payment is made directly to contractors, Tenant shall (i) comply with Landlord's requirements for final lien releases and waivers in connection with Tenant's payment for work to contractors, and (ii) sign Landlord's standard contractor's rules and regulations.  If Tenant orders any work directly from Landlord, Tenant shall pay to Landlord an amount equal to five percent (5.0%) of the cost of such work to compensate Landlord for all overhead, general conditions, fees and other costs and expenses arising from Landlord's involvement with such work.   If Tenant does not order any work directly from Landlord, Tenant shall reimburse Landlord for Landlord's reasonable, actual, out-of-pocket costs and expenses actually incurred in connection with Landlord's review of such work.

8.4Construction Insurance.  In addition to the requirements of Article 10 of this Lease, in the event that Tenant makes any Alterations, prior to the commencement of such Alterations, Tenant shall provide Landlord with evidence that Tenant carries "Builder's All Risk" insurance in an amount reasonably approved by Landlord covering the construction of such

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Alterations, and such other insurance as Landlord may reasonably require, it being understood and agreed that all of such Alterations shall be insured by Tenant pursuant to Article 10 of this Lease immediately upon completion thereof   In addition, Landlord may, in its reasonable discretion, require Tenant to obtain a lien and completion bond or some alternate form of security satisfactory to Landlord in an amount sufficient to ensure the lien-free completion of such Alterations and naming Landlord as a co-obligee.

8.5Landlord's Property. All Alterations, improvements, fixtures, equipment and/or appurtenances which may be installed or placed in or about the Premises, from time to time, shall be at the sole cost of Tenant and shall be and become the property of Landlord, except that Tenant may remove any Alterations, improvements, fixtures and/or equipment which Tenant can substantiate to Landlord have not been paid for with any Tenant improvement allowance funds provided to Tenant by Landlord, provided Tenant repairs any damage to the Premises and Building caused by such removal and returns the affected portion of the Premises to a building standard tenant improved condition as determined by Landlord. Furthermore, Landlord may, by written notice to Tenant prior to the end of the Lease Term, or given following any earlier termination of this Lease, require Tenant, at Tenant's expense, (i) to remove any identified Alterations or improvements in the Premises, (ii) to repair any damage to the Premises and Building caused by such removal, and (iii) to return the affected portion of the Premises to a Building-standard tenant improved condition as reasonably determined by Landlord; provided, however, if, in connection with its notice to Landlord with respect to such Alterations or Cosmetic Alterations, (A) Tenant requests Landlord's decision with regard to the removal of such Alterations or Cosmetic Alterations, and (B) Landlord thereafter agrees in writing to waive the removal requirement with regard to such Alterations or Cosmetic Alterations, then Tenant shall not be required to so remove such Alterations or Cosmetic Alterations; provided further, however, that if Tenant requests such a determination from Landlord and Landlord, within ten

(10) business days following Landlord's receipt of such request from Tenant with respect to Alterations or Cosmetic Alterations, fails to address the removal requirement with regard to such Alterations or Cosmetic Alterations, Landlord shall be deemed to have agreed to waive the removal requirement with regard to such Alterations or Cosmetic Alterations. If Tenant fails to complete such removal and/or to repair any damage caused by the removal of any Alterations or improvements in the Premises, and return the affected portion of the Premises to a building standard tenant improved condition as reasonably determined by Landlord, then Tenant shall be deemed to be holding over in the Premises and the TCCs of Article 16 of this Lease shall apply. Tenant hereby protects, defends, indemnifies and holds Landlord harmless from any liability, cost, obligation, expense or claim of lien in any manner relating to the installation, placement, removal or financing of any such Alterations, improvements, fixtures and/or equipment in, on or about the Premises, which obligations of Tenant shall survive the expiration or earlier termination of this Lease.

ARTICLE 9

COVENANT AGAINST LIENS

Tenant shall keep the Project and Premises free from any liens or encumbrances arising out of the work performed, materials furnished or obligations incurred by or on behalf of Tenant, and shall protect, defend, indemnify and hold Landlord harmless from and against any claims,

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liabilities, judgments or costs (including, without limitation, reasonable attorneys' fees and costs) arising out of same or in connection therewith. Tenant shall give Landlord notice at least twenty (20) days prior to the commencement of any such work on the Premises (or such additional time as may be necessary under applicable laws) to afford Landlord the opportunity of posting and recording appropriate notices of non-responsibility.   Tenant shall remove any such lien or encumbrance by bond or otherwise within five (5) days after notice by Landlord, and if Tenant shall fail to do so, Landlord may pay the amount necessary to remove such lien or encumbrance, without being responsible for investigating the validity thereof.  The amount so paid shall be deemed Additional Rent under this Lease payable upon demand, without limitation as to other remedies available to Landlord under this Lease. Nothing contained in this Lease shall authorize Tenant to do any act which shall subject Landlord's title to the Building or Premises to any liens or encumbrances whether claimed by operation of law or express or implied contract. Any claim to a lien or encumbrance upon the Building or Premises arising in connection with any such work or respecting the Premises not performed by or at the request of Landlord shall be null and void, or at Landlord's option shall attach only against Tenant's interest in the Premises and shall in all respects be subordinate to Landlord's title to the Project, Building and Premises.

ARTICLE 10

INSURANCE

10.1Indemnification and Waiver. To the extent not prohibited by law and except as otherwise expressly provided herein to the contrary, Tenant hereby assumes all risk of damage to property or injury to persons in, upon or about the Premises from any cause whatsoever and agrees that Landlord, its partners, subpartners and their respective officers, agents, servants, employees, and independent contractors (collectively, "Landlord Parties") shall not be liable for, and are hereby released from any responsibility for, any damage either to person or property or resulting from the loss of use thereof, which damage is sustained by Tenant or by other persons claiming through Tenant.  Subject to the TCCs of Section 10.5 of this Lease, Tenant shall indemnify, defend, protect, and hold harmless the Landlord Parties from any and all loss, cost, damage, expense and liability (including without limitation court costs and reasonable attorneys' fees) (collectively, "Claims") incurred in connection with or arising from any cause in, on or about the Premises, any acts, omissions or negligence of Tenant or of any person claiming by, through or under Tenant, or of the contractors, agents, servants, employees, invitees, guests or licensees of Tenant or any such person (collectively, the "Tenant Parties"), in, on or about the Project or any breach of the TCCs of this Lease, either prior to, during, or after the expiration of the Lease Term, provided that the terms of the foregoing indemnity shall not apply to the negligence or willful misconduct of Landlord. Should Landlord be named as a defendant in any suit brought against Tenant in connection with or arising out of Tenant's occupancy of the Premises, and except to the extent such suit arises from the negligence or willful misconduct of Landlord, Tenant shall pay to Landlord its costs and expenses incurred in such suit, including without limitation, its actual professional fees such as appraisers', accountants' and attorneys' fees.  Subject to the TCCs of Section 10.5 below, Landlord hereby indemnifies the Tenant Parties and holds the Tenant Parties harmless from any Claims to the extent resulting from the negligence or willful misconduct of Landlord or the Landlord Parties.  Further, Landlord's and Tenant's agreement to indemnify the Tenant Parties and the Landlord Parties, respectively, pursuant to this Section 10.1 is not intended and shall not relieve any insurance carrier of its

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obligations under policies required to be carried by Landlord or Tenant, respectively, pursuant to the provisions of this Lease, to the extent such policies cover the matters subject to Landlord's or Tenant's  indemnification obligations, as the case may be; nor shall they supersede any inconsistent agreement of the parties set forth in any other provision of this Lease.   The provisions of this Section 10.1 shall survive the expiration or sooner termination of this Lease with respect to any claims or liability arising in connection with any event occurring prior to such expiration or termination.   Notwithstanding anything to the contrary contained in this Lease, nothing in this Lease shall impose any obligations on Tenant or Landlord to be responsible or liable for, and each hereby releases the other from all liability for, consequential damages other than those consequential damages incurred by Landlord pursuant to, and in accordance with, the TCCs of Article 16 of this Lease.

10.2Landlord's Fire, Casualty and Liability Insurance.

10.2.1 Landlord shall maintain Commercial/Comprehensive General Liability Insurance with respect to the Building during the Lease Term covering claims for bodily injury, personal injury and property damage in the Project Common Areas and with respect to Landlord's activities in the Premises.

10.2.2 Landlord shall insure the Building and Landlord's remaining interest in the Tenant Improvements and Alterations with a policy of Physical Damage Insurance including building ordinance coverage, written on a standard Causes of Loss — Special Form basis (against loss or damage due to fire and other casualties covered within the classification of fire and extended coverage, vandalism, and malicious mischief, sprinkler leakage, water damage and special extended coverage), covering the full replacement cost of the Base Building, Premises and other improvements (including coverages for enforcement of Applicable Laws requiring the upgrading, demolition, reconstruction and/or replacement of any portion of the Building as a result of a covered loss) without deduction for depreciation.

10.2.3 Landlord shall maintain Boiler and Machinery/Equipment Breakdown Insurance covering the Building against risks commonly insured against by a Boiler & Machinery/Equipment Breakdown policy and such policy shall cover the full replacement costs, without deduction for depreciation.

10.2.4 The foregoing coverages shall contain commercially reasonable deductible amounts from such companies, and on such other terms and conditions, as Landlord may from time to time reasonably determine.

10.2.5 Additionally, at the option of Landlord, such insurance coverage may include the risk of (i) earthquake (with deductibles that are consistent with those maintained by reasonably prudent landlords of Comparable Buildings), (ii) flood damage and additional hazards, (iii) a rental loss endorsement for a period of up to two (2) years, (iv) one or more loss payee endorsements in favor of holders of any mortgages or deeds of trust encumbering the interest of Landlord in the Building, or any portion thereof

10.2.6 Notwithstanding  the  foregoing provisions  of this Section 10.2,  the coverage and amounts of insurance carried by Landlord in connection with the Building shall, at

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a minimum, be comparable to the coverage and amounts of insurance which are carried by reasonably prudent landlords of Comparable Buildings, and Worker's Compensation and Employer's Liability coverage as required by applicable law. Tenant shall, at Tenant's expense, comply with all insurance company requirements pertaining to the use of the Premises.  If Tenant's conduct or use of the Premises causes any increase in the premium for such insurance policies then Tenant shall reimburse Landlord for any such increase. Tenant, at Tenant's expense, shall comply with all rules, orders, regulations or requirements of the American Insurance Association (formerly the National Board of Fire Underwriters) and with any similar body.

10.3Tenant's Insurance.  Tenant shall maintain the following coverages in the following amounts.

10.3.1 Commercial/Comprehensive General Liability Insurance  covering the insured against claims of bodily injury, personal injury and property damage (including loss of use thereof)  arising out of Tenant's  operations,  and contractual liabilities (covering the performance by Tenant of its indemnity agreements) including a Broad Form endorsement covering the insuring provisions of this Lease and the performance by Tenant of the indemnity agreements set forth in Section 10.1 of this Lease, for limits of liability not less than:

Bodily Injury and$3,000,000 each occurrence

Property Damage Liability$3,000,000  annual aggregate,  or

                                                                                          any  combination  of primary insurance and excess insurance

Personal Injury Liability$3,000,000 each occurrence

$3,000,000  annual aggregate, orany  combination  of primaryinsurance and excess insurance 0% Insured's participation

The foregoing limits may be satisfied by a general liability and an umbrella policy provided that (i) the Project or Premises, as applicable, are specifically covered(by rider, endorsement or otherwise), and (ii) such policy otherwise complies with the provisions of this Section 10.3.

10.3.2 Property Insurance covering(i) all office furniture, business and trade fixtures, office equipment, free-standing cabinet work, movable partitions, merchandise and all other items of Tenant's property on the Premises installed by, for, or at the expense of Tenant, (ii) the "Tenant Improvements," as that term is defined in Section 2.1 of the Tenant Work Letter, and any other improvements which exist in the Premises as of the Lease Commencement Date (excluding the Base Building) (the "Original Improvements"), and (iii) all other improvements, alterations and additions to the Premises.  Such insurance shall include coverage for damage or other loss caused by fire or other peril including, but not limited to, vandalism and malicious mischief, theft, water damage of any type, including sprinkler leakage, bursting or stoppage of pipes, and explosion.

10.3.3 Worker's  Compensation  or  other  similar  insurance pursuant to  all applicable state and local statutes and regulations, and Employer's Liability Insurance or other

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similar insurance pursuant to all applicable state and local statutes and regulations, with a waiver of subrogation endorsement and with minimum limits of One Million and No/100 Dollars ($1,000,000.00) per employee and One Million and No/100 Dollars ($1,000,000.00) per occurrence.

10.3.4 Comprehensive Automobile Liability Insurance covering all owned, hired, or  non-owned  vehicles  with  the  following  limits  of  liability: One  Million  Dollars ($1,000,000.00) combined single limit for bodily injury and property damage.

10.3.5 Business Interruption and extra expense insurance in such amounts as will reimburse Tenant for actual direct or indirect loss of earnings attributable to the risks outlined in Section 10.3.2, above.

10.4Form of Policies.   The minimum limits of policies of insurance required of Tenant under this Lease shall in no event limit the liability of Tenant under this Lease.  Such insurance shall (i) name Landlord, and any other party the Landlord so specifies that has a material financial interest in the Project, as an additional insured, including Landlord's managing agent, if any; (ii) specifically cover the liability assumed by Tenant under this Lease, including, but not limited to, Tenant's obligations under Section 10.1 of this Lease; (iii) be issued by an insurance company having a rating of not less than A-VIII in Best's Insurance Guide or which is otherwise acceptable to Landlord and licensed to do business in the State of California; (iv) be primary insurance as to all claims thereunder and provide that any insurance carried by Landlord is excess and is non-contributing with any insurance requirement of Tenant; (v) be in form and content reasonably acceptable to Landlord; and (vi) provide that said insurance shall not be canceled or coverage changed unless thirty (30) days' prior written notice shall have been given to Landlord and any mortgagee of Landlord, the identity of whom has been provided to Tenant in writing.  Tenant shall deliver said policy or policies or certificates thereof to Landlord on or before the Lease Commencement Date and at least fifteen (15) days before the expiration dates thereof.  In the event Tenant shall fail to procure such insurance, or to deliver such policies or certificate, Landlord may, at its option, after written notice to Tenant and Tenant's failure to obtain such insurance within five (5) days thereafter, procure such policies for the account of Tenant, and the cost thereof shall be paid to Landlord within thirty (30) days after delivery to Tenant of bills therefor.

10.5Subrogation. Landlord and Tenant intend that their respective property loss risks shall be borne by reasonable insurance carriers to the extent above provided, and Landlord and Tenant hereby agree to look solely to, and seek recovery only from, their respective insurance carriers in the event of a property loss to the extent that such coverage is agreed to be provided hereunder.  The parties each hereby waive all rights and claims against each other for such losses, and waive all rights of subrogation of their respective insurers, provided such waiver of subrogation shall not affect the right to the insured to recover thereunder. The parties agree that their respective insurance policies are now, or shall be, endorsed such that the waiver of subrogation shall not affect the right of the insured to recover thereunder, so long as no material additional premium is charged therefor.

10.6Additional Insurance Obligations.  With respect to any Option Term, Tenant shall carry and maintain during such entire Option Term, at Tenant's sole cost and expense,

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increased amounts of the insurance required to be carried by Tenant pursuant to this Article 10 and such other reasonable types of insurance coverage and in such reasonable amounts covering the Premises and Tenant's operations therein, as may be reasonably requested by Landlord. Notwithstanding the foregoing, Landlord's request shall only be considered reasonable if such increased coverage amounts and/or such new types of insurance are consistent with the requirements of a majority of Comparable Buildings.

ARTICLE 11

DAMAGE AND DESTRUCTION

11.1Repair of Damage to Premises by Landlord.  Tenant shall promptly notify Landlord of any damage to the Premises resulting from fire or any other casualty.   If the Premises or any Common Areas serving or providing access to the Premises shall be damaged by fire or other casualty, Landlord shall promptly and diligently, subject to reasonable delays for insurance adjustment or other matters beyond Landlord's reasonable control, and subject to all other terms of this Article 11, restore the Base Building and such Common Areas.   Such restoration shall be to substantially the same condition of the Base Building and the Common Areas prior to the casualty, except for modifications required by zoning and building codes and other laws or by the holder of a mortgage on the Building or Project or any other modifications to the Common Areas deemed desirable by Landlord, which are consistent with the character of the Project, provided that access to the Premises and any common restrooms serving the Premises shall not be materially impaired. Upon the occurrence of any damage to the Premises, upon notice (the "Landlord Repair Notice") to Tenant from Landlord, Tenant shall assign to Landlord (or to any party designated by Landlord) all insurance proceeds payable to Tenant under Tenant's insurance required under Section 10.3 of this Lease, and Landlord shall repair any injury or damage to the Tenant Improvements and the Original Improvements installed in the Premises and shall return such Tenant Improvements and Original Improvements to their original condition; provided that if the cost of such repair by Landlord exceeds the amount of insurance proceeds received by Landlord from Tenant's insurance carrier, as assigned by Tenant, the cost of such repairs shall be paid by Tenant to Landlord prior to Landlord's commencement of repair of the damage.  In the event that Landlord does not deliver the Landlord Repair Notice within sixty (60) days following the date the casualty becomes known to Landlord, Tenant shall, at its sole cost and expense, repair any injury or damage to the Tenant Improvements and the Original Improvements installed in the Premises and shall return such Tenant Improvements and Original Improvements to their original condition. Whether or not Landlord delivers a Landlord Repair Notice, prior to the commencement of construction, Tenant shall submit to Landlord, for Landlord's review and approval, all plans, specifications and working drawings relating thereto, and Landlord shall select the contractors to perform such improvement work. Landlord shall not be liable for any inconvenience or annoyance to Tenant or its visitors, or injury to Tenant's business resulting in any way from such damage or the repair thereof; provided however, that if such fire or other casualty shall have damaged the Premises or Common Areas necessary to Tenant's occupancy, and the Premises are not occupied by Tenant as a result thereof, then during the time and to the extent the Premises are unfit for occupancy, the Rent shall be abated in proportion to the ratio that the amount of rentable square feet of the Premises which is unfit for occupancy for the purposes permitted under this Lease bears to the total rentable square feet of the Premises.  In the event that Landlord shall not deliver the Landlord Repair Notice, Tenant's

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right to rent abatement pursuant to the preceding sentence shall terminate as of the date which is reasonably determined by Landlord to be the date Tenant should have completed repairs to the Premises assuming Tenant used reasonable due diligence in connection therewith.

11.2Landlord's Option to Repair.Notwithstanding the terms of Section 11.1 of this Lease, Landlord may elect not to rebuild and/or restore the Premises, Building and/or Project, and instead terminate this Lease, by notifying Tenant in writing of such termination within sixty (60) days after the date of discovery of the damage, such notice to include a termination date giving Tenant sixty (60) days to vacate the Premises, but Landlord may so elect only if the Building or Project shall be damaged by fire or other casualty or cause, whether or not the Premises are affected, and one or more of the following conditions is present: (i) in Landlord's reasonable judgment, repairs cannot reasonably be completed within one hundred eighty (180) days after the date of discovery of the damage (when such repairs are made without the payment of overtime or other premiums); (ii) the holder of any mortgage on the Building or Project or ground lessor with respect to the Building or Project shall require that the insurance proceeds or any portion thereof be used to retire the mortgage debt, or shall terminate the ground lease, as the case may be; (iii) the damage is not fully covered by Landlord's insurance policies; (iv) Landlord decides to rebuild the Building or Common Areas so that they will be substantially different structurally or architecturally; (v) the damage occurs during the last twelve (12) months of the Lease Term; or (vi) any owner of any other portion of the Project, other than Landlord, does not intend to repair the damage to such portion of the Project; provided, however, that if Landlord does not elect to terminate this Lease pursuant to Landlord's termination right as provided above, and the repairs cannot, in the reasonable opinion of Landlord, be completed within one hundred eighty (180) days after being commenced, Tenant may elect, no earlier than sixty (60) days after the date of the damage and not later than ninety (90) days after the date of such damage, to terminate this Lease by written notice to Landlord effective as of the date specified in the notice, which date shall not be less than thirty (30) days nor more than sixty (60) days after the date such notice is given by Tenant.  Furthermore, if neither Landlord nor Tenant has terminated this Lease, and the repairs are not actually completed within such 180-day period, Tenant shall have the right to terminate this Lease during the first five (5) business days of each calendar month following the end of such period until such time as the repairs are complete, by notice to Landlord (the "Damage Termination Notice"), effective as of a date set forth in the Damage Termination Notice (the "Damage Termination Date"), which Damage Termination Date shall not be less than ten (10) business days following the end of each such month. Notwithstanding the foregoing, if Tenant delivers a Damage Termination Notice to Landlord, then Landlord shall have the right to suspend the occurrence of the Damage Termination Date for a period ending thirty (30) days after the Damage Termination Date set forth in the Damage Termination Notice by delivering to Tenant, within five (5) business days of Landlord's receipt of the Damage Termination Notice, a certificate of Landlord's contractor responsible for the repair of the damage certifying that it is such contractor's good faith judgment that the repairs shall be substantially completed within thirty (30) days after the Damage Termination Date.  If repairs shall be substantially completed prior to the expiration of such thirty-day period, then the Damage Termination Notice shall be of no force or effect, but if the repairs shall not be substantially completed within such thirty-day period, then this Lease shall terminate upon the expiration of such thirty-day period.  At any time, from time to time, after the date occurring sixty (60) days after the date of the damage, Tenant may request that Landlord inform Tenant of Landlord's reasonable opinion of the date of completion of the repairs and Landlord shall

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respond to such request within five (5) business days.  Notwithstanding the provisions of this Section 11.2, Tenant shall have the right to terminate this Lease under this Section 11.2 only if each of the following conditions is satisfied: (a) the damage to the Project by fire or other casualty was not caused by the gross negligence or intentional act of Tenant or its partners or subpartners  and  their respective  officers,  agents,  servants,  employees,  and  independent contractors; (b) Tenant is not then in default under this Lease; (c) as a result of the damage, Tenant cannot reasonably conduct business from the Premises; and, (d) as a result of the damage to the Project, Tenant does not occupy or use the Premises at all.  In the event this Lease is terminated in accordance with the terms of this Section 11.2, Tenant shall assign to Landlord (or to any party designated by Landlord) all insurance proceeds payable to Tenant under Tenant's insurance required under items (ii) and (iii) of Section 10.3.2 of this Lease.

11.3Waiver of Statutory Provisions.  The provisions of this Lease, including this Article 11, constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Premises, the Building or the Project, and any  statute  or regulation of the  State of California,  including, without limitation, Sections 1932(2) and 1933 (4) of the California Civil Code, with respect to any rights or obligations concerning damage or destruction in the absence of an express agreement between the parties, and any other statute or regulation, now or hereafter in effect, shall have no application to this Lease or any damage or destruction to all or any part of the Premises, the Building or the Project.

ARTICLE 12

NONWAIVER

No provision of this Lease shall be deemed waived by either party hereto unless expressly waived in a writing signed thereby. The waiver by either party hereto of any breach of any term, covenant or condition herein contained shall not be deemed to be a waiver of any subsequent breach of same or any other term, covenant or condition herein contained.  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 acceptance of a lesser amount than the Rent herein stipulated shall be deemed a waiver of Landlord's right to receive the full amount due, nor shall any endorsement or statement on any check or payment or any letter accompanying such check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the full amount due. No receipt of monies by Landlord from Tenant after the termination of this Lease shall in any way alter the length of the Lease Term or of Tenant's right of possession hereunder, or after the giving of any notice shall reinstate, continue or extend the Lease Term or affect any notice given Tenant prior to the receipt of such monies, it being agreed that after the service of notice or the commencement of a suit, or after final judgment for possession of the Premises, Landlord may receive and collect any Rent due, and the payment of said Rent shall not waive or affect said notice, suit or judgment.

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ARTICLE 13

CONDEMNATION

If the whole or any part of the Premises, Building or Project shall be taken by power of eminent domain or condemned by any competent authority for any public or quasi-public use or purpose, or if any adjacent property or street shall be so taken or condemned, or reconfigured or vacated by such authority in such manner as to require the use, reconstruction or remodeling of any part of the Premises, Building or Project, or if Landlord shall grant a deed or other instrument in lieu of such taking by eminent domain or condemnation, Landlord shall have the option to terminate this Lease effective as of the date possession is required to be surrendered to the authority. If more than twenty-five percent (25%) of the rentable square feet of the Premises is taken, or if access to the Premises is substantially impaired, in each case for a period in excess of one hundred eighty (180) days, Tenant shall have the option to terminate this Lease effective as of the date possession is required to be surrendered to the authority. Tenant shall not because of such taking assert any claim against Landlord or the authority for any compensation because of such taking and Landlord shall be entitled to the entire award or payment in connection therewith, except that Tenant shall have the right to file any separate claim available to Tenant for any taking of Tenant's personal property and fixtures belonging to Tenant and removable by Tenant upon expiration of the Lease Term pursuant to the terms of this Lease, and for moving expenses, so long as such claims do not diminish the award available to Landlord, its ground lessor with respect to the Building or Project or its mortgagee, and such claim is payable separately to Tenant.  All Rent shall be apportioned as of the date of such termination.  If any part of the Premises shall be taken, and this Lease shall not be so terminated, the Rent shall be proportionately abated.   Tenant hereby waives any and all rights it might otherwise have pursuant to Section 1265.130 of The California Code of Civil Procedure.   Notwithstanding anything to the contrary contained in this Article 13, in the event of a temporary taking of all or any portion of the Premises for a period of one hundred and eighty (180) days or less, then this Lease shall not terminate but the Base Rent and the Additional Rent shall be abated for the period of such taking in proportion to the ratio that the amount of rentable square feet of the Premises taken bears to the total rentable square feet of the Premises. Landlord shall be entitled to receive the entire award made in connection with any such temporary taking.

ARTICLE 14

ASSIGNMENT AND SUBLETTING

14.1Transfers.Subject to the TCCs of Section 14.8, below, Tenant shall not, without the prior written consent of Landlord, assign, mortgage, pledge, hypothecate, encumber, or permit any lien to attach to, or otherwise transfer, this .Lease or any interest hereunder, permit any assignment, or other transfer of this Lease or any interest hereunder by operation of law, sublet the Premises or any part thereof, or enter into any license or concession agreements or otherwise permit the occupancy or use of the Premises or any part thereof by any persons other than Tenant and its employees and contractors (all of the foregoing are hereinafter sometimes referred to collectively as "Transfers" and any person to whom any Transfer is made or sought to be made is hereinafter sometimes referred to as a "Transferee"). If Tenant desires Landlord's consent to any Transfer, Tenant shall notify Landlord in writing, which notice (the "Transfer

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Notice") shall include (i) the proposed effective date of the Transfer, which shall not be less than thirty (30) days nor more than one hundred eighty (180) days after the date of delivery of the Transfer Notice, (ii) a description of the portion of the Premises to be transferred (the "Subject Space"), (iii) all of the terms of the proposed Transfer and the consideration therefor, including calculation of the "Transfer Premium", as that term is defined in Section 14.3 below, in connection with such Transfer, the name and address of the proposed Transferee, and a copy of all existing executed and/or proposed documentation pertaining to the proposed Transfer, including all existing operative documents to be executed to evidence such Transfer or the agreements incidental or related to such Transfer, provided that Landlord shall have the right to require Tenant to utilize Landlord's standard Transfer documents in connection with the documentation of such Transfer, (iv) current financial statements of the proposed Transferee certified by an officer, partner or owner thereof, business credit and personal references and history of the proposed Transferee and any other information required by Landlord which will enable Landlord to determine the financial responsibility, character, and reputation of the proposed Transferee, nature of such Transferee's business and proposed use of the Subject Space and (v) an executed estoppel certificate from Tenant in the form attached hereto as Exhibit E. Any Transfer made without Landlord's prior written consent shall, at Landlord's option, be null, void and of no effect, and shall, at Landlord's option, constitute a default by Tenant under this Lease. Whether or not Landlord consents to any proposed Transfer, Tenant shall pay Landlord's review and processing fees, as well as any reasonable professional fees (including, without limitation, attorneys', accountants', architects', engineers' and consultants' fees) incurred by Landlord, within thirty (30) days after written request by Landlord.

14.2Landlord's Consent. Landlord shall not unreasonably withhold its consent to any proposed Transfer of the Subject Space to the Transferee on the terms specified in the Transfer Notice. Without limitation as to other reasonable grounds for withholding consent, the parties hereby agree that it shall be reasonable under this Lease and under any applicable law for Landlord to withhold consent to any proposed Transfer where one or more of the following apply:

14.2.1 The Transferee is of a character or reputation or engaged in a business which is not consistent with the quality of the Building or the Project;

14.2.2 The Transferee intends to use the Subject Space for purposes which are not permitted under this Lease;

14.2.3 The Transferee is either a governmental agency or instrumentality thereof;

14.2.4 The Transferee is not a party of reasonable financial worth and/or financial stability in light of the responsibilities to be undertaken in connection with the Transfer on the date consent is requested;

14.2.5 The proposed Transfer would cause a violation of another lease for space in the Project, or would give an occupant of the Project a right to cancel its lease;

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14.2.6 The terms of the proposed Transfer will allow the Transferee to exercise a right of renewal, right of expansion, right of first offer, or other similar right held by Tenant (or will allow the Transferee to occupy space leased by Tenant pursuant to any such right); or

14.2.7 The Transferee does not intend to occupy the entire Premises and conduct its business therefrom for a substantial portion of the term of the Transfer.

If Landlord consents to any Transfer pursuant to the terms of this Section 14.2 (and does not exercise any recapture rights Landlord may have under Section 14.4 of this Lease), Tenant may within six (6) months after Landlord's consent, but not later than the expiration of said sixmonth period, enter into such Transfer of the Premises or portion thereof, upon substantially the same terms and conditions as are set forth in the Transfer Notice furnished by Tenant to Landlord pursuant to Section 14.1 of this Lease, provided that if there are any changes in the terms and conditions from those specified in the Transfer Notice (i) such that Landlord would initially have been entitled to refuse its consent to such Transfer under this Section 14.2, or (ii) which would cause the proposed Transfer to be more favorable to the Transferee than the terms set forth in Tenant's original Transfer Notice, Tenant shall again submit the Transfer to Landlord for its approval and other action under this Article 14 (including Landlord's right of recapture, if any, under Section 14.4 of this Lease). Notwithstanding anything to the contrary in this Lease, if Tenant or any proposed Transferee claims that Landlord has unreasonably withheld or delayed its consent under Section 14.2 or otherwise has breached or acted unreasonably under this Article 14, their sole remedies shall be a declaratory judgment and an injunction for the relief sought without any monetary damages, and Tenant hereby waives all other remedies, including, without limitation, any right at law or equity to terminate this Lease, on its own behalf and, to the extent permitted under all applicable laws, on behalf of the proposed Transferee.  Tenant shall indemnify, defend and hold harmless Landlord from any and all liability, losses, claims, damages, costs, expenses, causes of action and proceedings involving any third party or parties (including without limitation Tenant's proposed subtenant or assignee) who claim they were damaged by Landlord's wrongful withholding or conditioning of Landlord's consent, except to the extent that a court of competent jurisdiction determines that Landlord unreasonably withheld or delayed its consent to a Transfer under this Article 14.

14.3Transfer Premium. If Landlord consents to a Transfer, as a condition thereto which the parties hereby agree is reasonable, Tenant shall pay to Landlord fifty percent (50%) of any "Transfer Premium," as that term is defined in this Section 14.3, received by Tenant from such Transferee. "Transfer Premium" shall mean all rent, additional rent or other consideration payable by such Transferee in connection with the Transfer in excess of the Rent and Additional Rent payable by Tenant under this Lease during the term of the Transfer on a per rentable square foot basis if less than all of the Premises is transferred, after deducting the reasonable expenses incurred by Tenant for (i) any changes, alterations and improvements to the Premises in connection with the Transfer, (ii) any free base rent reasonably provided to the Transferee, (iii) attorneys' fees reasonably incurred by Tenant in connection with the Transfer, and (iv) any brokerage commissions in connection with the Transfer. "Transfer Premium" shall also include, but not be limited to, key money, bonus money or other cash consideration paid by Transferee to Tenant in connection with such Transfer, and any payment in excess of fair market value for services rendered by Tenant to Transferee or for assets, fixtures, inventory, equipment, or furniture transferred by Tenant to Transferee in connection with such Transfer.   In the

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calculations of the Rent (as it relates to the Transfer Premium calculated under this Section 14.3), and the Transferee's Rent and Quoted Rent under Section 14.2 of this Lease, the Rent paid during each annual period for the Subject Space, and the Transferee's Rent and the Quoted Rent, shall be computed after adjusting such rent to the actual effective rent to be paid,  taking into consideration any and all leasehold concessions granted in connection therewith, including, but not limited to, any rent credit and tenant improvement allowance.  For purposes of calculating any such effective rent all such concessions shall be amortized on a straight-line basis over the relevant term.

14.4Landlord's Option as to Subject Space.In the event that a proposed Transfer, if consented to, would cause fifty percent (50%) or more of the Premises to be subleased or licensed to a party (or parties) other than Original Tenant and/or its Permitted Transferee, then notwithstanding anything to the contrary contained in this Article 14, Landlord shall have the option, by giving written notice to Tenant within thirty (30) days after receipt of any Transfer Notice, to recapture the Subject Space; provided, however, in the event Landlord so elects to recapture the Subject Space, Tenant may rescind its Transfer Notice (in which no Landlordrecapture shall result) by delivering written notice of Tenant's rescission election to Landlord within two (2) business days following Tenant's receipt of Landlord's recapture notice. Unless so rescinded by Tenant pursuant to the immediately preceding sentence, such recapture notice shall cancel and terminate this Lease with respect to the Subject Space as of the date stated in the Transfer Notice as the effective date of the proposed Transfer until the last day of the term of the Transfer as set forth in the Transfer Notice (or at Landlord's option, shall cause the Transfer to be made to Landlord or its agent, in which case the parties shall execute the Transfer documentation promptly thereafter). In the event of a recapture by Landlord, if this Lease shall be canceled with respect to less than the entire Premises, the Rent reserved herein shall be prorated-on the basis of the number of rentable square feet retained by Tenant in proportion to the number of rentable square feet contained in the Premises, and this Lease as so amended shall continue thereafter in full force and effect, and upon request of either party, the parties shall execute written confirmation of the same.  If Landlord declines, or fails to elect in a timely manner to recapture the Subject Space under this Section 14.4, then, provided Landlord has consented to the proposed Transfer, Tenant shall be entitled to proceed to transfer the Subject Space to the proposed Transferee, subject to provisions of this Article 14.

14.5Effect of Transfer.If Landlord consents to a Transfer, (i) the TCCs of this Lease shall in no way be deemed to have been waived or modified, (ii) such consent shall not be deemed consent to any further Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver to Landlord, promptly after execution, an original executed copy of all documentation pertaining to the Transfer in form reasonably acceptable to Landlord, (iv) Tenant shall furnish upon Landlord's request a complete statement, certified by an independent certified public accountant, or Tenant's chief financial officer, setting forth in detail the computation of any Transfer Premium Tenant has derived and shall derive from such Transfer, and (v) no Transfer relating to this Lease or agreement entered into with respect thereto, whether with or without Landlord's consent, shall relieve Tenant or any guarantor of the Lease from any liability under this Lease, including, without limitation, in connection with the Subject Space. Landlord or its authorized representatives shall have the right at all reasonable times to audit the books, records and papers of Tenant relating to any Transfer, and shall have the right to make copies thereof. If the Transfer Premium respecting any Transfer shall be found understated, Tenant shall, within

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thirty (30) days after demand, pay the deficiency, and if understated by more than two percent (2%), Tenant shall pay Landlord's costs of such audit.

14.6Additional Transfers. For purposes of this Lease (but subject to the TCCs of Section 14.8, below), the term "Transfer" shall also include (i) if Tenant is a partnership, the withdrawal or change, voluntary, involuntary or by operation of law, of fifty percent (50%) or more of the partners, or transfer of fifty percent (50%) or more of partnership interests, within a twelve (12)-month period, or the dissolution of the partnership without immediate reconstitution thereof, and (ii) if Tenant is a closely held corporation (i.e., whose stock is not publicly held and not traded through an exchange or over the counter), (A) the dissolution, merger, consolidation or other reorganization of Tenant or (B) the sale or other transfer of an aggregate of fifty percent (50%) or more of the voting shares of Tenant (other than (x) in connection with a public offering on a recognized stock exchange, or (y) to immediate family members by reason of gift or death), within a twelve (12)-month period, or (C) the sale, mortgage, hypothecation or pledge of an aggregate of fifty percent (50%) or more of the value of the unencumbered assets of Tenant within a twelve (12)-month period.

14.7Occurrence of Default.Any Transfer hereunder shall be subordinate and subject to the provisions of this Lease, and if this Lease shall be terminated during the term of any Transfer, Landlord shall have the right to: (i) treat such Transfer as canceled and repossess the Subject Space by any lawful means, or (ii) require that such Transferee attorn to and recognize Landlord as its landlord under any such Transfer. If Tenant shall be in default under this Lease, Landlord is hereby irrevocably authorized, as Tenant's agent and attorney-in-fact, to direct any Transferee to make all payments under or in connection with the Transfer directly to Landlord (which Landlord shall apply towards Tenant's obligations under this Lease) until such default is cured.  Such Transferee shall rely on any representation by Landlord that Tenant is in default hereunder, without any need for confirmation thereof by Tenant.  Upon any assignment, the assignee shall assume in writing all obligations and covenants of Tenant thereafter to be performed or observed under this Lease. No collection or acceptance of rent by Landlord from any Transferee shall be deemed a waiver of any provision of this Article 14 or the approval of any Transferee or a release of Tenant from any obligation under this Lease, whether theretofore or thereafter accruing.  In no event shall Landlord's enforcement of any provision of this Lease against any Transferee be deemed a waiver of Landlord's right to enforce any term of this Lease against Tenant or any other person.  If Tenant's obligations hereunder have been guaranteed, Landlord's consent to any Transfer shall not be effective unless the guarantor also consents to such Transfer.

14.8Non-Transfers.  Notwithstanding anything to the contrary contained in this Article 14, (i) an assignment or subletting of all or a portion of the Premises to an affiliate of Tenant (an entity which is controlled by, controls, or is under common control with, Tenant), (ii) an assignment of the Premises to an entity which acquires all or substantially all of the assets or interests (partnership, stock or other) of Tenant, or (iii) an assignment of the Premises to an entity which is the resulting entity of a merger or consolidation of Tenant, shall not be deemed a Transfer under this Article 14, provided that Tenant notifies Landlord of any such assignment or sublease and promptly supplies Landlord with any documents or information requested by Landlord regarding such assignment or sublease or such affiliate, and further provided that such assignment or sublease is not a subterfuge by Tenant to avoid its obligations under this Lease.

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The transferee under a transfer specified in items (i), (ii) or (iii) above shall be referred to as a "Permitted Transferee."  "Control," as used in this Section 14.8, shall mean the ownership, directly or indirectly, of more than fifty percent (50%) of the voting securities of, or possession of the right to vote, in the ordinary direction of its affairs, of more than fifty percent (50%) of the voting interest in, any person or entity.

ARTICLE 15

SURRENDER OF PREMISES; OWNERSHIP ANDREMOVAL OF TRADE FIXTURES

15.1Surrender of Premises.  No act or thing done by Landlord or any agent or employee of Landlord during the Lease Term shall be deemed to constitute an acceptance by Landlord of a surrender of the Premises unless such intent is specifically acknowledged in writing by Landlord. The delivery of keys to the Premises to Landlord or any agent or employee of Landlord shall not constitute a surrender of the Premises or effect a termination of this Lease, whether or not the keys are thereafter retained by Landlord, and notwithstanding such delivery Tenant shall be entitled to the return of such keys at any reasonable time upon request until this Lease shall have been properly terminated.  The voluntary or other surrender of this Lease by Tenant, whether accepted by Landlord or not, or a mutual termination hereof, shall not work a merger, and at the option of Landlord shall operate as an assignment to Landlord of all subleases or subtenancies affecting the Premises or terminate any or all such sublessees or subtenancies.

15.2Removal of Tenant Property by Tenant. Upon the expiration of the Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject to the provisions of this Article 15, quit and surrender possession of the Premises to Landlord in as good order and condition as when Tenant took possession and as thereafter improved by Landlord and/or Tenant, reasonable wear and tear and repairs which are specifically made the responsibility of Landlord hereunder excepted.   Upon such expiration or termination, Tenant shall, without expense to Landlord, remove or cause to be removed from the Premises all debris and rubbish, and such items of furniture, equipment, business and trade fixtures, free-standing cabinet work, movable partitions and other articles of personal property owned by Tenant or installed or placed by Tenant at its expense in the Premises, and such similar articles of any other persons claiming under Tenant (collectively, the "Personal Property"), as Landlord may, in its sole discretion, require to be removed, and Tenant shall repair at its own expense all damage to the Premises and Building resulting from such removal.   In the event that Tenant shall fail to remove such Personal Property from the Premises and repair all resulting damage to the Premises as set forth hereinabove, then Landlord may do so and may charge the cost thereof to Tenant. In the event Landlord elects to so remove the Personal Property and/or repair the damage caused to the Premises by such removal, then notwithstanding any contrary terms of Section 8.5 of this Lease, Tenant's failure to remove and/or failure to repair shall not be deemed a holdover for purposes of Article 16 of this Lease.

KILROY REALTY

571981.06/WLA4690 Executive Drive

K4064-066/6-8-04/pjr/pjr-37-[STMicroelectronics, Inc.]

ARTICLE 16

HOLDING OVER

If Tenant holds over after the expiration of the Lease Term or earlier termination thereof, with or without the express or implied consent of Landlord, such tenancy shall be from month to-month only, and shall not constitute a renewal hereof or an extension for any further term, and in such case Rent shall be payable at a monthly rate equal to the product of (i) the Rent applicable during the last rental period of the Lease Term under this Lease, and (ii) a percentage equal to one hundred fifty percent (150%) during the first three (3) months immediately following the expiration or earlier termination of the Lease Term, and two hundred percent (200%) thereafter. Such month-to-month tenancy shall be subject to every other applicable term, covenant and agreement contained herein.   Nothing contained in this Article 16 shall be construed as consent by Landlord to any holding over by Tenant, and Landlord expressly reserves the right to require Tenant to surrender possession of the Premises to Landlord as provided in this Lease upon the expiration or other termination of this Lease. The provisions of this Article 16 shall not be deemed to limit or constitute a waiver of any other rights or remedies of Landlord provided herein or at law.   If Tenant fails to surrender the Premises upon the termination or expiration of this Lease, in addition to any other liabilities to Landlord accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord harmless from all loss, costs (including reasonable attorneys' fees) and liability resulting from such failure, including, without limiting the generality of the foregoing, any claims made by any succeeding tenant founded upon such failure to surrender and any lost profits to Landlord resulting therefrom; provided, however, that in no event shall Tenant be liable for any such consequential damages to the extent accruing (A) prior to the later to occur of (1) the date which is sixty (60) days following the expiration or earlier termination of the then-applicable Lease Term, and (2) the date which is sixty (60) days following written notice of such potential liability under this Article 16, or (B) during the term of any month-to-month tenancy that is created pursuant to the TCCs of this Article 16, above.

ARTICLE 17

ESTOPPEL CERTIFICATES

Within ten (10) days following a request in writing by Landlord, Tenant shall execute, acknowledge and deliver to Landlord an estoppel certificate, which, as submitted by Landlord, shall be substantially in the form of Exhibit E, attached hereto (or such other form as may be required by any prospective mortgagee or purchaser of the Project, or any portion thereof), indicating therein any exceptions thereto that may exist at that time, and shall also contain any other information reasonably requested by Landlord or Landlord's mortgagee or prospective mortgagee. Any such certificate may be relied upon by any prospective mortgagee or purchaser of all or any portion of the Project. Tenant shall execute and deliver whatever other instruments may be reasonably required for such purposes.  At any time during the Lease Term, Landlord may require Tenant to provide Landlord with a current financial statement and financial statements of the two (2) years prior to the current financial statement year.  Such statements shall be prepared in accordance with generally accepted accounting principles and, if such is the normal practice of Tenant, shall be audited by an independent certified public accountant.

KILROY REALTY

571981.06/WLA4690 Executive Drive

K4064-066/6-8-04/pjr/pjr-38-[STMicroelectronics, Inc.]

Failure of Tenant to timely execute, acknowledge and deliver such estoppel certificate or other instruments shall constitute an acceptance of the Premises and an acknowledgment by Tenant that statements included in the estoppel certificate are true and correct, without exception.

ARTICLE 18

SUBORDINATION

Subject to Tenant's receipt of an appropriate non-disturbance agreement(s) as set forth below, this Lease shall be subject and subordinate to all present and future ground or underlying leases of the Building or Project and to the lien of any mortgage, trust deed or other encumbrances now or hereafter in force against the Building or Project or any part thereof, if any, and to all renewals, extensions, modifications, consolidations and replacements thereof, and to all advances made or hereafter to be made upon the security of such mortgages or trust deeds, unless the holders of such mortgages, trust deeds or other encumbrances, or the lessors under such ground lease or underlying leases, require in writing that this Lease be superior thereto. As of the date of this Lease, Landlord covenants that no deed of trust, mortgage, other encumbrance, or ground or underlying lease encumbers the Premises, Building or Project. Landlord's delivery to Tenant of commercially reasonable non-disturbance agreement(s) (the "Nondisturbance Agreement") in favor of Tenant from any ground lessor, mortgage holders or lien holders of Landlord who later come into existence at any time prior to the expiration of the Lease Term shall be in consideration of, and a condition precedent to, Tenant's agreement to be bound by the terms and conditions of this Article 18.  Tenant covenants and agrees in the event any proceedings are brought for the foreclosure of any such mortgage or deed in lieu thereof (or if any ground lease is terminated), to attorn, without any deductions or set-offs whatsoever, to the lienholder or purchaser or any successors thereto upon any such foreclosure sale or deed in lieu thereof (or to the ground lessor), if so requested to do so by such purchaser or lienholder or ground lessor, and to recognize such purchaser or lienholder or ground lessor as the lessor under this Lease, provided such lienholder or purchaser or ground lessor shall agree to accept this Lease and not disturb Tenant's occupancy, so long as Tenant timely pays the rent and observes and performs the TCCs of this Lease to be observed and performed by Tenant.  Landlord's interest herein may be assigned as security at any time to any lienholder. Tenant shall, within ten (10) business days of request by Landlord, execute such further instruments or assurances as Landlord may reasonably deem necessary to evidence or confirm the subordination or superiority of this Lease to any such mortgages, trust deeds, ground leases or underlying leases. Subject to Tenant's receipt of the Nondisturbance Agreement described herein,  Tenant waives the provisions of any current or future statute, rule or law which may give or purport to give Tenant any right or election to terminate or otherwise adversely affect this Lease and the obligations of the Tenant hereunder in the event of any foreclosure proceeding or sale.

ARTICLE 19

DEFAULTS; REMEDIES

19.1Events of Default. The occurrence of any of the following shall constitute a default of this Lease by Tenant:

KILROY REALTY

571981.06/WLA4690 Executive Drive

K4064-066/6-8-04/pjr/pjr-39-[STMicroelectronics, Inc.]

19.1.1 Any failure by Tenant to pay any Rent or any other charge required to be paid under this Lease within five (5) business days of Tenant's receipt of written notice from Landlord that the same was not paid when due; or

19.1.2 Except where a specific time period is otherwise set forth for Tenant's performance in this Lease, in which event the failure to perform by Tenant within such time period shall be a default by Tenant under this Section 19.1.2, any failure by Tenant to observe or perform any other provision, covenant or condition of this Lease to be observed or performed by Tenant where such failure continues for thirty (30) days after written notice thereof from Landlord to Tenant; provided that if the nature of such default is such that the same cannot reasonably be cured within a thirty (30) day period, Tenant shall not be deemed to be in default if it diligently commences such cure within such period and thereafter diligently proceeds to rectify and cure such default, but in no event exceeding a period of time in excess of sixty (60) days after written notice thereof from Landlord to Tenant; or

19.1.3 To the extent permitted by law, a general assignment by Tenant or any guarantor of this Lease for the benefit of creditors, or the taking of any corporate action in furtherance of bankruptcy or dissolution whether or not there exists any proceeding under an insolvency or bankruptcy law, or the filing by or against Tenant or any guarantor of any proceeding under an insolvency or bankruptcy law, unless in the case of a proceeding filed against Tenant or any guarantor the same is dismissed within sixty (60) days, or the appointment of a trustee or receiver to take possession of all or substantially all of the assets of Tenant or any guarantor, unless possession is restored to Tenant or such guarantor within thirty (30) days, or any execution or other judicially authorized seizure of all or substantially all of Tenant's assets located upon the Premises or of Tenant's interest in this Lease, unless such seizure is discharged within thirty (30) days; or

19.1.4 Abandonment of the Premises as defined by applicable law; or

19.1.5 The failure by Tenant to observe or perform according to the provisions of Articles 5, 14, 17 or 18 of this Lease where such failure continues for more than two (2) business days after notice from Landlord; or

19.1.6 Tenant's failure to occupy the Premises within ten (10) business days after the Lease Commencement Date.

The notice periods provided herein are in lieu of, and not in addition to, any notice periods provided by law.

19.2Remedies Upon Default.  Upon the occurrence of any event of default by Tenant, Landlord shall have, in addition to any other remedies available to Landlord at law or in equity (all of which remedies shall be distinct, separate and cumulative), the option to pursue any one or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever.

19.2.1 Terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take

KILROY REALTY

571981.06/WLA4690 Executive Drive

K4064-066/6-8-04/pjr/pjr-40-[STMicroelectronics, Inc.]

possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises or any part thereof, without being liable for prosecution or any claim for damages therefor; and Landlord may recover from Tenant the following:

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

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

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

(d)Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, specifically including but not limited to, brokerage commissions and advertising expenses incurred, expenses of remodeling the Premises or any portion thereof for a new tenant, whether for the same or a different use, and any special concessions made to obtain a new tenant; and

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

The term "rent" as used in this Section 19.2 shall be deemed to be and to mean all sums of every nature required to be paid by Tenant pursuant to the terms of this Lease, whether to Landlord or to others.  As used in Sections 19.2.1(a) and (b), above, the "worth at the time of award" shall be computed by allowing interest at the rate set forth in Article 25 of this Lease, but in no case greater than the maximum amount of such interest permitted by law.  As used in Section 19.2.1(c), above, the "worth at the time of award" shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent _(1%).

19.2.2 Landlord shall have the remedy described in California Civil Code Section 1951.4 (lessor may continue lease in effect after lessee's breach and abandonment and recover rent as it becomes due, if lessee has the right to sublet or assign, subject only to reasonable limitations).  Accordingly, if Landlord does not elect to terminate this Lease on account of any default by Tenant, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies under this Lease, including the right to recover all rent as it becomes due.

19.2.3 Landlord shall at all times have the rights and remedies (which shall be cumulative with each other and cumulative and in addition to those rights and remedies available under Sections 19.2.1 and 19.2.2, above, or any law or other provision of this Lease), without prior demand or notice except as required by applicable law, to seek any declaratory, injunctive or other equitable relief, and specifically enforce this Lease, or restrain or enjoin a violation or breach of any provision hereof.

KILROY REALTY

571981.06/WLA4690 Executive Drive

K4064-066/6-8-04/pjr/pjr-41-[STMicroelectronics, Inc.]

19.3Subleases of Tenant. Whether or not Landlord elects to terminate this Lease on account of any default by Tenant, as set forth in this Article 19, Landlord shall have the right to terminate any and all subleases, licenses, concessions or other consensual arrangements for possession entered into by Tenant and affecting the Premises or may, in Landlord's sole discretion, succeed to Tenant's interest in such subleases, licenses, concessions or arrangements. In the event of Landlord's election to succeed to Tenant's interest in any such subleases, licenses, concessions or arrangements, Tenant shall, as of the date of notice by Landlord of such election, have no further right to or interest in the rent or other consideration receivable thereunder.

19.4Form of Payment After Default.  Following the occurrence of an event of default by Tenant, Landlord shall have the right to require that any or all subsequent amounts paid by Tenant to Landlord hereunder, whether to cure the default in question or otherwise, be paid in the form of cash, money order, cashier's or certified check drawn on an institution acceptable to Landlord, or by other means approved by Landlord, notwithstanding any prior practice of accepting payments in any different form.

19.5Efforts to Relet. No re-entry or repossession, repairs, maintenance, changes, alterations and additions, reletting, appointment of a receiver to protect Landlord's interests hereunder, or any other action or omission by Landlord shall be construed as an election by Landlord to terminate this Lease or Tenant's right to possession, or to accept a surrender of the Premises, nor shall same operate to release Tenant in whole or in part from any of Tenant's obligations hereunder, unless express written notice of such intention is sent by Landlord to Tenant.   Tenant hereby irrevocably waives any right otherwise available under any law to redeem or reinstate this Lease.

19.6Landlord Default. Notwithstanding anything to the contrary set forth in this Lease, Landlord shall be in default in the performance of any obligation required to be performed by Landlord pursuant to this Lease if Landlord fails to perform such obligation within thirty (30) days after the receipt of notice from Tenant specifying in detail Landlord's failure to perform; provided, however, if the nature of Landlord's obligation is such that more than thirty (30) days are required for its performance, then Landlord shall not be in default under this Lease if it shall commence such performance within such thirty (30) day period and thereafter diligently pursues the same to completion.  Upon any such default by Landlord under this Lease, Tenant may, except as otherwise specifically provided in this Lease to the contrary, exercise any of its rights provided at law or in equity. Any award from a court or arbitrator in favor of Tenant requiring payment by Landlord which is not paid by Landlord within the time period directed by such award, may be offset by Tenant from Rent next due and payable under this Lease; provided, however, Tenant may not deduct the amount of the award against more than fifty percent (50%) of Base Rent next due and owing (until such time as the entire amount of such judgment is deducted) to the extent following a foreclosure or a deed-in-lieu of foreclosure.

ARTICLE 20

COVENANT OF QUIET ENJOYMENT

Landlord covenants that Tenant, on paying the Rent, charges for services and other payments herein reserved and on keeping, observing and performing all the other TCCs,

KILROY REALTY

571981.06/WLA4690 Executive Drive

K4064-066/6-8-04/pjr/pjr-42-[STMicroelectronics, Inc.]

provisions and agreements herein contained on the part of Tenant to be kept, observed and performed, shall, during the Lease Term, peaceably and quietly have, hold and enjoy the Premises subject to the TCCs, provisions and agreements hereof without interference by any persons lawfully claiming by or through Landlord.  The foregoing covenant is in lieu of any other covenant express or implied.

ARTICLE 21

SECURITY DEPOSIT

Tenant shall not be obligated to maintain any security deposit with Landlord in connection with Tenant's leasing of the Premises (in its initial configuration) for the initial Lease Term.

ARTICLE 22

TELECOMMUNICATIONS EQUIPMENT

At any time during the Lease Term, subject to the TCCs of this Article 22 and Article 8 of this Lease, Tenant may install, at Tenant's sole cost and expense, but without the payment of any Rent or a license or similar fee or charge, up to one (1) twenty-four inch (24") satellite dish (and reasonable equipment related thereto), servicing the business conducted by Tenant from within the Premises (all such equipment is defined collectively as the "Telecommunications Equipment") upon the portion of the roof of the Building designated by Landlord for such equipment. The physical appearance and the size of the Telecommunications Equipment shall be subject to Landlord's reasonable approval, the  location of any such installation of the Telecommunications Equipment shall be designated by Tenant subject to Landlord's reasonable approval and Landlord may require Tenant to install screening around such Telecommunications Equipment, at Tenant's sole cost and expense, as reasonably designated by Landlord.  Tenant shall maintain such Telecommunications Equipment, at Tenant's sole cost and expense.  In the event Tenant elects to exercise its right to install the Telecommunication Equipment, then Tenant shall give Landlord prior notice thereof.   Tenant shall remove such Telecommunications Equipment upon the expiration or earlier termination of this Lease and shall return the affected portion of the rooftop and the Building to the condition the rooftop and the Building would have been in had no such Telecommunications Equipment been installed (reasonable wear and tear accepted). Such Telecommunications Equipment shall be installed pursuant to plans and specifications approved by Landlord, which approval will not be unreasonably withheld, conditioned, or delayed.  Such Telecommunications Equipment shall, in all instances, comply with applicable governmental laws, codes, rules and regulations. Tenant shall not be entitled to license its Communication Equipment to any unrelated third party, nor shall Tenant be permitted to receive any revenues, fees or any other consideration for the use of such Communication Equipment by an unrelated third party.   Tenant's right to install such Telecommunication Equipment shall be non-exclusive, and Tenant hereby expressly acknowledges Landlord's continued right (i) to itself utilize any rooftop space, and (ii) to re-sell, license or lease any rooftop space to an unaffiliated third party; provided, however, such Landlord (or third-party) use   shall   not  materially   interfere  with (or  preclude   the   installation  of)  Tenant's Telecommunications Equipment.

KILROY REALTY

571981.06/WLA4690 Executive Drive

K4064-066/6-8-044jr/pjr-43-[STMicroelectronics, Inc.]

ARTICLE 23

SIGNS

23.1Full Floors. Subject to Landlord's prior written approval, in its sole discretion, and provided all signs are in keeping with the quality, design and style of the Building and Project, Tenant, if the Premises comprise an entire floor of the Building, at its sole cost and expense, may install identification signage anywhere in the Premises including in the second (2nd) floor elevator lobby, provided that such signs must not be visible from the exterior of the Building; provided, however, Landlord shall be able to locate its standard identification signage in the lobby of the Building and/or immediately inside the main entrance doors to the Building.

23.2Multi-Tenant Floors. If other tenants occupy space on the floor on which the Premises is located, Tenant's identifying signage shall be provided by Landlord, at Tenant's cost, and such signage shall be comparable to that used by Landlord for other similar floors in the Building and shall comply with Landlord's Building standard signage program.

23.3Prohibited Signage and Other Items.Any signs, notices, logos, pictures, names or advertisements which are installed and that have not been separately approved by Landlord may be removed without notice by Landlord at the sole expense of Tenant. Except as expressly set forth in Section 23.4, below, Tenant may not install any signs on the exterior or roof of the Project or the Common Areas.  Any signs (subject to the TCCs of Section 23.4 of this Lease), window coverings, or blinds (even if the same are located behind the Landlord-approved window coverings for the Building), or other items visible from the exterior of the Premises or Building, shall be subject to the prior approval of Landlord, in its sole discretion.

23.4Tenant's Signage. Tenant shall be entitled to install the following signage in connection with Tenant's lease of the Premises (collectively, the "Tenant's Signage"):

(i)

Non-exclusive Building-top signage consisting of one (1) building-top sign (maximum size per building-top sign is 100 square feet pursuant to the signage guidelines for the Project) identifying Tenant's name or logo located at the top of the Building in one (1) location.

(ii)

One strip (lowest location) of non-exclusive signage on the monument located adjacent to the entrance of the Building (the "Building Monument Sign"); provided, however, Landlord shall be able to locate its standard identification signage on the Building Monument Sign (below Tenant's strip and the other strips available for the identification of other Building tenants).

571981.06/WLAK4064-066/6-8-04/pjr/pjr

KILROY REALTY4690 Executive Drive

-44-[STMicroelectronics, Inc.]

(iii)

Non-exclusive identification signage (highest location) on the small head-stone located adjacent to the Judicial Drive entrance to the Project (the "Head-Stone Sign"); provided, however, Landlord shall be able to locate its standard identification signage on the Head-Stone  Sign (below Tenant's signage and any other identification signage for other Building tenants).

23.4.1 Specifications and Permits.  Tenant's Signage shall set forth Tenant's name and logo as determined by Tenant in its sole discretion; provided, however, in no event shall  Tenant's  Signage  include  an  "Objectionable Name,"  as  that  term  is  defined  in Section 23.5.2, of this Lease.  The graphics, materials, color, design, lettering, lighting, size, illumination, specifications and exact location of Tenant's Signage (collectively, the "Sign Specifications") shall be subject to the prior written approval of Landlord, which approval shall not be unreasonably withheld, conditioned or delayed, and shall be consistent and compatible with the quality and nature of the Project and the Building Standard Signage Specifications. For purposes of this Section 23.4.1, the reference to "name" shall mean name and/or logo.   In addition, Tenant's Signage shall be subject to Tenant's receipt of all required governmental permits and approvals and shall be subject to all Applicable Law and to any covenants, conditions and restrictions affecting the Project.  Landlord shall use commercially reasonable efforts to assist Tenant in obtaining all necessary governmental permits and approvals for Tenant's Signage.  Tenant hereby acknowledges that, notwithstanding Landlord's approval of Tenant's Signage, Landlord has made no representation or warranty to Tenant with respect to the probability of obtaining all necessary governmental approvals and permits for Tenant's Signage. In the event Tenant does not receive the necessary governmental approvals and permits for Tenant's Signage, Tenant's and Landlord's rights and obligations under the remaining TCCs of this Lease shall be unaffected.

23.4.2 Objectionable Name.   To the extent Original Tenant or its Permitted Transferees desires to change the name and/or logo set forth on Tenant's Signage, such name and/or logo shall not have a name which relates to an entity which is of a character or reputation, or is associated with a political faction or orientation, which is inconsistent with the quality of the Project, or which would otherwise reasonably offend a landlord of the Comparable Buildings (an "Objectionable Name"). The parties hereby agree that the name "STMicroelectronics, Inc." or any reasonable derivation thereof, shall not be deemed an Objectionable Name.

23.4.3 Termination of Right to Tenant's Signage. The rights contained in this Section 23.4 shall be personal to the Original Tenant, and may only be exercised by the Original Tenant or its Permitted Transferees (and not any other assignee, sublessee or other transferee of the Original Tenant's interest in this Lease) if (i) the Original Tenant or its Permitted Transferees is in occupancy of no less than sixty percent (60%) of the then existing Premises, and (ii) Tenant has not been in economic default or material non-economic default under this Lease (beyond any applicable notice and cure periods) more than once during the prior twelve (12) month period, and (iv) Tenant has not been in economic default or material non-economic default under this Lease (beyond any applicable notice and cure periods) more than three (3) times throughout the entire Lease Term.

KILROY REALTY

571981.06/WLA4690 Executive Drive

K4064-066/6-8-04/pjr/pjr-45-[STMicroelectronics, Inc.]

23.4.4 Cost and Maintenance.  The costs of the actual signs comprising Tenant's Signage and the installation, design, construction, and any and all other costs associated with Tenant's Signage, including, without limitation, utility charges and hook-up fees, permits, and maintenance and repairs, shall be the sole responsibility of Tenant; provided that Landlord shall construct and install the Project Monument Sign(s) (including, but not limited to, running sufficient power and utilities to the site of the Project Monument Sign), at Tenant's sole cost and expense, and Tenant shall be responsible for the cost of Tenant's sign on the Project Monument Sign(s), but Landlord shall maintain all monument signs set forth in this Article 23 in good condition and repair, the cost of which in connection with the Project Monument Sign(s) shall be included in Operating Expenses. Should Tenant's Signage require repairs and/or maintenance, as determined in Landlord's reasonable judgment, Landlord shall have the right to provide Notice thereof to Tenant and Tenant (except as set forth above) shall cause such repairs and/or maintenance to be performed within thirty (30) days after receipt of such Notice from Landlord, at Tenant's sole cost and expense; provided, however, if such repairs and/or maintenance are reasonably expected to require longer than thirty (30) days to perform, Tenant shall commence such repairs and/or maintenance within such thirty (30) day period and shall diligently prosecute such repairs and maintenance to completion.  Should Tenant fail to perform such repairs and/or maintenance within the periods described in the immediately preceding sentence, Landlord shall, upon the delivery of an additional five (5) business days' prior written notice, have the right to cause such work to be performed and to charge Tenant as Additional Rent for the Actual Cost of such work.  Upon the expiration or earlier termination of this Lease, Tenant shall, at Tenant's sole cost and expense, cause Tenant's Signage to be removed and shall cause the areas in which such Tenant's Signage was located to be restored to the condition existing immediately prior to the placement of such Tenant's Signage. If Tenant fails to timely remove such Tenant's Signage or to restore the areas in which such Tenant's Signage was located, as provided in the immediately preceding sentence, then Landlord may perform such work, and all Actual Costs incurred by Landlord in so performing shall be reimbursed by Tenant to Landlord within thirty (30) days after Tenant's receipt of an invoice therefor.  The TCCs of this Section 23.4.4 shall survive the expiration or earlier termination of this Lease.

ARTICLE 24

COMPLIANCE WITH LAW

Tenant shall not do anything or suffer anything to be done in or about the Premises or the Project which will in any way conflict with any law, statute, ordinance or other governmental rule, regulation or requirement now in force or which may hereafter be enacted or promulgated (collectively, "Applicable Laws"). At its sole cost and expense, Tenant shall promptly comply with all such Applicable Laws which relate to (i) Tenant's use of the Premises for non-general office use, (ii) the Alterations or Tenant Improvements in the Premises, or (iii) the Base Building, but, as to the Base Building, only to the extent such obligations are triggered by Tenant's Alterations, the Tenant Improvements, or use of the Premises for non-general office use. Should any standard or regulation now or hereafter be imposed on Landlord or Tenant by a state, federal or local governmental body charged with the establishment, regulation and enforcement of occupational, health or safety standards for employers, employees, landlords or tenants, then Tenant agrees, at its sole cost and expense, to comply promptly with such standards or regulations. Tenant shall be responsible, at its sole cost and expense, to make all alterations to

KILROY REALTY

571981.06/WLA4690 Executive Drive

K4064-066/6-8-04/pjr/pjr-46-[STMicroelectronics, Inc.]

the Premises as are required to comply with the governmental rules, regulations, requirements or standards described in this Article 24.  The judgment of any court of competent jurisdiction or the admission of Tenant in any judicial action, regardless of whether Landlord is a party thereto, that Tenant has violated any of said governmental measures, shall be conclusive of that fact as between Landlord and Tenant.  Landlord shall comply with all Applicable Laws relating to the Building Structure, provided that compliance with such Applicable Laws is not the responsibility of Tenant under this Lease, and provided further that Landlord's failure to comply therewith would prohibit Tenant from obtaining or maintaining a certificate of occupancy for the Premises, or would unreasonably and materially affect the safety of Tenant's employees or create a significant health hazard for Tenant's employees.  Landlord shall be permitted to include in Operating Expenses any costs or expenses incurred by Landlord under this Article 24 to the extent consistent with the terms of Section 4.2.4, above.

ARTICLE 25

LATE CHARGES

If any installment of Rent or any other sum due from Tenant shall not be received by Landlord or Landlord's designee within five (5) business days after Tenant's receipt of written notice from Landlord that the same was not paid when due, then Tenant shall pay to Landlord a late charge equal to five percent (5%) of the overdue amount plus any attorneys' fees incurred by Landlord by reason of Tenant's failure to pay Rent and/or other charges when due hereunder. The late charge shall be deemed Additional Rent and the right to require it shall be in addition to all of Landlord's other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Landlord's remedies in any manner.  In addition to the late charge described above, any Rent or other amounts owing hereunder which are not paid within ten (10) days after the date they are due shall bear interest from the date when due until paid at the "Interest Rate." For purposes of this Lease, the "Interest Rate" shall be an annual rate equal to the lesser of (i) the annual "Bank Prime Loan" rate cited in the Federal Reserve Statistical Release Publication G.13(415), published on the first Tuesday of each calendar month (or such other comparable index as Landlord and Tenant shall reasonably agree upon if such rate ceases to be published), plus four (4) percentage points, and (ii) the highest rate permitted by applicable law.

ARTICLE 26

LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT

26.1Landlord's Cure. All covenants and agreements to be kept or performed by Tenant under this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any reduction of Rent, except to the extent, if any, otherwise expressly provided herein. If Tenant shall fail to perform any obligation under this Lease, and such failure shall continue in excess of the time allowed under Section 19.1.2, above, unless a specific time period is otherwise stated in this Lease, Landlord may, but shall not be obligated to, make any such payment or perform any such act on Tenant's part without waiving its rights based upon any default of Tenant and without releasing Tenant from any obligations hereunder.

KILROY REALTY

571981.06/WLA4690 Executive Drive

K4064-066/6-8-04/pjr/pjr-47-[STMicroelectronics, Inc.]

26.2Tenant's Reimbursement.  Except as may be specifically provided to the contrary in this Lease, Tenant shall pay to Landlord, upon delivery by Landlord to Tenant of statements therefor: (i) sums equal to expenditures reasonably made and obligations incurred by Landlord in connection with the remedying by Landlord of Tenant's defaults pursuant to the provisions of Section 26.1; (ii) sums equal to all losses, costs, liabilities, damages and expenses referred to in Article 10 of this Lease; and (iii) sums equal to all expenditures made and obligations incurred by Landlord in collecting or attempting to collect the Rent or in enforcing or attempting to enforce any rights of Landlord under this Lease or pursuant to law, including, without limitation, all legal fees and other amounts so expended. Tenant's obligations under this Section 26.2 shall survive the expiration or sooner termination of the Lease Term.

ARTICLE 27

ENTRY BY LANDLORD

Landlord reserves the right at all reasonable times (during Building Hours with respect to items (i) and (ii) below) and upon at least twenty-four (24) hours prior notice to Tenant (except in the case of an emergency) to enter the Premises to (i) inspect them; (ii) show the Premises to prospective purchasers, or to current or prospective mortgagees, ground or underlying lessors or insurers, or during the last twelve (12) months of the Lease Term, to prospective tenants; (iii) post notices of nonresponsibility; or (iv) alter, improve or repair the Premises or the Building, or for structural alterations, repairs or improvements to the Building or the Building's systems and equipment. Notwithstanding anything to the contrary contained in this Article 27, Landlord may enter the Premises at any time to (A) perform services required of Landlord, including janitorial service; (B) take possession due to any breach of this Lease in the manner provided herein; and (C) perform any covenants of Tenant which Tenant fails to perform.  Landlord may make any such entries without the abatement of Rent, except as otherwise provided in this Lease, and may take such reasonable steps as required to accomplish the stated purposes; provided, however, except for (i) emergencies, (ii) repairs, alterations, improvements or additions required by governmental or quasi-governmental authorities or court order or decree, or (iii) repairs which are the obligation of Tenant hereunder, any such entry shall be performed in a manner so as not to unreasonably interfere with Tenant's use of the Premises and shall be performed after normal business hours if reasonably practical. With respect to items (ii) and (iii) above, Landlord shall use commercially reasonable efforts to not materially interfere with Tenant's use of, or access to, the Premises. Except as otherwise set forth in Section 6.4, Tenant hereby waives any claims for damages or for any injuries or inconvenience to or interference with Tenant's business, lost profits, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby.  For each of the above purposes, Landlord shall at all times have a key with which to unlock all the doors in the Premises, excluding Tenant's vaults, safes and special security areas designated in advance by Tenant.  In an emergency, Landlord shall have the right to use any means that Landlord may deem proper to open the doors in and to the Premises. Any entry into the Premises by Landlord in the manner hereinbefore described shall not be deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an actual or constructive eviction of Tenant from any portion of the Premises.   No provision of this Lease shall be construed as obligating Landlord to perform any repairs, alterations or decorations except as otherwise expressly agreed to be performed by Landlord herein.

KILROY REALTY

571981.06AVLA4690 Executive Drive

K4064-066/6-8-04/pjr/pjr-48-[STMicroelectronics, Inc.]

ARTICLE 28

TENANT PARKING

Landlord shall provide to Tenant, throughout the Lease Term and at no additional cost to Tenant, the number of unreserved parking passes set forth in Section 9 of the Summary, on a monthly basis throughout the Lease Term, which parking passes shall pertain to the Project parking facility.  Tenant shall be responsible for the full amount of any taxes imposed by any governmental authority in connection with the renting of such parking passes by Tenant or the use of the parking facility by Tenant.  Tenant's continued right to use the parking passes is conditioned upon Tenant abiding by all rules and regulations which are prescribed from time to time for the orderly operation and use of the parking facility where the parking passes are located, including any sticker or other identification system established by Landlord, Tenant's cooperation in seeing that Tenant's employees and visitors also comply with such rules and regulations and Tenant not being in default under this Lease. Landlord specifically reserves the right to change the size, configuration, design, layout and all other aspects of the Project parking facility at any time and Tenant acknowledges and agrees that Landlord may, without incurring any liability to Tenant and without any abatement of Rent under this Lease, from time to time, close-off or restrict access to the Project parking facility for purposes of permitting or facilitating any such construction, alteration or improvements.  Landlord may delegate its responsibilities hereunder to a parking operator in which case such parking operator shall have all the rights of control attributed hereby to the Landlord. The parking passes rented by Tenant pursuant to this Article 28 are provided to Tenant solely for use by Tenant's own personnel and such passes may not be transferred, assigned, subleased or otherwise alienated by Tenant without Landlord's prior approval. Tenant may validate visitor parking by such method or methods as the Landlord may establish, at the validation rate from time to time generally applicable to visitor parking.

ARTICLE 29

MISCELLANEOUS PROVISIONS

29.1Terms; Captions.  The words "Landlord" and "Tenant" as used herein shall include the plural as well as the singular. The necessary grammatical changes required to make the provisions hereof apply either to corporations or partnerships or individuals, men or women, as the case may require, shall in all cases be assumed as though in each case fully expressed. The captions of Articles and Sections are for convenience only and shall not be deemed to limit, construe, affect or alter the meaning of such Articles and Sections.

29.2Binding Effect.  Subject to all other provisions of this Lease, each of the covenants, conditions and provisions of this Lease shall extend to and shall, as the case may require, bind or inure to the benefit not only of Landlord and of Tenant, but also of their respective heirs, personal representatives, successors or assigns, provided this clause shall not permit any assignment by Tenant contrary to the provisions of Article 14 of this Lease.

29.3No Air Rights. No rights to any view or to light or air over any property, whether belonging to Landlord or any other person, are granted to Tenant by this Lease.  If at any time any windows of the Premises are temporarily darkened or the light or view therefrom is

KILROY REALTY

571981.06/V/LA4690 Executive Drive

K4064-066/6-8-04/pjr/pjr-49-[STMicroelectronics, Inc.]

obstructed by reason of any repairs, improvements, maintenance or cleaning in or about the Project, the same shall be without liability to Landlord and without any reduction or diminution of Tenant's obligations under this Lease.

29.4Modification of Lease. Should any current or prospective mortgagee or ground lessor for the Building or Project require a modification of this Lease, which modification will not cause an increased cost or expense to Tenant or in any other way materially and adversely change the rights and obligations of Tenant hereunder, then and in such event, Tenant agrees that this Lease may be so modified and agrees to execute whatever documents are reasonably required therefor and to deliver the same to Landlord within ten (10) days following a request therefor. At the request of Landlord or any mortgagee or ground lessor, Tenant agrees to execute a short form of Lease and deliver the same to Landlord within ten (10) days following the request therefor.

29.5Transfer of Landlord's Interest. Tenant acknowledges that Landlord has the right to transfer all or any portion of its interest in the Project or Building and in this Lease, and Tenant agrees that in the event of any such transfer, Landlord shall automatically be released from all liability under this Lease and Tenant agrees to look solely to such transferee for the performance of Landlord's obligations hereunder after the date of transfer and such transferee shall be deemed to have fully assumed and be liable for all obligations of this Lease to be performed by Landlord, including the return of any Security Deposit, and Tenant shall attorn to such transferee. Tenant further acknowledges that Landlord may assign its interest in this Lease to a mortgage lender as additional security and agrees that such an assignment shall not release Landlord from its obligations hereunder and that Tenant shall continue to look to Landlord for the performance of its obligations hereunder.

29.6Prohibition Against Recording.  Except as provided in Section 29.4 of this Lease, neither this Lease, nor any memorandum, affidavit or other writing with respect thereto, shall be recorded by Tenant or by anyone acting through, under or on behalf of Tenant.

29.7Landlord's Title.Landlord's title is and always shall be paramount to the title of Tenant. Nothing herein contained shall empower Tenant to do any act which can, shall or may encumber the title of Landlord.

29.8Relationship of Parties. Nothing contained in this Lease shall be deemed or construed by the parties hereto or by any third party to create the relationship of principal and agent, partnership, joint venturer or any association between Landlord and Tenant.

29.9Application of Payments.  Landlord shall have the right to apply payments received from Tenant pursuant to this Lease, regardless of Tenant's designation of such payments, to satisfy any obligations of Tenant hereunder, in such order and amounts as Landlord, in its sole discretion, may elect.

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

29.11 Partial Invalidity. If any term, provision or condition contained in this Lease shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of

KILROY REALTY

571981.06/WLA4690 Executive Drive

K4064-066/6-8-04/pjr/pjr-50-[STMicroelectronics, Inc.]

such term, provision or condition to persons or circumstances other than those with respect to which it is invalid or unenforceable, shall not be affected thereby, and each and every other term, provision and condition of this Lease shall be valid and enforceable to the fullest extent possible permitted by law.

29.12 No Warranty. In executing and delivering this Lease, Tenant has not relied on any representations, including, but not limited to, any representation as to the amount of any item comprising Additional Rent or the amount of the Additional Rent in the aggregate or that Landlord is furnishing the same services to other tenants, at all, on the same level or on the same basis, or any warranty or any statement of Landlord which is not set forth herein or in one or more of the exhibits attached hereto.

29.13Landlord Exculpation.  The liability of Landlord or the Landlord Parties to Tenant for any default by Landlord under this Lease or arising in connection herewith or with Landlord's operation, management, leasing, repair, renovation, alteration or any other matter relating to the Project or the Premises shall be limited solely and exclusively to an amount which is equal to the lesser of (a) the interest of Landlord in the Building or (b) the equity interest Landlord would have in the Building if the Building were encumbered by third-party debt in an amount equal to eighty percent (80%) of the value of the Building (as such value is determined by Landlord), provided that in no event shall such liability extend to any sales or insurance proceeds received by Landlord or the Landlord Parties in connection with the Project, Building or Premises. Neither Landlord, nor any of the Landlord Parties shall have any personal liability therefor, and Tenant hereby expressly waives and releases such personal liability on behalf of itself and all persons claiming by, through or under Tenant. The limitations of liability contained in this Section 29.13 shall inure to the benefit of Landlord's and the Landlord Parties' present and future partners, beneficiaries, officers, directors, trustees, shareholders, agents and employees, and their respective partners, heirs, successors and assigns.  Under no circumstances shall any present or future partner of Landlord (if Landlord is a partnership), or trustee or beneficiary (if Landlord or any partner of Landlord is a trust), have any liability for the performance of Landlord's obligations under this Lease. Notwithstanding any contrary provision herein, neither Landlord nor the Landlord Parties shall be liable under any circumstances for injury or damage to, or interference with, Tenant's business, including but not limited to, loss of profits, loss of rents or other revenues, loss of business opportunity, loss of goodwill or loss of use, in each case, however occurring.

29.14 Entire Agreement. It is understood and acknowledged that there are no oral agreements between the parties hereto affecting this Lease and this Lease constitutes the parties' entire agreement with respect to the leasing of the Premises and supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between the parties hereto or displayed by Landlord to Tenant with respect to the subject matter thereof, and none thereof shall be used to interpret or construe this Lease.  None of the terms, covenants, conditions or provisions of this Lease can be modified, deleted or added to except in writing signed by the parties hereto.

29.15 Right to Lease.  Landlord reserves the absolute right to effect such other tenancies in the Project as Landlord in the exercise of its sole business judgment shall determine to best promote the interests of the Building or Project.  Tenant does not rely on the fact, nor

KILROY REALTY

571981.06/WLA4690 Executive Drive

K4064-066/6-8-04/pjr/pjr-51-[STMicroelectronics, Inc.]

does Landlord represent, that any specific tenant or type or number of tenants shall, during the Lease Term, occupy any space in the Building or Project.

29.16 Force Majeure. Any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God, inability to obtain services, labor, or materials or reasonable substitutes therefor, governmental actions, civil commotions, fire or other casualty, and other causes beyond the reasonable control of the party obligated to perform, except with respect to the obligations imposed with regard to Rent and other charges to be paid by Tenant pursuant to this Lease and except as to Tenant's obligations under Articles 5 and 24 of this Lease (collectively, a "Force Majeure"), notwithstanding anything to the contrary contained in this Lease, shall excuse the performance of such party for a period equal to any such prevention, delay or stoppage and, therefore, if this Lease specifies a time period for performance of an obligation of either party, that time period shall be extended by the period of any delay in such party's performance caused by a Force Majeure.

29.17 Waiver of Redemption by Tenant. Tenant hereby waives, for Tenant and for all those claiming under Tenant, any and all rights now or hereafter existing to redeem by order or judgment of any court or by any legal process or writ, Tenant's right of occupancy of the Premises after any termination of this Lease.

29.18 Notices.   All notices, demands, statements, designations, approvals   or other communications (collectively, "Notices") given or required to be given by either party to the other hereunder or by law shall be in writing, shall be (A) sent by United States certified or registered mail, postage prepaid, return receipt requested ("Mail"), (B) transmitted by telecopy, if such telecopy is promptly followed by a Notice sent by Mail, (C) delivered by a nationally recognized overnight courier, or (D) delivered personally. Any Notice shall be sent, transmitted, or delivered, as the case may be, to Tenant at the appropriate address set forth in Section 10 of the Summary, or to such other place as Tenant may from time to time designate in a Notice to Landlord, or to Landlord at the addresses set forth below, or to such other places as Landlord may from time to time designate in a Notice to Tenant.  Any Notice will be deemed given (i) three (3) days after the date it is posted if sent by Mail, (ii) the date the telecopy is transmitted, (iii) the date the overnight courier delivery is made, or (iv) the date personal delivery is made or attempted to be made. If Tenant is notified of the identity and address of Landlord's mortgagee or ground or underlying lessor, Tenant shall give to such mortgagee or ground or underlying lessor written notice of any default by Landlord under the terms of this Lease by registered or certified mail, and such mortgagee or ground or underlying lessor shall be given a reasonable opportunity to cure such default prior to Tenant's exercising any remedy available to Tenant. As of the date of this Lease, any Notices to Landlord must be sent, transmitted, or delivered, as the case may be, to the following addresses:

Kilroy Realty Corporation

12200 West Olympic Boulevard, Suite 200

Los Angeles, California90064

Attention: Legal Department

KILROY REALTY

571981.06/WLA4690 Executive Drive

K4064-066/6-8-04/pjr/pjr-52-[STMicroelectronics, Inc.]

with copies to:

Kilroy Realty Corporation

3611 Valley Centre Drive, Suite 550 San Diego, California 92130Attention: Ms. Jennifer Young

and

Allen Matkins Leck Gamble & Mallory LLP 1901 Avenue of the Stars, Suite 1800Los Angeles, California 90067Attention: Anton N. Natsis, Esq.

29.19 Joint and Several. If there is more than one Tenant, the obligations imposed upon Tenant under this Lease shall be joint and several.

29.20 Authority.  If Tenant is a corporation, trust or partnership, each individual executing this Lease on behalf of Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do business in California and that Tenant has full right and authority to execute and deliver this Lease and that each person signing on behalf of Tenant is authorized to do so.  In such event, Tenant shall, within ten (10) days after execution of this Lease, deliver to Landlord satisfactory evidence of such authority and, if a corporation, upon demand by Landlord, also deliver to Landlord satisfactory evidence of (i) good standing in Tenant's state of incorporation and (ii) qualification to do business in California.

29.21Attorneys' Fees.In the event that either Landlord or Tenant should bring suit for the possession of the Premises, for the recovery of any sum due under this Lease, or because of the breach of any provision of this Lease or for any other relief against the other, then all costs and expenses, including reasonable attorneys' fees, incurred by the prevailing party therein shall be paid by the other party, which obligation on the part of the other party shall be deemed to have accrued on the date of the commencement of such action and shall be enforceable whether or not the action is prosecuted to judgment.

29.22 Governing Law; WAIVER OF TRIAL BY JURY.  This Lease shall be construed and enforced in accordance with the laws of the State of California.   IN ANY ACTION OR PROCEEDING ARISING HEREFROM, LANDLORD AND TENANT HEREBY CONSENT TO (I) THE JURISDICTION OF ANY COMPETENT COURT WITHIN THE STATE OF CALIFORNIA, (II) SERVICE OF PROCESS BY ANY MEANS AUTHORIZED BY CALIFORNIA LAW, AND (III) IN THE INTEREST OF SAVING TIME AND EXPENSE, TRIAL WITHOUT A JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR THEIR SUCCESSORS IN RESPECT OF ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY.

KILROY REALTY

571981.06/WLA4690 Executive Drive

K4064-066/6-8-04/pjr/pjr-53-[STMicroelectronics, Inc.]

29.23 Submission of Lease.Submission of this instrument for examination or signature by Tenant does not constitute a reservation of, option for or option to lease, and it is not effective as a lease or otherwise until execution and delivery by both Landlord and Tenant.

29.24 Brokers. Landlord and Tenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, excepting only the real estate broker or agents specified in Section 12 of the Summary (the "Broker"), and that they know of no other real estate broker or agent who is entitled to a commission in connection with this Lease. Landlord shall pay such Broker pursuant to separate written agreements between Landlord and the Broker.   Each party agrees to indemnify and defend the other party against and hold the other party harmless from any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses (including without limitation reasonable attorneys' fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of any dealings with any real estate broker or agent, other than the Broker, occurring by, through, or under the indemnifying party.

29.25 Independent Covenants.This Lease shall be construed as though the covenants herein between Landlord and Tenant are independent and not dependent and Tenant hereby expressly waives the benefit of any statute to the contrary and agrees that if Landlord fails to perform its obligations set forth herein, Tenant shall not be entitled to make any repairs or perform any acts hereunder at Landlord's expense or to any setoff of the Rent or other amounts owing hereunder against Landlord.

29.26 Project or Building Name and Signage. Landlord shall have the right at any time to change the name of the Project or Building and to install, affix and maintain any and all signs on the exterior and on the interior of the Project or Building as Landlord may, in Landlord's sole discretion, desire. Tenant shall not use the name of the Project or Building or use pictures or illustrations of the Project or Building in advertising or other publicity or for any purpose other than as the address of the business to be conducted by Tenant in the Premises, without the prior written consent of Landlord.

29.27 Counterparts.This Lease may be executed in counterparts with the same effect as if both parties hereto had executed the same document. Both counterparts shall be construed together and shall constitute a single lease.

29.28 Confidentiality.  Tenant acknowledges that the content of this Lease and any related documents are confidential information. Tenant shall keep such confidential information strictly confidential and shall not disclose such confidential information to any person or entity other than Tenant's financial, legal, and space planning consultants.

29.29 Transportation Management.  Tenant shall fully comply with all present or future programs intended to manage parking, transportation or traffic in and around the Building, and in connection therewith, Tenant shall take responsible action for the transportation planning and management of all employees located at the Premises by working directly with Landlord, any governmental transportation management organization or any other transportation-related committees or entities.

KILROY REALTY

571981.06/WLA4690 Executive Drive

K4064-066/6-8-04/pjr/pjr-54-[STMicroelectronics, Inc.]

29.30 Building Renovations.It is specifically understood and agreed that Landlord has made no representation or warranty to Tenant and has no obligation and has made no promises to alter, remodel, improve, renovate, repair or decorate the Premises, Building, or any part thereof and that no representations respecting the condition of the Premises or the Building have been made by Landlord to Tenant except as specifically set forth herein or in the Tenant Work Letter. However, Tenant hereby acknowledges that Landlord is currently renovating or may during the Lease Term renovate, improve, alter, or modify (collectively, the "Renovations") the Project, the Building and/or the Premises including without limitation the parking structure, common areas, systems and equipment, roof, and structural portions of the same, which Renovations may include, without limitation, (i) installing sprinklers in the Building common areas and tenant spaces, (ii) modifying the common areas and tenant spaces to comply with applicable laws and regulations, including regulations relating to the physically disabled, seismic conditions, and building safety and security, and (iii) installing new floor covering, lighting, and wall coverings in the Building common areas, and in connection with any Renovations, Landlord may, among other things, erect scaffolding or other necessary structures in the Building, limit or eliminate access to portions of the Project, including portions of the common areas, or perform work in the Building, which work may create noise, dust or leave debris in the Building.  Tenant hereby agrees that such Renovations and Landlord's actions in connection with such Renovations shall in no way constitute a constructive eviction of Tenant nor entitle Tenant to any abatement of Rent.  Landlord shall have no responsibility or for any reason be liable to Tenant for any direct or indirect injury to or interference with Tenant's business arising from the Renovations, nor shall Tenant be entitled to any compensation or damages from Landlord for loss of the use of the whole or any part of the Premises or of Tenant's personal property or improvements resulting from the Renovations or Landlord's actions in connection with such Renovations, or for any inconvenience or annoyance occasioned by such Renovations or Landlord's actions.

29.31 No Violation.Tenant hereby warrants and represents that neither its execution of nor performance under this Lease shall cause Tenant to be in violation of any agreement, instrument, contract, law, rule or regulation by which Tenant is bound, and Tenant shall protect, defend, indemnify and hold Landlord harmless against any claims, demands, losses, damages, liabilities, costs and expenses, including, without limitation, reasonable attorneys' fees and costs, arising from Tenant's breach of this warranty and representation.

29.32 Communications and Computer Lines. Tenant may install, maintain, replace, remove or use any communications or computer wires and cables (collectively, the "Lines") at the Project in or serving the Premises, provided that (i) Tenant shall obtain Landlord's prior written consent, use an experienced and qualified contractor approved in writing by Landlord, and comply with all of the other provisions of Articles 7 and 8 of this Lease, (ii) an acceptable number of spare Lines and space for additional Lines shall be maintained for existing and future occupants of the Project, as determined in Landlord's reasonable opinion, (iii) the Lines therefor (including riser cables) shall be appropriately insulated to prevent excessive electromagnetic fields or radiation, and shall be surrounded by a protective conduit reasonably acceptable to Landlord, and shall be identified in accordance with the "Identification Requirements," as that term is set forth hereinbelow, (iv) any new or existing Lines servicing the Premises shall comply with all applicable governmental laws and regulations, (v) as a condition to permitting the installation of new Lines, Tenant shall remove existing Lines located in or serving the Premises and repair any damage in connection with such removal, and (vi) Tenant shall pay all costs in

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57I981.06/WLA4690 Executive Drive

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connection therewith. All Lines shall be clearly marked with adhesive plastic labels (or plastic tags attached to such Lines with wire) to show Tenant's name, suite number, telephone number and the name of the person to contact in the case of an emergency (A) every four feet (4') outside the Premises (specifically including, but not limited to, the electrical room risers and other Common Areas), and (B) at the Lines' termination point(s) (collectively, the "Identification Requirements") Landlord reserves the right to require that Tenant remove any Lines located in or serving the Premises which are installed in violation of these provisions, or which are at any time (A) are in violation of any Applicable Laws, (B) are inconsistent with then-existing industry standards (such as the standards promulgated by the National Fire Protection Association (e.g., such organization's "2002 National Electrical Code")), or (C) otherwise represent a dangerous or potentially dangerous condition.

29.33Hazardous Substances.

29.33.1 Definitions. For purposes of this Lease, the following definitions shall apply: "Hazardous Material(s)" shall mean any solid, liquid or gaseous substance or material that is described or characterized as a toxic or hazardous substance, waste, material, pollutant, contaminant or infectious waste, or any matter that in certain specified quantities would be injurious  to  the  public health or welfare,  or words  of similar  import,  in  any of the "Environmental Laws," as that term is defined below, or any other words which are intended to define, list or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, toxicity or reproductive toxicity and includes, without limitation, asbestos, petroleum (including crude oil or any fraction thereof, natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel, or any mixture thereof), petroleum products, polychlorinated biphenyls, urea formaldehyde, radon gas, nuclear or radioactive matter, medical waste, soot, vapors, fumes, acids, alkalis, chemicals, microbial matters (such as molds, fungi or other bacterial matters), biological agents and chemicals which may cause adverse health effects, including but not limited to, cancers and /or toxicity. "Environmental Laws" shall mean any and all federal, state, local or quasi-governmental laws (whether under common law, statute or otherwise), ordinances, decrees, codes, rulings, awards, rules, regulations or guidance or policy documents now or hereafter enacted or promulgated and as amended from time to time, in any way relating to a) the protection of the environment, the health and safety of persons (including employees), property or the public welfare from actual or potential release, discharge, escape or emission (whether past or present) of any Hazardous Materials or b) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of any Hazardous Materials.

29.33.2 Compliance with Environmental Laws.  Landlord covenants that during the Lease Term, Landlord shall comply with all Environmental Laws in accordance with, and as required by, the TCCs of Article 24 of this Lease.  Tenant represents and warrants that, except as herein set forth, it will not use, store or dispose of any Hazardous Materials in or on the Premises   However, notwithstanding the preceding sentence, Landlord agrees that Tenant may use, store and properly dispose of commonly available household cleaners and chemicals to maintain the Premises and Tenant's routine office operations (such as printer toner and copier toner) (hereinafter the "Permitted Chemicals").  Landlord and Tenant acknowledge that any or all of the Permitted Chemicals described in this paragraph may constitute Hazardous Materials.

KILROY REALTY

571981.06/WLA4690 Executive Drive

K4064-066/6-8-04/pjr/pjr-56-[STMicroelectronics, Inc.]

However, Tenant may use, store and dispose of same, provided that in doing so, Tenant fully complies with all Environmental Laws.

29.33.3 Landlord's Right of Environmental Audit.  Landlord may, upon reasonable notice to Tenant, be granted access to and enter the Premises no more than once annually to perform or cause to have performed an environmental inspection, site assessment or audit. Such environmental inspector or auditor may be chosen by Landlord, in its sole discretion, and be performed at Landlord's sole expense. To the extent that the report prepared upon such inspection, assessment or audit, indicates the presence of Hazardous Materials in violation of Environmental Laws, or provides recommendations or suggestions to prohibit the release, discharge, escape or emission of any Hazardous Materials at, upon, under or within the Premises, or to comply with any Environmental Laws, Tenant shall promptly, at Tenant's sole expense, comply with such recommendations or suggestions, including, but not limited to performing such additional investigative or subsurface investigations or remediation(s) as recommended by such inspector or auditor.  Notwithstanding the above, if at any time, Landlord has actual notice or reasonable cause to believe that Tenant has violated, or permitted any violations of any Environmental Law, then Landlord will be entitled to perform its environmental inspection, assessment or audit at any time, notwithstanding the above mentioned annual limitation, and Tenant must reimburse Landlord for the cost or fees incurred for such as Additional Rent.

29.33.4 Indemnifications. Landlord agrees to indemnify, defend, protect and hold harmless the Tenant Parties from and against any liability, obligation, damage or costs, including without limitation, attorneys' fees and costs, resulting directly or indirectly from any use, presence, removal or disposal of any Hazardous Materials to the extent such liability, obligation, damage or costs was a result of actions caused or permitted by Landlord or a Landlord Party.   Tenant agrees to indemnify, defend, protect and hold harmless the Landlord Parties from and against any liability, obligation, damage or costs, including without limitation, attorneys' fees and costs, resulting directly or indirectly from any use, presence, removal or disposal of any Hazardous Materials or breach of any provision of this section, to the extent such liability, obligation, damage or costs was a result of actions caused or permitted by Tenant or a Tenant Party.

[continued on following page]

KILROY REALTY

571981.06/WLA4690 Executive Drive

K4064-066/6-8-04/pjr/pjr-57-[STMicroelectronics, Inc.]

29.34 No Discrimination.  Tenant covenants by and for itself, its heirs, executors, administrators and assigns, and all persons claiming under or through Tenant, and this Lease is made and accepted upon and subject to the following conditions:   that there shall be no discrimination against or segregation of any person or group of persons, on account of race, color, creed, sex, religion, marital status, ancestry or national origin in the leasing, subleasing, transferring, use, or enjoyment of the Premises, nor shall Tenant itself, or any person claiming under or through Tenant, establish or permit such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy, of tenants, lessees, sublessees, subtenants or vendees in the Premises.

IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be executed the day and date first above written.

"LANDLORD":

KILROY REALTY, L.P.,

a Delaware limited partnership

By:   Kilroy Realty Corporation,a Maryland corporation,

General Partner

By:/s/ Jeffrey C. Hawken

Its:Senior Vice President

"TENANT":

STMICROELECTRONICS, INC., a Delaware corporation

By:Carol Knight

Its:Treasurer 6/1/04

KILROY REALTY

571981.06/WLA4690 Executive Drive

K4064-066/6-8-04/pjr/pjr-58-[STMicroelectronics, Inc.]

EXHIBIT A

4690 EXECUTIVE DRIVE

OUTLINE OF PREMISES[ATTACHED]

571981.06/WLAK4064-066/6-8-04/pjr/pjr

EXHIBIT A

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KILROY REALTY4690 Executive Drive[STMicroelectronics, Inc.]

EXHIBIT B

4690 EXECUTIVE DRIVE

TENANT WORK LETTER

Landlord and Tenant acknowledge that Tenant has been occupying the Premises pursuant to the "Prior Lease Agreement," as that term is defined in Article 1 of the Lease. Except as specifically set forth herein, Landlord shall not be obligated to construct or install any improvements or facilities of any kind in the Premises, and Tenant shall continue to accept the Premises in its currently-existing, "as-is" condition.

1.Refurbishment Allowance.  Notwithstanding the foregoing, Tenant shall be entitled to a refurbishment allowance (the "Refurbishment Allowance") equal to $509,280.00 (which amount was calculated based upon $20.00 per Rentable Square Foot for each of the 25,464 Rentable Square Feet of space in the Premises) for the costs relating to the initial design and construction of the following improvements to be permanently affixed to the Premises: (i) construction of a one (1)-hour fire rated corridor for the main computer room in the Premises, (ii) upgrades to the HVAC components servicing such main computer room, (iii) the relocation of ground floor reception area to within the Premises if requested by Landlord following the date of this Lease, (iv) the painting and re-carpeting of the Premises, and (v) other improvements which are approved by Landlord pursuant to the TCCs of Section 8.1 of the Lease (collectively, the "Refurbishment Alterations").  The Refurbishment Alterations shall be constructed in accordance with the TCCs of Article 8 of the Lease.  Subject to Section 3 below, in no event shall Landlord be obligated to disburse any portion of the Refurbishment Allowance subsequent to December 31, 2005, nor shall Landlord be obligated to disburse any amount in excess of the Refurbishment Allowance in connection with the construction of any Refurbishment Alterations.

2.Disbursement of the Refurbishment Allowance.

2.1Refurbishment Allowance Items. Except as otherwise set forth in this Tenant Work Letter, the Refurbishment Allowance shall be disbursed by Landlord only for the following items and costs (collectively the "Refurbishment Allowance Items"):

2.1.1Payment of any Landlord supervision fees identified in Section 8.3 of the Lease;

2.1.2The payment of plan check, permit and license fees relating to construction of the Refurbishment Alterations;

2.1.3The  cost  of construction  of the  Refurbishment  Alterations, including, without limitation, testing and inspection costs, freight elevator usage, hoisting and trash removal costs, and contractors' fees and general conditions;

EXHIBIT B

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57198 I.06/WLAK4064066/6-8-04/pjr/pjr

KILROY REALTY4690 Executive Drive[STMicroelectronics, Inc.]

2.1.4The cost of any changes in the Base Building (including, but not limited to, lobby reconfiguration, core drilling, riser expansion, and upgrades to the meter, electrical transformer and switch gear) when such changes are required by the Refurbishment Alterations (including if such changes are due to the fact that such work is prepared on an unoccupied basis), such cost to include all direct architectural and/or engineering fees and expenses incurred in connection therewith;

2.1.5Sales and use taxes; and

2.1.6All other costs to be expended by Landlord in connection with the construction of the Refurbishment Alterations.

2.2Disbursement of Refurbishment Allowance.Following the completion of any particular Refurbishment Alterations, Landlord shall make a disbursement of the applicable portion of the Refurbishment Allowance for Refurbishment Alterations Allowance Items for the benefit of Tenant and shall authorize the release of monies for the benefit of Tenant as follows.

2.2.1Subject to the provisions of this Tenant Work Letter, a check for the applicable Refurbishment Alterations Allowance Items (completed in connection with any particular Refurbishment Alterations) payable to Tenant shall be delivered by Landlord to Tenant following the completion of construction of such Refurbishment Alterations, provided that (i) Tenant delivers to Landlord properly executed mechanics lien releases in compliance with both California Civil Code Section 3262(d)(2) and either Section 3262(d)(3) or Section 3262(d)(4), (ii) Landlord has determined that no substandard work exists which adversely affects the mechanical, electrical, plumbing, heating, ventilating and air conditioning, life-safety or other systems of the Building, the curtain wall of the Building, the structure or exterior appearance of the Building, or any other tenant's use of such other tenant's leased premises in the Building and (iii) Architect delivers to Landlord a certificate, in a form reasonably acceptable to Landlord, certifying that the construction of the particular Refurbishment Alterations in the Premises has been substantially completed.

2.2.2  Landlord shall only be obligated to make disbursements from the Refurbishment Allowance to the extent costs are incurred by Tenant for Refurbishment Alterations Allowance Items.  All Refurbishment Alterations Allowance Items for which the Refurbishment Allowance has been made available shall be deemed Landlord's property under the terms of this Lease.

3.Unused Allowance.  In the event that the total amount of the Refurbishment Allowance is not fully applied or disbursed by Landlord by December 31, 2005 in accordance with the terms and conditions of this Tenant Work Letter (such unused amount to be referred to herein as the "Unused Allowance"), then Landlord shall provide Tenant with a credit against Base Rent in an amount equal to the Unused Allowance pursuant to either the "Lump Sum Alternative" or the "Amortized Alternative," as those terms are set forth hereinbelow, which alternative shall be elected by Landlord in its sole and absolute determination.  To the extent Landlord elects the "Lump Sum Alternative," Tenant shall be provided a credit against the Base Rent next due and owing for the Premises (following December 31, 2005) in a total amount

EXHIBIT B

-2-

571981.06/WLAK4064-066/6-8-04/pjr/pjr

KILROY REALTY4690 Executive Drive[STMicroelectronics, Inc.]

equal to the Unused Allowance. To the extent Landlord elects the "Amortized Alternative," the amount of each Monthly Installment of Base Rent thereafter due during the initial Lease Term (i.e., commencing with the installment due and owing on January 1, 2006 and continuing through the installment due and owing on July 1, 2009), shall be reduced by an amount equal to the product of (A) the Unused Allowance, and (B) 0.02326 (i.e., a fraction, with a numerator of 1, and a denominator equal to the number of calendar months (43) in the then-remaining initial Lease Term). Except as expressly set forth herein with regard to the Unused Allowance, Tenant shall have no rights with respect to any unapplied or undisbursed portion of the Refurbishment Allowance.  In the event Landlord elects the Amortized Alternative, the parties shall promptly execute an amendment to the Lease setting forth the new amount of the Base Rent computed in accordance with this Section 3.

EXHIBIT B

-3-

571981.06/WLAK4064-066/6-8-04/pypir

KILROY REALTY4690 Executive Drive[STMicroelectronics, Inc.]

EXHIBIT C

4690 EXECUTIVE DRIVE

NOTICE OF LEASE TERM DATES

To:

Re:Office Lease dated, 200between, a                  ("Landlord"),  and, a ("Tenant") concerning Suiteon floor(s)               of the office building located at                 , California.

Gentlemen:

In accordance with the Office Lease (the "Lease"), we wish to advise you and/or confirm as follows:

1. The Lease Term shall commence on or has commenced onfor a term ofending on.

2.Rent  commenced  to  accrue  on, in  the  amount  of                     .

3.If the Lease Commencement Date is other than the first day of the month, the first billing will contain a pro rata adjustment.   Each billing thereafter, with the exception of the fmal billing, shall be for the full amount of the monthly installment as provided for in the Lease.

4.Your  rent  checks  should  be  made  payable  toat                                       .

5.The  exact number  of rentable/usable  square  feet within  the  Premises  is          square feet.

KILROY REALTY

571981.06/WLAK4064-066/6-8-04/pjr/pjr

EXHIBIT C

4690 Executive Drive

-1-[STMicroelectronics, Inc.]

6.Tenant's Share as adjusted based upon the exact number of usable square feet

within the Premises is%.

"Landlord":

a

By:

Its:

Agreed to and Accepted

as of, 200___.

"Tenant":

a

By:

Its:

571981.06/WLAK4064-066/6-8-04/pjr/pjr

EXHIBIT C

-2-

KILROY REALTY4690 Executive Drive[STMicroelectronics, Inc.]

EXHIBIT D

4690 EXECUTIVE DRIVE

RULES AND REGULATIONS

Tenant shall faithfully observe and comply with the following Rules and Regulations. Landlord shall not be responsible to Tenant for the nonperformance of any of said Rules and Regulations by or otherwise with respect to the acts or omissions of any other tenants or occupants of the Project. In the event of any conflict between the Rules and Regulations and the other provisions of this Lease, the latter shall control.

1.Tenant shall not alter any lock or install any new or additional locks or bolts on any doors or windows of the Premises without obtaining Landlord's prior written consent. Tenant shall bear the cost of any lock changes or repairs required by Tenant. Two keys will be furnished by Landlord for the Premises, and any additional keys required by Tenant must be obtained from Landlord at a reasonable cost to be established by Landlord. Upon the termination of this Lease, Tenant shall restore to Landlord all keys of stores, offices, and toilet rooms, either furnished to, or otherwise procured by, Tenant and in the event of the loss of keys so furnished, Tenant shall pay to Landlord the cost of replacing same or of changing the lock or locks opened by such lost key if Landlord shall deem it necessary to make such changes.

2.All doors opening to public corridors shall be kept closed at all times except for normal ingress and egress to the Premises.

3.Landlord reserves the right to close and keep locked all entrance and exit doors of the Building during such hours as are customary for comparable buildings in the UTC/Del Mar area of San Diego, California.  Tenant, its employees and agents must be sure that the doors to the Building are securely closed and locked when leaving the Premises if it is after the normal hours of business for the Building.  Any tenant, its employees, agents or any other persons entering or leaving the Building at any time when it is so locked, or any time when it is considered to be after normal business hours for the Building, may be required to sign the Building register.  Access to the Building may be refused unless the person seeking access has proper identification or has a previously arranged pass for access to the Building. Landlord will furnish passes to persons for whom Tenant requests same in writing. Tenant shall be responsible for all persons for whom Tenant requests passes and shall be liable to Landlord for all acts of such persons.  The Landlord and his agents shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Building of any person.   In case of invasion, mob, riot, public excitement, or other commotion, Landlord reserves the right to prevent access to the Building or the Project during the continuance thereof by any means it deems appropriate for the safety and protection of life and property.

4.No furniture, freight or equipment shall be brought into the Building without prior notice to Landlord to the extent the possibility of damage to the Common Areas (specifically including, but not limited to, any elevator or elevator cabs) is reasonably foreseeable as a result of the size, weight and/or configuration of such furniture, freight or equipment.  All moving activity into or out of the Building shall be scheduled with Landlord and done only at such time

571981.06/WLAK4064-06616-8-04/pjr/pjr

EXHIBIT D

-1-

KILROY REALTY4690 Executive Drive[STMicroelectronics, Inc.]

and in such manner as Landlord designates.  Landlord shall have the right to prescribe the weight, size and position of all safes and other heavy property brought into the Building and also the times and manner of moving the same in and out of the Building.  Safes and other heavy objects shall, if considered necessary by Landlord, stand on supports of such thickness as is necessary to properly distribute the weight.   Landlord will not be responsible for loss of or damage to any such safe or property in any case.  Any damage to any part of the Building, its contents, occupants or visitors by moving or maintaining any such safe or other property shall be the sole responsibility and expense of Tenant.

5.No furniture, packages, supplies, equipment or merchandise will be received in the Building or carried up or down in the elevators, except between such hours, in such specific elevator and by such personnel as shall be designated by Landlord.

6.The requirements of Tenant will be attended to only upon application at the management office for the Project or at such office location designated by Landlord. Employees of Landlord shall not perform any work or do anything outside their regular duties unless under special instructions from Landlord.

7.No sign, advertisement, notice or handbill shall be exhibited, distributed, painted or affixed by Tenant on any part of the Premises or the Building without the prior written consent of the Landlord. Tenant shall not disturb, solicit, peddle, or canvass any occupant of the Project and shall cooperate with Landlord and its agents of Landlord to prevent same.

8.The toilet rooms, 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 therein.  The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose servants, employees, agents, visitors or licensees shall have caused same.

9.Tenant shall not overload the floor of the Premises.

10.Except for vending machines intended for the sole use of Tenant's employees and invitees, no vending machine or machines other than fractional horsepower office machines shall be installed, maintained or operated upon the Premises without the written consent of Landlord.

11.Tenant shall not use or keep in or on the Premises, the Building, or the Project any kerosene, gasoline, explosive material, corrosive material, material capable of emitting toxic fumes, or other inflammable or combustible fluid chemical, substitute or material. Tenant shall provide material safety data sheets for any Hazardous Material used or kept on the Premises.

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

13.Tenant shall not use, keep or permit to be used or kept, any foul or noxious gas or substance in or on the Premises, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Project by reason of noise, odors, or vibrations, or interfere with other tenants or those having business therein,

571981.06/WLAK4064-066/6-8-04/pjr/pjr

EXHIBIT D

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KILROY REALTY4690 Executive Drive[STMicroelectronics, Inc.]

whether by the use of any musical instrument, radio, phonograph, or in any other way.  Tenant shall not throw anything out of doors, windows or skylights or down passageways.

14.Tenant shall not bring into or keep within the Project, the Building or the Premises any animals (other than seeing-eye dogs), birds, aquariums, or, except in areas designated by Landlord, bicycles or other vehicles.

15.No cooking shall be done or permitted on the Premises, nor shall the Premises be used for the storage of merchandise, for lodging or for any improper, objectionable or immoral purposes.  Notwithstanding the foregoing, Underwriters' laboratory-approved equipment and microwave ovens may be used in the Premises for heating food and brewing coffee, tea, hot chocolate and similar beverages for employees and visitors, provided that such use is in accordance with all applicable federal, state, county and city laws, codes, ordinances, rules and regulations.

16.The Premises shall not be used for manufacturing or for the storage of merchandise except as such storage may be incidental to the use of the Premises provided for in the Summary. Tenant shall not occupy or permit any portion of the Premises to be occupied as an office for a messenger-type operation or dispatch office, public stenographer or typist, or for the manufacture or sale of liquor, narcotics, or tobacco in any form, or as a medical office, or as a barber or manicure shop, or as an employment bureau without the express prior written consent of Landlord.  Tenant shall not engage or pay any employees on the Premises except those actually working for such tenant on the Premises nor advertise for laborers giving an address at the Premises.

17.Landlord reserves the right to exclude or expel from the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of these Rules and Regulations.

18.Tenant, its employees and agents shall not loiter in or on the entrances, corridors, sidewalks, lobbies, courts, halls, stairways, elevators, vestibules or any Common Areas for the purpose of smoking tobacco products or for any other purpose, nor in any way obstruct such areas, and shall use them only as a means of ingress and egress for the Premises.

19.Tenant shall not waste electricity, water or air conditioning and agrees to cooperate fully with Landlord to ensure the most effective operation of the Building's heating and air conditioning system, and shall refrain from attempting to adjust any controls. Tenant shall participate in recycling programs undertaken by Landlord.

20.Tenant shall store all its trash and garbage within the interior of the Premises. No material shall be placed in the trash boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in San Diego, California without violation of any law or ordinance governing such disposal.  All trash, garbage and refuse disposal shall be made only through entry-ways and elevators provided for such purposes at such times as Landlord shall designate.  If the Premises is or becomes infested with vermin as a result of the use or any misuse or neglect of the Premises by Tenant, its agents, servants, employees, contractors, visitors or licensees, Tenant shall

57I981.06/WLAK4064-066/6-8-04/pjr/pjr

EXHIBIT D

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KILROY REALTY4690 Executive Drive[STMicroelectronics, Inc.]

forthwith, at Tenant's expense, cause the Premises to be exterminated from time to time to the satisfaction of Landlord and shall employ such licensed exterminators as shall be approved in writing in advance by Landlord.

21.Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency.

22.Any persons employed by Tenant to do janitorial work shall be subject to the prior written approval of Landlord, and while in the Building and outside of the Premises, shall be subject to and under the control and direction of the Building manager (but not as an agent or servant of such manager or of Landlord), and Tenant shall be responsible for all acts of such persons.

23.No awnings or other projection shall be attached to the outside walls of the Building without the prior written consent of Landlord, and no curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with, any window or door of the Premises other than Landlord standard drapes.  All electrical ceiling fixtures hung in the Premises or spaces along the perimeter of the Building must be fluorescent and/or of a quality, type, design and a warm white bulb color approved in advance in writing by Landlord.  Neither the interior nor exterior of any windows shall be coated or otherwise sunscreened without the prior written consent of Landlord.  Tenant shall be responsible for any damage to the window film on the exterior windows of the Premises and shall promptly repair any such damage at Tenant's sole cost and expense.  Tenant shall keep its window coverings closed during any period of the day when the sun is shining directly on the windows of the Premises. Prior to leaving the Premises for the day, Tenant shall draw or lower window coverings and extinguish all lights. Tenant shall abide by Landlord's regulations concerning the opening and closing of window coverings which are attached to the windows in the Premises, if any, which have a view of any interior portion of the Building or Building Common Areas.

24.The sashes, sash doors, skylights, windows, and doors that reflect or admit light and air into the halls, passageways or other public places in the Building shall not be covered or obstructed by Tenant, nor shall any bottles, parcels or other articles be placed on the windowsills.

25.Tenant must comply with requests by the Landlord concerning the informing of their employees of items of importance to the Landlord.

26.Tenant must comply with any applicable "NO-SMOKING" ordinances.  If Tenant is required under the ordinance to adopt a written smoking policy, a copy of said policy shall be on file in the office of the Building. Additionally, Tenant must provide at least one area within the Premises in which its employees, invitees and visitors may smoke.

27.Tenant hereby acknowledges that Landlord shall have no obligation to provide guard service or other security measures for the benefit of the Premises, the Building or the Project.  Tenant hereby assumes all responsibility for the protection of Tenant and its agents, employees, contractors, invitees and guests, and the property thereof, from acts of third parties, including keeping doors locked and other means of entry to the Premises closed, whether or not Landlord, at its option, elects to provide security protection for the Project or any portion thereof

571981.06/WLAK4064-066/6-8-04/pjr/pjr

EXHIBIT D

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KILROY REALTY4690 Executive Drive[STMicroelectronics, Inc.]

Tenant further assumes the risk that any safety and security devices, services and programs which Landlord elects, in its sole discretion, to provide may not be effective, or may malfunction or be circumvented by an unauthorized third party, and Tenant shall, in addition to its other insurance obligations under this Lease, obtain its own insurance coverage to the extent Tenant desires protection against losses related to such occurrences.  Tenant shall cooperate in any reasonable safety or security program developed by Landlord or required by law.

28.All office equipment of any electrical or mechanical nature shall be placed by Tenant in the Premises in settings approved by Landlord, to absorb or prevent any vibration, noise and annoyance.

29.Tenant shall not use in any space or in the public halls of the Building, any hand trucks except those equipped with rubber tires and rubber side guards.

30.No auction, liquidation, fire sale, going-out-of-business or bankruptcy sale shall be conducted in the Premises without the prior written consent of Landlord.

31.No tenant shall use or permit the use of any portion of the Premises for living

quarters, sleeping apartments or lodging rooms.

32.Tenant shall install and maintain, at Tenant's sole cost and expense, an adequate, visibly marked and properly operational fire extinguisher next to any duplicating or photocopying machines or similar heat producing equipment, which may or may not contain combustible material, in the Premises.

Landlord reserves the right at any time to change or rescind any one or more of these Rules and Regulations, or to make such other and further reasonable Rules and Regulations as in Landlord's judgment may from time to time be necessary for the management, safety, care and cleanliness of the Premises, Building, the Common Areas and the Project; and for the preservation of good order therein, as well as for the convenience of other occupants and tenants therein. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenants, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of any other tenant, nor prevent Landlord from thereafter enforcing any such Rules or Regulations against any or all tenants of the Project. Tenant shall be deemed to have read these Rules and Regulations and to have agreed to abide by them as a condition of its occupancy of the Premises.

571981.06/WLAK4064-066/6-8-04/pjr/pjr

EXHIBIT D

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KILROY REALTY4690 Executive Drive[STMicroelectronics, Inc.]

EXHIBIT E

4690 EXECUTIVE DRIVE

FORM OF TENANT'S ESTOPPEL CERTIFICATE

The undersigned as Tenant under that certainOffice Lease(the "Lease") made and

entered into as of, 200_ by and betweenas Landlord, and the

undersigned as Tenant, for Premises on thefloor(s) of the office building

located at, California, certifies as follows:

1.Attached hereto as Exhibit A is a true and correct copy of the Lease and all amendments and modifications thereto.  The documents contained in Exhibit A represent the entire agreement between the parties as to the Premises.

2.The undersigned currently occupies the Premises described in the Lease, the Lease Term commenced on, and the Lease Term expires on, and the undersigned has no option to terminate or cancel the Lease or to purchase all or any part of the Premises, the Building and/or the Project.

3.Base Rent became payable on.

4.The Lease is in full force and effect and has not been modified, supplemented or amended in any way except as provided in Exhibit A.

5.Tenant has not transferred, assigned, or sublet any portion of the Premises nor entered into any license or concession agreements with respect thereto except as follows:

6.Tenant shall not modify the documents contained in Exhibit A without the prior written consent of Landlord's mortgagee.

7.All monthly installments of Base Rent, all Additional Rent and all monthly installments of estimated Additional Rent have been paid when due through. The current monthly installment of Base Rent is $.

8.All conditions of the Lease to be performed by Landlord necessary to the enforceability of the Lease have been satisfied and Landlord is not in default thereunder.  In addition, the undersigned has not delivered any notice to Landlord regarding a default by Landlord thereunder.

9.No rental has been paid more than thirty (30) days in advance and no security has been deposited with Landlord except as provided in the Lease.

571981.06/WLAK4064-066/6-8-04/pjr/pjr

EXHIBIT E

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KILROY REALTY4690 Executive Drive[STMicroelectronics, Inc.]

10.As of the date hereof, there are no existing defenses or offsets, or, to the undersigned's knowledge, claims or any basis for a claim, that the undersigned has against Landlord.

11.If Tenant is a corporation or partnership, each individual executing this Estoppel Certificate on behalf of Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do business in California and that Tenant has full right and authority to execute and deliver this Estoppel Certificate and that each person signing on behalf of Tenant is authorized to do so.

12.There are no actions pending against the undersigned under the bankruptcy or similar laws of the United States or any state.

13.Other than in compliance with all applicable laws and incidental to the ordinary course of the use of the Premises, the undersigned has not used or stored any hazardous substances in the Premises.

14.To the undersigned's knowledge, all tenant improvement work to be performed by Landlord under the Lease has been completed in accordance with the Lease and has been accepted by the undersigned and all reimbursements and allowances due to the undersigned under the Lease in connection with any tenant improvement work have been paid in full.

The undersigned acknowledges that this Estoppel Certificate may be delivered to Landlord or to a prospective mortgagee or prospective purchaser, and acknowledges that said prospective mortgagee or prospective purchaser will be relying upon the statements contained herein in making the loan or acquiring the property of which the Premises are a part and that receipt by it of this certificate is a condition of making such loan or acquiring such property.

Executed at

5 71981.06/WLAK4064-066/6-8-04tpjr/pjr

on theday of, 200.

"Tenant":

a

By:

Its:

By:

Its:

EXHIBIT E

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KILROY REALTY4690 Executive Drive[STMicroelectronics, Inc.]

EXHIBIT F

4690 XECUTIVE DRIVEKILROY REALTY

RECORDING REQUESTED BY

AND WHEN RECORDED RETURN TO:

ALLEN, MATIONS, LECK, GAMBLE& MALLORY LLP

1901 Avenue of the Stars 18th Floor

Los Angeles, California 90067

Attention: Anton N. Natsis, Esq.

RECOGNITION OF COVENANTS, CONDITIONS, AND RESTRICTIONS

This Recognition of Covenants, Conditions, and Restrictions(this "Agreement") is entered into as of theday of, 200, by and between("Landlord"), and("Tenant"), with reference to the following facts:

A.Landlord and Tenant entered into that certain Office Lease Agreement dated, 200 _(the "Lease"). Pursuant to the Lease, Landlord leased to Tenant and Tenant leased from Landlord space (the "Premises") located in an office building on certain real property described in Exhibit Aattached hereto  and incorporated herein by this reference (the "Property").

B. ,The Premises are located in an office building located on real property which is part of an area owned by Landlord containing approximately() acres of real property located in the City of, California (the "Project"), as more particularly described in Exhibit Battached hereto and incorporated herein by this reference.

C.Landlord, as declarant, has previously recorded, or proposes to record concurrently with the recordation of this Agreement, a Declaration of Covenants, Conditions, and Restrictions (the "Declaration"), dated, 200, in connection with the Project.

D.Tenant is agreeing to recognize and be bound by the terms of the Declaration, and the parties hereto desire to set forth their agreements concerning the same.

NOW, THEREFORE, in consideration of (a) the foregoing recitals and the mutual agreements hereinafter set forth, and (b) for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows,

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KILROY REALTY4690 Executive Drive[STMicroelectronics, Inc.]

1.Tenant's Recognition of Declaration.  Notwithstanding that the Lease has been executed prior to the recordation of the Declaration, Tenant agrees to recognize and by bound by all of the terms and conditions of the Declaration.

2.Miscellaneous.

2.1This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, estates, personal representatives,  successors, and assigns.

2.2This Agreement is made in, and shall be governed, enforced and construed under the laws of; the State of California.

2.3This Agreement constitutes the entire understanding and agreements of the parties with respect to the subject matter hereof, and shall supersede and replace all prior understandings and agreements, whether verbal or in writing.  The parties confirm and acknowledge that there are no other promises, covenants, understandings, agreements, representations, or warranties with respect to the subject matter of this Agreement except as expressly set forth herein.

2.4This Agreement is not to be modified, terminated, or amended in any respect, except pursuant to any instrument in writing duly executed by both of the parties hereto.

2.5In the event that either party hereto shall bring any legal action or other proceeding with respect to the breach, interpretation, or enforcement of this Agreement, or with respect to any dispute relating to any transaction covered by this Agreement, the losing party in such action or proceeding shall reimburse the prevailing party therein for all reasonable costs of litigation, including reasonable attorneys' fees, in such amount as may be determined by the court or other tribunal having jurisdiction, including matters on appeal.

2.6All captions and heading herein are for convenience and ease of reference only, and shall not be used or referred to in any way in connection with the interpretation or enforcement of this Agreement.

2.7If any provision of this Agreement, as applied to any party or to any circumstance, shall be adjudged by a court of competent jurisdictions to be void or unenforceable for any reason, the same shall not affect any other provision of this Agreement, the application of such provision under circumstances different from those adjudged by the court, or the validity or enforceability of this Agreement as a whole.

2.8Time is of the essence of this Agreement.

2.9The Parties agree to execute any further documents, and take any further actions, as may be reasonable and appropriate in order to carry out the purpose and intent of this Agreement.

                                   2.10As used herein, the masculine, feminine or neuter gender, and the singular and plural numbers, shall each be deemed to include the others whenever and whatever the context so indicates.

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KILROY REALTY4690 Executive Drive[STMicroelectronics, Inc.)

SIGNATURE PAGE OF RECOGNITION OF

COVENANTS, CONDITIONS AND RESTRICTIONS

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.

"Landlord":

a

By:

Its:

"Tenant":

a

By:

Its:

By:

Its:

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EXHIBIT F

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KILROY REALTY4690 Executive Drive[STMicroelectronics, Inc.]

FIRST AMENDMENT TO OFFICE LEASE

This FIRST AMENDMENT TO OFFICE LEASE (this "First Amendment") is made and entered into effective as of the 1^st day of January 2006, by and between KILROY REALTY L.P., a Delaware limited partnership ("Landlord"), and STMICROELECTRONICS, INC., a Delaware corporation ("Tenant").

R E C I T A L S :

A.Landlord and Tenant entered into that  certain Office Lease dated as of June 4, 2004 (the "Lease"), whereby Landlord leased to Tenant and Tenant leased from Landlord 25,464 rentable square feet of space, commonly known as Suite 200 (the "Premises"), comprising all of the second (2^nd) floor of the Building located at 4690 Executive Drive, San Diego, California 92121 (the "Building").

B.Pursuant to the terms of the Tenant Work Letter attached to the Lease as Exhibit B, (i) Tenant was granted the right to a certain Refurbishment Allowance in the amount of ______________________ and (ii) to the extent the total amount of the Refurbishment Allowance was not fully applied or disbursed by Landlord by December 31, 2005 (such unused amount, the (Unused Allowance"), Tenant was to receive a credit against Base Rent in an amount equal to the Unused Allowance, which credit could, at the election of Landlord, be provided in a lump sum, or alternatively be evenly applied over the last forty-three (43) months of the initial Lease Term. As only a portion of the Refurbishment Allowance was applied, there remains an Unused Allowance equal to ______________________.

C.As Landlord elected to provide such Unused Allowance to Tenant as credit against Base Rent in accordance with the "Authorized Alternative" set forth in Section 3 of such Tenant Work Letter, Landlord and Tenant desire to hereby amend the lease to update the amount of Base Rent under the Lease in accordance with such Authorized Alternative as hereinafter provided.

A G R E E M E N T :

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.Capitalized Terms.  All capitalized terms when used herein shall have the same meaning as is given such terms in the Lease unless expressly superseded by the terms of this First Amendment.

2.Base Rent.

2.1Monthly Credit Amount.  In accordance with the terms of Section 3 of the Tenant Work Letter attached to the Lease, Tenant shall receive a credit of ______________________ (the "Monthly Credit Amount") against the monthly amount of Base Rent otherwise due and owing during the period commencing on January 1, 2006 and ending on July 31, 2009 [i.e., an amount equal to the product of (A) the Unused Allowance, and (B) 0.02326 (i.e., a fraction, with a numerator of 1, and a denominator equal to the number of calendar months (43) during the period commencing on January 1, 2006 and ending on July 31, 2009.]

2.2Additional Credit Amount.  As such Monthly Credit Amount has not yet been applied to the Base Rent due for the Premises for the period commencing on January 1, 2006 and ending on December 31, 2006, and because Tenant has already paid to Landlord the Base Rent for such period in the full amounts set forth in Section 4 of the Summary of the Lease, the parties hereto acknowledge that Tenant has overpaid the amount of Base Rent due for the Premises for such period by the amount ______________________.  As a result of such overpayment by Tenant, commencing as of January 1, 2007, Tenant shall receive a credit against the Base Rent next due and owing under the terms of this Lease in the total amount of ______________________ (i.e., Tenant shall receive a credit against the Base Rent due for the month of January in the amount of ______________________, and a credit against the Base Rent due for the month of February 2007 in the amount of ______________________.

2.3Revised Schedule of Base Rent.  Accordingly, effective as of the date of the First Amendment, Tenant shall pay to Landlord monthly installments of Base Rent for the Premises as follows:

                                                Total Monthly                                                                  Net Monthly                         Net Actual

Period During                         Intallment of                 Credit Against                         Installment of                       Annual Base

 Lease Term                              Base Rent                        Base Rent                            Base Rent Due                        Rent Due

* The Base Rent due for the months of January 2007 and February 2007 shall be subject to a credit against Base Rent as set forth in Section 2.2 of the First Amendment.

3.No Further Modification.Except as set forth in this First Amendment, all of the terms and provisions of the Lease shall remain unmodified and in full force and effect.

IN WITNESS WHEREOF, this First Amendment has been executed as of the day and year first above written.

"LANDLORD"

KILROY REALTY, L.P.,a Delaware limited partnership

By:Kilroy Realty Corporation,

a Maryland corporation General Partner

By: /s/ Jeffrey C/ Hawken

Its: Executive Vice President

Chief Operating Officer

"TENANT"

STMICROELECTRONICS, INC., a Delaware corporation

By:  /s/ [Illegible]

Its:  Vice President & CFO

KILROY REALTY

4690 Executive DriveSTMICROELECTRONICS,INC.

SECOND AMENDMENT TO OFFICE LEASE

This SECOND AMENDMENT TO OFFICE LEASE ("Second Amendment") is made and entered into as of the 13th day of May, 2009, by and between KILROY REALTY, L.P., a Delaware limited partnership ("Landlord"), and STMICROELECTRONICS, INC., a Delaware corporation ("Tenant").

RECITALS:

A.Landlord and Tenant entered into that certain Office  Lease dated as of June 4, 2004 (the "Office Lease"), as amended by that certain First Amendment to Office Lease dated as of January 1, 2006 (the "First Amendment") (the Office Lease and the First Amendment are collectively referred to herein as the "Lease") whereby Landlord leases to Tenant and Tenant leases from Landlord office space located in that certain building located and addressed at 4690 Executive Drive, San Diego, California, 92121 (the "Building").

B.The parties desire to reduce the Premises, extend the Lease Term, and to otherwise amend the Lease on the terms and conditions set forth in this Second Amendment.

AGREEMENT:

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1.Terms. All capitalized terms when used herein shall have the same respective meanings as are given such terms in the Lease unless expressly provided otherwise in this Second Amendment.

2.The Existing Premises.Landlord and Tenant hereby agree that, pursuant to the Lease, Landlord currently leases to Tenant and Tenant currently leases from Landlord that certain office space in the Building containing approximately 25,464 rentable square feet, comprising the entirety of the second (2nd) floor of the Building, and commonly known as Suite 200 (the "Existing Premises"), as outlined on Exhibit Ato the Original Lease.

3.Reduction of the Existing Premises.That certain space located on the second (2"1) floor of the Building and comprising a portion of Suite 200, as outlined on the floor plan attached hereto as Exhibit Aand made a part hereof, may be referred to herein as the "Reduction Space." Landlord and Tenant hereby stipulate that the Reduction Space contains 6,464 rentable square feet.  Effective as of July 31, 2009 (the "Reduction Commencement Date"), Tenant shall surrender and deliver exclusive possession of the Reduction Space to Landlord in accordance with Article 15 of the Original Lease. Accordingly, effective upon the Reduction Space Commencement Date, the Existing Premises shall be decreased to exclude the Reduction Space. Landlord and Tenant hereby agree that such deletion of the Reduction Space from the Existing Premises shall, effective as of the Reduction Commencement Date, decrease the number of rentable square feet leased by Tenant in the Building to a total of 19,000 rentable square feet (the "Reduced Premises").  If Tenant fails to vacate and surrender and deliver exclusive  possession of the  Reduction  Space  to  Landlord  on or before  the Reduction Commencement Date, the holdover provisions of the Lease shall apply.  Effective as of the Reduction Commencement Date, all references to the "Premises" shall mean and refer to the Reduced Premises (i.e., the remaining portion of the Existing Premises after deducting the Reduction Space).

4.Tenant's Representations.  Tenant represents and warrants to Landlord that

(a) Tenant has not heretofore assigned or sublet all or any portion of its interest in the Reduction Space; (b) no other person, firm or entity has any right, title or interest in the Reduction Space by or through Tenant; and (c) Tenant has the full right, legal power and actual authority to enter into this Second Amendment and to terminate the Lease as to the Reduction Space without the consent of any person, firm, or entity. Tenant further represents and warrants to Landlord that as

712342.05ISDKILROY 4690 EXECUTIVE

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of the date hereof there are no, and as of the Reduction Commencement Date there shall not be any, mechanics' liens or other liens encumbering all or any portion of the Reduction Space by virtue of any act or omission on the part of Tenant, its contractors, agents, employees, successors, or assigns.

5.Extended Lease Term. Pursuant to the Lease, the Lease Term is scheduled to expire on July 31, 2009.  Landlord and Tenant hereby agree to extend the Lease Term with respect to the Reduced Premises only, for a period of five (5) years, from August 1, 2009 until July 31, 2014, on the terms and conditions set forth in this Second Amendment, unless sooner terminated as provided in the Lease, as hereby amended.  The period of time commencing on August 1, 2009, and ending on July 31, 2014, shall be referred to herein as the "Extended Term."

5.1Options to Extend Lease Term.

(a)Option Right. Landlord and Tenant acknowledge and agree that, effective as of the date of this Second Amendment, Section 2.2 of the Office Lease shall be terminated and of no further force or effect. Notwithstanding the termination of any previously existing extension rights, Landlord hereby grants the Tenant named in this Second Amendment (the "Original Tenant") and any "Permitted Transferee" (as that term is defined in Section 14.8 of the Office Lease) two (2) new options to extend the Lease Term (the "Option to Extend") each for a period of five (5) years (each, an "Option Term"), which option shall be exercisable only by written notice delivered by Tenant to Landlord as provided below, provided that, as of the date of delivery of such notice, Tenant is not in economic or material non-economic default under this Lease (beyond any applicable notice and cure periods) and Tenant has not previously been in economic or material non-economic default under this Lease(beyond any applicable notice and cure periods) more than once during the prior twelve (12) month period or more than three (3) times during the Extended Term (or the first Option Term, as applicable).  Upon the proper exercise of each such option to extend, and provided that, as of the end of the Extended Term or the first Option Term, as applicable, Tenant is not in economic or material noneconomic default under this Lease (beyond any applicable notice and cure periods) and Tenant has not previously been in economic or material non-economic default under this Lease (beyond any applicable notice and cure periods) more than once during the prior twelve (12) month period or more than three (3) times during the Extended Term (or the first Option Term, as applicable), the Lease Term, as it applies to the Reduced Premises, shall be extended for a period of five (5) years. The rights contained in this Section 5.1 shall be personal to the Original Tenant and any Permitted Transferee and may only be exercised by the Original Tenant and any Permitted Transferee (and not any other assignee, sublessee or other transferee of Tenant's interest in this Lease) if the Original Tenant or any Permitted Transferee occupies no less than fifty percent (50%) of the Reduced Premises.

(b)Option Rent.  The rent payable by Tenant during the Option Terms (the "Option Rent") shall be equal to the "Fair Market Rent Rate" . The "Fair Market Rent Rate" shall be equal to the rent (including additional rent and considering any "base year" or "expense stop" applicable thereto), including all escalations, at which tenants, as of the commencement of the applicable Option Term are, pursuant to transactions completed within the twelve (12) month period prior to the commencement of the applicable Option Term, leasing non-sublease, non-encumbered, non-equity, non-renewal, non-expansion space comparable in size, location and quality to the Reduced Premises for a similar lease term, in an arms length transaction, which comparable space is located in the Project or in first-class "Comparable Buildings" (as that term is defined hereinbelow) (the "Comparable Transactions"), in either case taking into consideration all relevant factors, including the following concessions: (a) rental abatement concessions, if any, being granted such tenants in connection with such comparable space, and (b) improvements or allowances provided or to be provided for such comparable space, taking into account, and deducting the value of, the existing improvements in the Reduced Premises, such value to be based upon the age, design, quality of finishes, and layout of the improvements and the extent to which the same could be utilized by a general office user; provided, however, that notwithstanding anything to the contrary herein, no consideration shall be given to (x) the fact that Landlord is or is not required to pay a real estate brokerage commission in connection with the applicable term or the fact that the comparable transactions do or do not involve the payment of real estate brokerage commissions, and (y) any build-out period, if any, granted to tenants in Comparable Transactions in connection with the design, permitting, and construction of improvements in such comparable spaces, The Fair Market Rent

71.2342 051S1)

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KILROY 4690 EXECLITIVESTMICROELECTRONICS,INC.

Rate shall additionally include a determination as to whether, and if so to what extent, Tenant must provide Landlord with financial security, such as a letter of credit or guaranty, for Tenant's Rent obligations during the applicable Option Term.  Such determination shall be made by reviewing the extent of financial security then generally being imposed in Comparable Transactions from tenants of comparable financial condition and credit history to the then-existing financial condition and credit history of Tenant (with appropriate adjustments to account for differences in the then-existing financial condition of Tenant and other tenants).  If in determining the Fair Market Rent Rate for an Option Term, Tenant is deemed to be entitled to an improvement or comparable allowance for the improvement of the Reduced Premises (the total dollar value of such allowance, the "Option Term Ti Allowance"), Landlord may, at Landlord's sole option, elect any or a portion of the following: (A) to grant some or all of the Option Term TI Allowance to Tenant as a lump sum payment to Tenant, and/or (B) in lieu of making a lump sum payment (or portion thereof) to Tenant, to reduce the rental rate component of the Fair Market Rent Rate to be an effective rental rate which takes into consideration that Tenant will not receive a payment of such Option Term TI Allowance, or portion thereof (in which case the Option Term TI Allowance, or portion thereof, evidenced in the effective rental rate shall not be paid to Tenant).  The term "Comparable Buildings" shall mean the Building and other first-class office buildings which are (i) comparable to the Building in terms of age (based upon the date of completion of construction or major renovation as to the building containing the portion of the premises in question), quality of construction, level of services and amenities (including the type (e.g., surface, covered, subterranean) and amount of parking), size and appearance, and (ii) are located in either the University Town Centre submarket (i.e., the area from two (2) blocks to the north of La Jolla Village Drive to two (2) blocks to the south of La Jolla Village Drive, between the 1-5 and 1-805 freeways) or the Del Mar submarket of San Diego, California.

(c)Exercise of Options. The Options to Extend contained in this Section 5.1 shall be exercised by Tenant, if at all, only in the following manner: (i) Tenant shall deliver written notice to Landlord not more than sixteen (16) months nor less than fourteen (14) months prior to the expiration of the Extended Term or the first Option Term, as applicable, stating that Tenant is interested in exercising its Option to Extend; (ii) Landlord, after receipt of Tenant's notice, shall deliver notice (the "Option Rent Notice") to Tenant not less than thirteen (13) months prior to the expiration of the Extended Term or the first Option Term, as applicable, setting forth the Option Rent; and (iii) if Tenant wishes to exercise such option, Tenant shall, on or before the earlier of (A) the date occurring twelve (12) months prior to the expiration of the Extended Term or the first Option Term, as applicable, and (B) the date occurring thirty (30) days after Tenant's receipt of the Option Rent Notice, exercise the option by delivering written notice thereof to Landlord, and upon, and concurrent with, such exercise, Tenant may, at its option, object to the Option Rent contained in the Option Rent Notice, in which case the parties shall  follow the procedure,  and the Option Rent shall be determined, as set forth in Section 5.1(d), below.

(d)Determination of Option Rent. In the event Tenant timely and appropriately objects to the Option Rent, Landlord and Tenant shall attempt to agree upon the Option Rent using their best good-faith efforts. If Landlord and Tenant fail to reach agreement within ten (10) business days following Tenant's objection to the Option Rent (the "Outside Agreement Date"), then each party shall make a separate determination of the Option Rent within five (5) business days, and such determinations shall be submitted to arbitration in accordance with Sections 5.1(d)(i) through 5.l(d)(vii), below.

(i)Landlord and Tenant shall each appoint one (1) arbitrator who shall, by profession, be a real estate broker or appraiser who shall have been active over the five (5) year period ending on the date of such appointment in the leasing (or appraisal, as the case may be) of commercial mid- and high-rise properties in the San Diego, California area. The determination of the arbitrators shall be limited solely to the issue of whether Landlord's or Tenant's submitted Option Rent is the closest to the actual Option Rent as determined by the arbitrators, taking into account the requirements of this Section 5.1. Each such arbitrator shall be appointed within fifteen (15) days after the applicable Outside Agreement Date.

(ii)The two (2) arbitrators so appointed shall, within ten (10) days of the date of the appointment of the last appointed arbitrator, agree upon and appoint a third (P) arbitrator who shall be qualified under the same criteria set forth above forqualification of the initial two (2) arbitrators.

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(iii)The three (3) arbitrators shall, within thirty (30) days of the appointment of the third (3^rd) arbitrator reach a decision as to whether the parties shall use Landlord's or Tenant's  submitted Option Rent and shall notify Landlord and Tenant thereof.

(iv)The decision of the majority of the three (3) arbitrators shall be binding upon Landlord and Tenant.

(v)If either Landlord or Tenant fails to appoint an arbitrator within fifteen (15) days after the applicable Outside Agreement Date, the arbitrator appointed by one of them shall reach a decision, notify Landlord and Tenant thereof, and such arbitrator's decision shall be binding upon Landlord and Tenant.

(vi)If the two (2) arbitrators fail to agree upon and appoint a third (3^rd) arbitrator, or both parties fail to appoint an arbitrator, then the appointment of the third (3^rd) arbitrator or any arbitrator shall be dismissed and the matter to be decided shall be forthwith submitted to arbitration under the provisions of the American Arbitration Association, but subject to the instruction set forth in this Section 5.1.

(vii)The cost of arbitration shall be paid by Landlord and Tenant equally.

6.Rent.

6.1Base Rent.  Prior to July 31, 2009, Tenant shall continue to pay monthly installments of Base Rent for the entire Premises (including the Reduction Space) in accordance with the terms of the Lease. During the Extended Term, Tenant shall pay monthly installments of Base Rent for the Reduced Premises as follows:

                                                                                     Monthly                             Monthly Rental

  Period During                         Annual                 Installment of                             Rate per

 Extended Term                       Base Rent             Base Rent Due                        Square Foot

6.2Abated Base Rent.  Provided that Tenant is not then in economic or material non-economic default of the Lease (as hereby amended, and beyond any applicable notice and cure periods), then during the period commencing on September 1, 2009 and ending on September 30, 2009 (the "Rent Abatement Period"), Tenant shall not be obligated to pay any Base Rent otherwise attributable to the Reduced Premises during such Rent Abatement Period (the "Rent Abatement").  Landlord and Tenant acknowledge that the aggregate amount of the ______________________ Tenant acknowledges and agrees that the foregoing Rent Abatement has been granted to Tenant as additional consideration for entering into this Second Amendment, and for agreeing to pay the Rent and performing the terms and conditions otherwise required under the Lease (as hereby amended). If (X) Tenant shall be in economic or material non-economic default of the Lease (as hereby amended), (Y) Tenant shall fail to cure such default within the notice and cure period, if any, permitted for cure pursuant to the Lease (as hereby amended), and (Z) the Lease (as hereby amended) is terminated as a result of such failure, then Landlord may, at its option, by notice to Tenant, elect, in addition to any other remedies Landlord may have under the Lease (as hereby amended), one or both of the following remedies: (i) that Tenant shall immediately be obligated to pay Landlord all Base Rent abated hereunder during the Rent Abatement period, or (ii) that the dollar amount of the unapplied portion of the Rent Abatement as of such default shall be converted to a credit to be applied to the Base Rent applicable at the end of the Extended Term and Tenant shall immediately be obligated to begin paying Base Rent for the Reduced Premises in full.

6.3Additional Rent.  Prior to August 1, 2009, Tenant shall continue to pay Tenant's Share of the annual Direct Expenses for the Premises in accordance with the terms of Article 4 of the Office Lease.  Except as specifically set forth in this Section 6.3 during the Extended Term, Tenant shall pay Tenant's Share of the annual Direct Expenses for the Premises in accordance with the terms of Article 4 of the Office Lease. Notwithstanding anything to the contrary set forth in the Lease, effective as of August 1, 2009, for purposes of calculating the amount of Tenant's Share of the annual Direct Expenses which Tenant shall pay thereafter in connection with the Premises, Tenant's Share shall be thirty-seven point thirty-one percent (37.31%).

7.Right of First Refusal.  Landlord hereby grants to the Original Tenant and any Permitted Transferee, during the first two (2) years of the Extended Term only (i.e., from August 1, 2009 through July 31, 2011), a right of first refusal with respect to any space within the Building (the "First Refusal Space"). Notwithstanding the foregoing, (i) such first refusal right shall commence only following the expiration or earlier termination of any existing lease pertaining to the First Refusal Space (the "Superior Leases"), including any renewal or extension of such existing leases, whether or not such renewal or extension is pursuant to an express written provision in such lease, and regardless of whether any such renewal or extension is consummated pursuant to a lease amendment or a new lease, and (ii) such first refusal right shall be subordinate and secondary to all rights of expansion, first refusal, first offer or similar rights granted to the tenant(s) of the Superior Leases or any other leases in existence as of the date of this Second Amendment (the rights described in items (i) and (ii) above to be known collectively, for purposes of this Section 7 only, as "Superior Rights"). Tenant's right of first refusal shall be on the terms and conditions set forth in this Section 7.

7.1Procedure.  Landlord shall notify Tenant (the "First Refusal Notice") from time to time when Landlord receives a proposal that Landlord would consider for all or any portion of the First Refusal Space, where no holder of a Superior Right desires to lease such space. The First Refusal Notice shall describe the space which is the subject of the proposal and shall set forth the basic terms and conditions (including the proposed lease term) set forth in the proposal (collectively, the "Terms"). Notwithstanding the foregoing, Landlord's obligation to deliver the First Refusal Notice shall not apply during the last three (3) years of the Extended Term (or during any Option Term).   Furthermore, notwithstanding the term or base rent described in the proposal, (i) the term for any lease by Tenant of the First Refusal Space (or any portion thereof) described in the First Refusal Notice shall be such that the lease of the space shall end coterminously with Tenant's lease of the Reduced Premises, and (ii) the monthly rental rate per square foot of the First Refusal Space (or any portion thereof) described in the First Refusal Notice shall be the same monthly rental rate per square foot paid by Tenant for the Reduced Premises for the corresponding months of the Extended Term.

7.2Procedure for Acceptance.If Tenant wishes to exercise Tenant's right of first refusal with respect to the space described in the First Refusal Notice, then within five (5) days after delivery of the First Refusal Notice to Tenant (the "Election Date"), Tenant shall deliver written notice to Landlord ("Tenant's Election Notice") pursuant to which Tenant shall elect either to (i) lease the entire space described in the First Refusal Notice upon the Terms set forth in the First Refusal Notice, or (ii) refuse to lease such space identified in the First Refusal Notice, in which event Landlord may lease such space to any person or entity on any terms Landlord desires and Tenant's right of first refusal with respect to the First Offer Space specified in Landlord's First Refusal Notice shall thereupon terminate and be of no further force or effect. If Tenant does not so respond in writing to Landlord's First Refusal Notice by the Election Date, Tenant  shall  be  deemed  to  have  elected  the  option  described  in  clause (ii),  above. Notwithstanding anything herein to the contrary, Tenant may only exercise its right of first refusal with respect to all of the space described in the First Refusal Notice, and not a portion thereof.

7.3Lease of First Refusal Space. If Tenant timely exercises Tenant's right to lease the First Refusal Space as set forth herein, Landlord and Tenant shall execute either (i) an amendment to the Lease incorporating into the Lease the Terms applicable to such First Refusal Space, or (ii) a new lease incorporating the terms applicable to such First Refusal Space; provided, however, that the decision as to whether the parties shall execute an amendment or a new lease shall be at Landlord's sole discretion.

712342,05/SUKILtIOY 4690 EXECUTIVE

K4061-0665-12-09/mirimIr-5-STMICROELECTRONICS,INC.

                7.4Termination of Right of First Refusal.  The right of first refusal granted herein shall terminate as to a particular First Refusal Space upon the failure by Tenant to exercise its right of first refusal with respect to such First Refusal Space as offered by the Landlord but shall remain in effect for subsequent availability of all or any portion of the remaining First Refusal Space.  Landlord shall not have any obligation to deliver the First Refusal Notice if , as of the date Landlord would otherwise deliver the First Refusal Notice to Tenant, (i) Tenant is in default under the Lease (as hereby amended), after any applicable notice and cure periods, (ii) Tenant or a Permitted Transferee does not physically occupy the entire Reduced Premises, (iii) if any portion of the Reduced Premises is subject to a sublease (other than to a Permitted Transferee), (iv) if the Lease (as hereby amended) has been assigned (other than to a Permitted Transferee), or (v) if any portion of the Reduced Premises has been recaptured pursuant to Section 14.4 of the Office Lease. In addition, at Landlord's option, if Tenant has previously delivered Tenant's Election Notice in accordance with Section 7.2 above, and, as of the scheduled date of delivery of such First Refusal Space to Tenant, (A) Tenant is in default under the Lease (as hereby amended) after any applicable notice and cure periods, (B) Tenant (or a Permitted Transferee) does not physically occupy the entire Reduced Premises, (C) if any portion of the Reduced Premises is subject to a sublease (other than to a Permitted Transfer), (D) if the Lease has been assigned (other than to a Permitted Transferred, or (E) if any portion of the Reduced Premises has been recaptured pursuant to Section 14.4 of the Office Lease, Tenant shall not have the right to lease the First Refusal Space.

                8.Condition of the Premises. Landlord and Tenant acknowledge that Tenant has been occupying the Premises pursuant to the Lease, and therefore Tenant continues to accept the Premises in its presently existing, "as is" condition. Except as specifically set forth in Section 9, below, Landlord shall not be obligated to provide or pay for any improvement work of services related to the improvement of the Premises.

                9.Refurbishment Allowance. Notwithstanding anything to the contrary contained herein, Tenant shall be entitled to reconfigure the Reduced Premises and otherwise renovate the then-existing tenant improvements in the Reduced Premises in accordance with the Section 9. In connection therewith, Tenant shall be entitled to a one-time refurbishment allowance in the amount of ______________________ (the "Refurbishment Allowance"), for the costs relating to the reconfiguration of the Reduced Premises, and the design and constructions of certain renovations to be permanently affixed to the Reduced Premises (the "Refurbished Improvements"). In no event shall Landlord be obligated to make disbursements for the Refurbished Improvements pursuant to this Section 9 for Refurbished Improvements not completed by December 31, 2009 (as extended for any delays caused by Landlord or its contractors).  Notwithstanding anything in this Section 9 to the contrary, so long as such Refurbished Improvements are completed by December 31, 2009, Tenant may utilize a portion of the Refurbishment______________________ (i) cabling within the Reduced Premises, (ii) expenses incurred for furniture reconfiguration and equipment relocation necessitated by the constriction of the Refurbisheed Improvements, and (iii) professional project management fees and architectural fees related to the refurbishment and reconfiguration of the Reduced Premises; provided, however, that such utilization of a portion of the Refurbishment  Allowance must be in connection with the construction of the Refurbished Improvements.

9.1Refurbishment Allowance Items. Except as set forth in this Section 9, the refurbishment Allowance shall be disbursed by Landlord for the following items and costs only (collectively, the "Refurbishment Allowance Items"): (a) payment of the fees of the architect and engineers(s), and payment of the fees and costs (up to $1,500.00) actually and reasonable incurred by Landlord and Landlord's consultants in connection with the review of any plans and specifications prepared for the Refurbished Improvements (the "Refurbishment Drawings"); (B) the payment of plan check, permit and license fees relating to construction of the Refurbished Improvements; (C) the cost of construction of the Refurbished Improvements, including, without limitation, testing and inspection costs, trash removal costs, and contractors' fees and general conditions; (D) the cost of any changes to the Refurbishment Drawings or Refurbished Improvements required by applicable building codes; and (E) sales and use taxes and Title 24 fees.

9.2Refurbishment Drawings. If necessary (as determined by Landlord in its reasonable discretion), Tenant shall retain an architect/space planner mutually and reasonably agreed upon by Landlord and Tenant (the "Architect") to prepare any necessary Refurbishment Drawings for the Refurbished Improvements.  If necessary (as determined by Landlord in its reasonable discretion), Tenant shall also retain the engineering consultants mutually and reasonably agreed upon by Landlord and Tenant (the ''Engineers") to prepare all plans and engineering working drawings relating to the structural, mechanical, electrical, plumbing, HVAC, and life safety work of the Refurbished Improvements.   Tenant shall prepare any Refurbishment Drawings necessary for the Refurbished Improvements and shall submit the same to Landlord for Landlord's reasonable approval. Tenant may apply up to Nine Thousand Five Hundred and No/100 Dollars ($9,500.00) (i.e., Zero and 50/100 Dollars per rentable (19,000) square foot of the Reduced Premises), as an architectural allowance, to costs relating to the space planning and programming of the Refurbished Improvements performed by Hurkes Harris.

9.3Contractor.  The contractor which shall construct the Refurbished Improvements shall be a contractor chosen as follows: (i) Tenant shall provide to Landlord a list of those potential contractors to which it would like to bid the work; (ii) Landlord shall reasonably approve at least three (3) potential contractors (if Landlord is unable to reasonably approve three (3) contractors from the list provided to Landlord by Tenant, Tenant shall supplement the list with additional potential contractors until such time as Landlord reasonably approves three (3) potential contractors); and (iii) Tenant shall require such three (3) or more approved contractors to competitively bid on the construction of the Refurbished Improvements, and (iv) Tenant shall chose one of the resulting qualified bids and retain the corresponding contractor to construct the Refurbished Improvements (the "Contractor").  Promptly after Tenant's approval of the Cost Proposal and Tenant's payment of the Over-Allowance Amount (if applicable) pursuant to Section 9.4, below, Landlord shall cause the Contractor to construct the Refurbished Improvements in the Reduced Premises in accordance with the approved Refurbishment Drawings. In consideration of Landlord's coordination of the construction of the Refurbished Improvements, Tenant will be charged a construction coordination fee in an amount equal to the product of (A) two percent (2%) and (B) an amount equal to the Refurbishment Allowance (to the extent distributed by Landlord) plus the "Over-Allowance Amount" (as that term is defined in Section 9.4, below). Tenant may elect to have the construction coordination fee deducted from the Refurbishment Allowance; provided, however, in no event shall the fact that the Refurbishment Allowance (or any portion thereof remaining at the time Tenant pays the construction coordination fee) is insufficient to satisfy the entirety of the construction coordination fee owed to Landlord by Tenant excuse Tenant from paying the entirety of the construction coordination fee to Landlord.

9.4Cost of the Refurbished improvements. Landlord shall provide Tenant with a cost proposal in accordance with the Refurbishment Drawings (or in the event Refurbishment Drawings are not necessary, in accordance with Tenant's scope of work), which cost proposal shall include, as nearly as possible, the cost of all of the Refurbished Improvements to be incurred by Landlord in connection with the construction of the Refurbished Improvements (the "Cost Proposal"). Tenant shall approve and deliver the Cost Proposal to Landlord within five (5) business days of the receipt of the same. In the event the cost of design and construction of the Refurbished Improvements exceeds the Refurbishment Allowance, Tenant shall deliver to Landlord, within thirty (30) days after invoicing, an amount (the "Over-Allowance Amount'') equal to the difference between (a) the total cost of design and construction of the Refurbished Improvements and (b) the amount of the Refurbishment Allowance. Landlord shall refund any portion of the Over-Allowance Amount that is not actually distributed in connection with the completion of the Refurbished Improvements.   Landlord shall, in its agreement with the Contractor, require that (i) Landlord shall have the right to withhold a reasonable percentage of the total construction costs until the work is satisfactorily completed, and (ii) the Contractor maintain reasonable insurance given the scope of the work.

9.5Completion of Refurbished Improvements During the Term.Tenant hereby agrees and acknowledges that the Refurbished Improvements in the Reduced Premises may be constructed during the current Term and/or the Extended Term and that the performance of such work shall not be deemed a constructive eviction nor shall Tenant be entitled to any abatement of rent in connection therewith. Landlord will not be responsible for moving any of Tenant's electronic equipment or furniture in connection with the performance of the above work, and Tenant shall be solely responsible for such electronic equipment and furniture.

10.Parking  Effective as of the Reduction Commencement Date and continuing throughout the Extended Term, the number of reserved parking passes to which Tenant is entitled shall be twenty-seven (27).

11.Notices.Notwithstanding anything to the contrary contained in the Lease, as of the date of this Second Amendment, any Notices to Landlord must be sent, transmitted, or delivered, as the case may be, to the following addresses:

Kilroy Realty, L.P.

do Kilroy Realty Corporation

12200 West Olympic Boulevard, Suite 200 Los Angeles, California 90064

Attention: Legal Department

with copies to:

Kilroy Realty Corporation

12200 West Olympic Boulevard, Suite 200 Los Angeles, California 90064

Attention: Mr. John Fucci

and

Kilroy Realty Corporation

3611 Valley Centre Drive, Suite 500 San Diego, California 92130Attention: Mr. Brian Galligan

and

Allen Matkins Leek Gamble Mallory & Natsis, LLP 1901 Avenue of the Stars, Suite 1800

Los Angeles, California 90067

Attention: Anton N. Natsis, Esq.

12.Broker. Landlord and Tenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Second Amendment other than Jones Lang LaSalle, representing Tenant (the "Broker"), and that they know of no other real estate broker or agent who is entitled to a commission in connection with this Second Amendment. Each party agrees to indemnify and defend the other party against and hold the other party harmless from any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses (including without limitation reasonable attorneys' fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of any dealings with any real estate broker or agent, other than the Broker, occurring by, through, or under the indemnifying party.  Landlord shall be responsible for the payment to the Broker of any brokerage fees or commissions in accordance with the terms of a separate commission agreement. The terms of this Section 12 shall survive the expiration or earlier termination of the term of the Lease, as hereby amended.

13.No Further Modification.  Except as specifically set forth in this Second Amendment, all of the terms and provisions of the Lease shall remain unmodified and in full force and effect; provided that, in the event of any conflict between this Second Amendment and the Lease, the terms of this Second Amendment shall prevail.

[Signature page immediately follows.]

712342 05/SDKILROY 4690 ECECUTIVE

K4064-06615.1 2.09/m1r/m-8-STMICROELECTRONICS,INC.

IN WITNESS WHEREOF, this Second Amendment has been executed as of the day and year first above written.

"LANDLORD"KILROY REALTY, L.P.,

a Delaware limited partnership

By:Kilroy Realty Corporation,

a Maryland corporation,

General Partner

By:/s/ Jeffrey C. Hawken

Its: Executive Vice President

    Chief Operating Officer

By: /s/ Madine K. Kirk

Its: Vice President Legal Administration

Date:

"TENANT"STMICROELECTR

a Delaware corporation

By: /s/ [Illegible]

Its: Vice President & CFO

Date:

By: /s/ [Illegible]

Its: VP of HR

Date:  5/10/09

712342.05/SDKILROY 4690 EXECUTIVE

K4044-066/5.1249/mIchnk-9-STMICROELECTRONICS,INC.

EXHIBIT A

OUTLINE OF REDUCTION SPACE

712342.055D14064-066/5-13.09.961thaIr

EXHIBIT A

KILROY 4690 EXECIIIIVE

-1-STMICROELECTRONICS,INC.

THIRD AMENDMENT TO OFFICE LEASE

This THIRD AMENDMENT TO OFFICE LEASE ("Third Amendment") is made and entered into as of the lst day of August, 2009, by and between KILROY REALTY, L.P., a Delaware limited partnership ("Landlord"), and STMICROELECTRONICS, INC., a Delaware corporation ("Tenant").

RECITALS:

A.Landlord  and  Tenant  entered  into that  certain  Office  Lease  dated  as  of June 4, 2004 (the "Office Lease"), as amended by that certain First Amendment to Office Lease dated as of January 1, 2006 (the "First Amendment"), and further amended by that certain Second Amendment to Office Lease dated as of May 13, 2009 (the "Second Amendment") (the Office Lease, the First Amendment and Second Amendment are collectively referred to herein as the "Lease"), whereby Landlord leases to Tenant and Tenant leases from Landlord office space located in that certain building located and addressed at 4690 Executive Drive, San Diego,

California, 92121(the "Building").

B.The parties desire to amend the Lease on the terms and conditions set forth in this Third Amendment.

AGREEMENT:

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1.Terms. All capitalized terms when used herein shall have the same respective meanings as are given such terms in the Lease unless expressly provided otherwise in this Third Amendment.

2.Reduction Since: Reduced Premises.Notwithstanding anything to the contrary set forth in Section 3 of the Second Amendment, Landlord and Tenant hereby agree that (i) the Reduction Space  is hereby stipulated to have  contained6,066 rentable square feet,  and (ii) accordingly, the Reduced Premises is hereby stipulated to contain19,398 rentable square feet.

3.Rent.

3.1Base Rent.  Notwithstanding anything to  the contrary set forth in Section 6.1 of the Second Amendment, and based upon the actual rentable square footage of the Reduced Premises identified in Section 2 of this Third Amendment, during the Extended Term, Tenant shall pay monthly installments of Base Rent for the Reduced Premises as follows:

KILROY REALTY

649963.02/WLA4690 Executive Drive

K4064-06619-17-09/pAnt                                                                                                                                                  STMICROELECTRONICS,INC.

                                                                                      Monthly                       Monthly Rental

  Period During                       Annualized            Installment of                        Rate per

 Extended Term                       Base Rent                Base Rent                         Square Foot

                3.2Abated Base Rent.  Section 6.2 of the Second Amendment is hereby amended such that the term "Rent Abatement Period" shall mean the period commencing on September 1, 2009 and ending on November 30, 2009. Accordingly, Landlord and Tenant hereby acknowledge and agree that the aggregate amount of the Rent Abatement equals ______________________.

            3.3Additional Rent. Landlord and Tenant hereby acknowledge and agree that the last sentence of Section 6.3 of the Second Amendment is hereby amended and restated in its entirety as follows: "Notwithstanding anything to the contrary set forth in the Lease, effective as of August 1, 2009, for purposes of calculating the amount of Tenant's Share of the annual Direct Expenses which Tenant shall pay thereafter in connection with the Premise, Tenant's Share shall be thirty-eight point zero-nine percent (38.09%).

            4Refurbishment Allowance. Section 9 of the Second Amendment is hereby amended  such that the term "Refurbishment Allowance" shall mean the amount of ______________________ Further, the last sentence of Section 9 of the Second Amendment is hereby amended such that the reference to ______________________.

            5Broker. Landlord and Tenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Third Amendment, expecting only Jones Lang LaSalle (the "Broker"), and that they know of no other real estate broker or agent who is entitled to a commission in connection with the Third Amendment.  Landlord shall pay the brokerage commission owning to the Broker in connection with the Transaction contemplated by the Third Amendment pursuant to the terms of a separate written agreement between Landlord and the Brokers.  Each party agrees to indemnify and defend the other party against and hold the other party harmless form any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses (including without limitation, reasonable attorneys' fees) with respect to an leasing commission or equivalent compensation alleged to be owing on account of any dealings with any real estate broker or agent, other than

the Broker, occurring by, through, or under the indemnifying party. The terms of this Section 5 shall survive the expiration or earlier termination of the term of the Lease, as hereby amended.

6.No Further Modification.  Except as specifically set forth in this Third Amendment, all of the terms and provisions of the Lease shall remain unmodified and in full force and effect; provided that, in the event of any conflict between this Third Amendment and the Lease, the terms of this Third Amendment shall prevail.

IN WITNESS WHEREOF, this Third Amendment has been executed as of the day and year first above written.

"LANDLORD"KILROY REALTY, L.P.,

a Delaware limited partnership

By:   Kilroy Realty Corporation,a Maryland  corporation,

General Partner

By:  /s/ Jeffrey C. Hawken

Its: Executive Vice President

             Chief Operating Officer

By:/s/ John T. Fucci

Its: Sr. Vice President

      Asset Management

"TENANT"STMICROELECTRONICS, INC.

a Delaware corporation

By:

Its:

Date:,0o9

By: /s/ [Illegible]

Its: Sr. Vice President

Asset Management

Date:

By: /s/ [Carol Knight

Its: Treasurer

Date: 9/30/09

KILROY REALTY

649963.02/WLA4690 Executive Dn ye

K4064 -066/9-17-09i pj eRir-3-STMICROELECTRONICS,INC.

Exhibit B

Depiction of Premises

ExhibitC

BILL OF SALE

FOR VALUE RECEIVED, STMICROELECTRONIC, Inc., a Delaware corporation ("Seller"), hereby sells, assigns, transfers and delivers to eBioscience, Inc., a California corporation("Buyer"),effectiveasof11:59p.m.(PacificTime)on,2013(the"EffectiveDate"), all of the personal property described in Schedule 1 attached hereto and incorporated herein by this reference (the "PersonalProperty"). As consideration for such, eBioscience Buyer shall pay to seller $1,000.00 prior to commencement of the Lease.

Seller hereby represents and warrants that (i) it is the owner of the Personal Property, and the Personal Property is not subject to any liens or encumbrances, (ii) the transfer of the Personal Property to Buyer does not, and shall not, require the consent of any third party, and (iii) Seller has the legal power, right and authority to transfer the Personal Property to Buyer.

Except as set forth above, this Bill of Sale is made without any covenant, warranty or representation by, or recourse against, Seller, and Buyer hereby releases Seller from and against any liability or claim therefor relating to the Personal Property transferred hereby except as a result of the breach of any representation and warranty expressly set forth above. By acceptance of this Bill of Sale, Buyer specifically acknowledges that Buyer is not relying on any representations or warranties of any kind or nature whatsoever, whether oral or written, express, implied, statutory or otherwise, from Seller, including, without limitation, any covenant, representation or warranty regarding or relating to (a) the operation of the Personal Property; (b) the merchantability or fitness of any item of the Personal Property for a particular purpose; or (c) the physical condition of the Personal Property.

This Bill of Sale shall be governed by, interpreted under, construed under, and enforceable in accordance with the laws of the State of California.

IN WITNESS WHEREOF, Seller has executed and delivered this Bill of Sale to Buyer as of the date set forth below, which Bill of Sale (and the transfer of the Personal Property to Buyer) shall be effective as of the Effective Date.

SELLER:STMICROELECTRONICS, Inc.

By:

Name:

Title:

Date:

SCHEDULE 1

PERSONAL PROPERTY

[TO BE ATTACHED]

EX-10.31

EXHIBIT 10.31

OFFICE LEASE

KILROY REALTY

KILROY UNIVERSITY CENTER

KILROY REALTY, L.P., a Delaware limited partnership, as Landlord,

and

EBIOSCIENCE, INC., a California corporation, as Tenant.

KILROY REALTY

703150.05/3VLAKilroy University Center

888888-00775/ I -8- I 3//eg[EBioseienee, Inc.]

TABLE OF CONTENTS

Page

ARTICLE 1 PREMISES, BUILDING, PROJECT, AND COMMON AREAS 1

ARTICLE 2 LEASE TERM; OPTION TERM1

ARTICLE 3 BASE RENT 3

ARTICLE 4 ADDITIONAL RENT3

ARTICLE 5 USE OF PREMISES4

ARTICLE 6 SERVICES AND UTILITIES 4

ARTICLE 7 REPAIRS 6

ARTICLE 8 ADDITIONS AND ALTERATIONS 6

ARTICLE 9 COVENANT AGAINST LIENS 7

ARTICLE 10 INDEMNIFICATION AND INSURANCE 8

ARTICLE 11 DAMAGE AND DESTRUCTION 9

ARTICLE 12 NONWAIVER 10

ARTICLE 13 CONDEMNATION 10

ARTICLE 14 ASSIGNMENT AND SUBLETTING 11

ARTICLE 15 SURRENDER OF PREMISES; OWNERSHIP AND REMOVAL OF TRADE FIXTURES 12

ARTICLE 16 HOLDING OVER 13

ARTICLE 17 ESTOPPEL CERTIFICATES 13

ARTICLE 18 SUBORDINATION 13

ARTICLE 19 DEFAULTS; REMEDIES 13

ARTICLE 20 COVENANT OF QUIET ENJOYMENT 15

ARTICLE 21 SECURITY DEPOSIT 15

ARTICLE 22 INTENTIONALLY OMITTED 15

ARTICLE 23 SIGNS 15

ARTICLE 24 COMPLIANCE WITH LAW 17

ARTICLE 25 LATE CHARGES 17

ARTICLE 26 LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT 17

ARTICLE 27 ENTRY BY LANDLORD 17

ARTICLE 28 TENANT PARKING 18

ARTICLE 29 MISCELLANEOUS PROVISIONS 18

KILROY REALTY

703 150.05/WLAKilroy University Center

888808-00775/I-8-13//eg0)[EBioscience, Inc.]

INDEX

Paae(s)

Accountant 4

Additional Rent 3

Alterations 6

Applicable Laws17

Audit Period4

Bank Prime Loan17

Base Building6

Base Rent3

Base Rent/Direct Expenses Abatement3

Base Rent/Direct Expenses Abatement Period3

Brokers 20

Building Common Areas1

Building Hours4

Building Monument Sign16

Business Hours4

Casualty9

CC&Rs4

Common Areas1

Comparable Area2

Comparable Buildings2

Comparable Deals2

Comparable Term2

Control12

Cosmetic Alterations6

Direct Expenses1

Environmental Laws1

Estimate4

Estimate Statement4

Estimated Direct Expenses4

Excess3

Exercise Notice2

Expense Year1

Force Majeure19

Hazardous Material(s)1

Head-Stone Sign16

Holidays4

HVAC4

Identification Requirements20

Interest Rate17

Landlord1

Landlord Parties8

Landlord Repair Notice9

Landlord Response Date2

Landlord Response Notice2

Landlord's Option Rent Calculation2

Lease1

Lease Commencement Date1

Lease Expiration Date1

Lease Term1

LEED1

Lines20

Market Rent2

Net Worth12

Notices19

Objectionable Name16

Operating Expenses1

Option Rent2

Option Term2

Option Term Improvement Allowance2

KILROY REALTY

703150.05/WLAKilroy University Center

808880-00775/I-8-13//eg[EBioseience, Inc.)

Page(s)

Original Improvements8

Original Tenant2

Other Improvements21

Permitted Transferee12

Permitted Transferee Assignee12

Permitted Use1

Premises1

Project Common Areas1

Proposition 133

Ratification Notice3

Renovations20

Rent Concessions2

Rent3

Rules and Regulations4

Security Deposit15

Sign Specifications16

Statement3

Subject Space11

Summary1

Tax Expenses3

TCCs1

Tenant1

Tenant Parties8

Tenant's Option Rent Calculation2

Tenant's Share3

Tenant's Signage16

Third Party Contractor9

Transfer12

Transfer Premium11

Transferee11

Transfers11

EXHIBIT A - OUTLINE OF PREMISES

EXHIBIT B - INTENTIONALLY OMITTED

EXHIBIT C - OPERATING EXPENSE DEFINITIONS AND CALCULATION PROCEDURES EXHIBIT D - RULES AND REGULATIONS

EXHIBIT E - FORM OF TENANTS ESTOPPEL CERTIFICATE EXHIBIT F - NOTICE OF LEASE TERM DATES EXHIBIT G - HAZARDOUS MATERIAL

KILROY REALTY

703150.05/WLAKilroy University Center

888884-00775/I-8-13//eg[EBioseienee, Inc.]

KILROY UNIVERSITY CENTER

OFFICE LEASE

This Office Lease (the "Lease"), dated as of the date set forth in Section 1 of the Summary of Basic Lease Information (the "Summary"), below, is made by and between KILROY REALTY, L.P., a Delaware limited partnership ("Landlord"), and EBIOSCIENCE, INC., a California corporation ("Tenant").

SUMMARY OF BASIC LEASE INFORMATION

TERMS OF LEASEDESCRIPTION

1.Date:January 9, 2013.

2.Premises:

(Article 1)

2.1Building:That  certain  two (2)-story  office  building(the "Building") located at 4690 Executive Drive, San Diego, California92121.

2.2Premises:                                            19,398 rentable square feet of space located on the second (2nd) floor of the Building and commonly known as Suite 200, as further depicted on Exhibit Ato the

                                                                       Office Lease.

2.3Project:The Building is part of an office project known as "Kilroy University Center," as further set forth in Section 1.1.2 of this Lease.

3.Lease Term

(Article 2):

3.1Length of Term:One (1) year.

3.2Lease Commencement Date:August 1, 2014.

3.3Lease Expiration Date:July 31, 2015.

3.4Option Term:One (1) five (5)-year option to renew, as more particularly set forth in Section 2.2 of this Lease.

4.     Base Rent

(Article 3):

Monthly

MonthlyRental Rate

Installmentper Rentable

of Base Rent*Square Foot*

August 1, 2014 —

July 31, 2015$407,358.00$33,946.50$1.75

*   Subject to the terms set forth in Section 3.2 below, the Base Rent attributable to the month of August 2014 shall be abated.

5. Operating Expenses and Tax Expenses (Article 4 and Exhibit C): This is a "TRIPLE NET" lease and as such, the provisions contained in this Lease are intended to pass on to Tenant and reimburse Landlord for the costs and expenses reasonably associated  with  this  Lease  and  the  Project,  and Tenant's operation therefrom.   To the extent such costs and expenses payable by Tenant cannot be charged directly to and paid by Tenant such costs and expenses shall be paid by Landlord but reimbursed by Tenant as Additional Rent.

6.Tenant's Share

(Article 4 and Exhibit C): 41.0679%.

7.Permitted Use

(Article 5): Tenant shall use the Premises solely for (i) general office use, (ii) engineeringofficeuse,(iii)researchand development/testing laboratory use, and (iv) uses incidental thereto(the  "Permitted  Ute");  provided, however,  that notwithstanding anything to the contrary set forth hereinabove, and as snore particularly set forth in the Lease, Tenant shall be responsible for operating and maintaining the Premises pursuant to, and in no event may Tenant's  Permitted Use violate, (A) Landlord's "Rules and Regulations," as that term is set forth in Article 5 of this Lease, (B) all "Applicable Laws," as that term is set forth in Article 24 of this Lease, C) all applicable zoning, building codes and the "CC&Rs," as that term is set forth in Article 5  of this Lease, and (D) first-class office standards in the market in which the Project is located.

8.Security Deposit

(Article 21):  $33,946.50.

9.Parking Pass Ratio

(Article 28):Three (3) unreserved parking passes for every  1,000 rentable square feet of the Premises, of which twenty-seven (27) passesshall be for the use of a reserved parking space.

[EBioscience, Inc.]

10.Address of TenantEBIOSCIENCE, INC.

(Section 29.16):4690 Executive Drive, Suite 200

San Diego, California92121

Attention: Legal Department

(Prior to and after the Lease Commencement Date)

11.Address of Landlord

(Section 29.16):Kilroy Realty, L.P.

do Kilroy Realty Corporation 12200 West Olympic Boulevard, Suite 200 Los Angeles, California 90064

Attention: Legal Department

with copies to:

Kilroy Realty Corporation

12200 West Olympic Boulevard, Suite 200 Los Angeles, California 90064

Attention: Mr. John Fucci

and

Kilroy Realty Corporation

3611 Valley Centre Drive, Suite 550 San Diego, California 92130 Attention: Mr. Brian Galligan

and

Allen Matkins Leek Gamble Mallory & Natsis LLP 1901 Avenue of the Stars, Suite 1800

Los Angeles, California 90067

Attention: Anton N. Natsis, Esq.

12.Broker(s)

(Section 29.20):

Representing Tenant:Representing Landlord:

CBRE, Inc.CBRE, Inc.

13.Improvement Allowance:

None.  Tenant shall accept the Premises in its then currently-

existing "as-is" condition as of the Lease Commencement Date.

703150.05/WLAKilroy University Center

880000-00775/1-8-13//egSummary P-2[EBioscience, Inc.)

ARTICLE 1

PREMISES, BUILDING, PROJECT, AND COMMON AREAS

1.1Premises, Building, Project and Common Areas.

1.1.1The Premises.  Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the premises set forth in Section 2.2 of the Summary (the "Premises").  The outline of the Premises is set forth in Exhibit A attached hereto the Premises has the number of rentable square feet as set forth in Section 2.2 of the Summary. The parties hereto agree that the lease of the Premises is upon and subject to the terms, covenants and conditions (the "TCCs") herein set forth, and Tenant covenants as a material part of the consideration for this Lease to keep and perform each and all of such TCCs by it to be kept and performed and that this Lease is made upon the condition of such performance. The parties hereto hereby acknowledge that the Purpose of Exhibit A is to show the approximate location of the Premises in the "Building," as that term is defined in Section 1.1.2,below, only and such Exhibit is not meant to constitute' an agreement, representation or warranty as to the construction' of the Premises, the precise area thereof or the specific location of the "Common Areas," as that term is defined in Section 1 .11 .3, below, or the elements thereof or of the accessways to the Premises or the "Project," as that term is defined in Section 2 below, Tenant shall accept the Premises in its existing "as-is" condition and Landlord shall not be obligated to provide or pay for any improvements work or services related to the improvement of Premises. Tenant also acknowledges that neither Landlord' not any agent of Landlord has made any representation or warranty regarding the condition of the Premises, the Building or the Project or with respect to the suitability of any of the foregoing for the conduct of Tenant's business. Tenant also acknowledges and agrees that Tenant is currently in occupancy of the Premises (or shall soon after the date of this Lease be in occupancy of the Premises) pursuant to an existing sublease agreement dated as of the date hereof (the "Existing STMicroelectronics Sublease) with respect to a portion of the space leased from Landlord pursuant to the that certain existing Office Lease with STMicroelectronics, Inc., a Delaware corporation, dated as of June 4, 2004 (as amended, the "STMicroelectronics Lease).  Accordingly, (1) Landlord shall have no obligation to deliver the Premises to Tenant upon the Lease Commencement Date, (ii) Tenant acknowledges and agrees that it shall be fully aware of the condition of the Premises as of the Lease Commencement Date, and (iii) Tenant shall accept the Premises as of the Lease Commencement Date in its then existing "as-is" condition and Landlord shall not be obligated to provide or pay for any improvement work or services related to the improvement of the Premises.   In the event that the Existing Sublease is terminated for any reason prior to the current expiration date thereof (i.e., July 31, 2014), this Lease shall be unaffected and shall remain in full force and effect. Tenant's continued possession of the Premises as of the Lease Commencement Date, shall conclusively establish that the Premises and the Building were at such time in good and sanitary order, condition and repair.

1.12The Building and the Project.The Premises area part of the building set forth in Section 2.1 of the Summary (the "Building").  The Building is part of an office project known as "Kilroy University Center." The term "Project," as used in this Lease, shall mean (i) the Building and the Common Areas, (ii) the land (which is improved with landscaping, parking facilities and other improvements) upon which the Building and the Common Areas are located, (iii) at Landlord's discretion, any additional real property, areas, land, buildings or other improvements added thereto.

1.1.3Common Areas.Tenant shall have the non-exclusive right to use in common with other tenants in the Project, and subject to the rules and regulations referred to in Article 5 of this Lease, those portions of the Project which are provided, from time to time for use in common by Landlord, Tenant and any other tenants of the Project (such areas, together with such other portions of the Project designated by Landlord, in its discretion, including certain areas designated for the exclusive use of certain tenants, or to be shared by Landlord and certain tenants, are collectively referred to herein as the "Common Areas"). The Common Areas shall consist of the "Project Common Areas" and the "Building Common Areas" (as both of those terms are defined below). The term "Project Common Areas," as used in this Lease, shall mean the portion of the Project designated as such by Landlord.  The term "Building Common Areas," as used in this Lease, shall mean the portions of the Common Areas located within the Building designated as such by Landlord.  The manner in which the Common Areas are maintained and operated shall be at the reasonable discretion of Landlord (but at all times in a manner reasonably consistent with the "Comparable Buildings" (as that term is defined in Section 2.2.2 below)) and the use thereof shall be subject to such rules, regulations and restrictions as Landlord may make from time to time, provided that such rules, regulations and restrictions do not unreasonably interfere with the rights granted to Tenant under this Lease and the permitted use granted under Article 5, below.  Landlord reserves the right to close temporarily, make alterations or additions to or change the location of elements of the Project and the Common Areas; provided that no such changes shall be permitted which materially reduce Tenant's rights or access hereunder. Except when and where Tenant's right of access is specifically excluded in this Lease, Tenant shall have the right of access to the Premises, the Building, and the Project parking facility twenty-four (24) hours per day, seven (7) days per week during the "Lease Term," as that term is defined in Section 2.1, below.

1.2Stipulation of Rentable Square Feet of Premises.For purposes of this Lease, "rentable square feet" of the Premises shall be deemed as set forth in Section 2.2 of the Summary.

ARTICLE 2

LEASE TERM; OPTION TERM

2.1Initial Lease Term.The TCCs and provisions 'of this Lease shall be effective as of the date of this Lease. The term of this Lease (the "Lease Term")shall be as set forth in Section 3.1 of the Summary, shall commence on the date set forth in Section 32 of the Summary (the "Lease Commencement Date), and shall terminate on the date set forth in Section 3.3 of the Summary (the "Lease Expiration Date) unless this Lease is sooner terminated as hereinafter provided. At any time during the Lease Term, Landlord may deliver to Tenant a notice in the form as set forth in Exhibit Fattached hereto, as a confirmation only of the information set forth therein, which Tenant shall execute and return to Landlord within five (5) days of receipt thereof.

2.2Option Term.

2.2.1Option Right.Landlord hereby grants the tenant originally named herein (the "Original Tenant") and its "Permitted Transferee Assignee," as that term is set forth in Section 14.8 of this Lease, one (1) option to extend the Lease Term for the entire Premises by a period of five (5) years (the "Option Term"). Such option shall be exercisable only by "Notice" (as that term is defined in Section 29.16 of this Lease) delivered by Tenant to Landlord as provided below, provided that, as of the date of delivery of such Notice, (i) Tenant is not then in default under this Lease (beyond the applicable notice and cure periods), (ii) Tenant has not been in default under this Lease (beyond the applicable notice and cure periods) more than once during the prior twelve (12) month period, (iii) Tenant has not been in default under this Lease (beyond the applicable notice and cure periods) more than three (3) times during the Lease Term, and (iv) there has been no material adverse change in Tenant's financial condition during the prior twenty-four (24)-month period.  Upon the proper exercise of such option to extend (and provided that, at Landlord's election, as of the end of the Lease Term, (A) Tenant is not in default under this Lease (beyond the applicable notice and cure periods), (B) Tenant has not been in default under this Lease (beyond the applicable notice and cure periods) more than once during the prior twelve (12) month period, (C) Tenant has not been in default under this Lease (beyond the applicable notice and cure periods) more than three (3) times during the Lease Term, and (D) there has been no material adverse change in Tenant's financial condition during the prior twenty-four (24)-month period), then the Lease Term, as it applies to the entire Premises, shall be extended for a period of five (5) years. The rights contained in this Section 2.2 shall only be exercised by the Original Tenant or its Permitted Transferee Assignee (and not any other assignee, sublessee or other transferee of the Original Tenant's interest in this Lease) if Original Tenant and/or its Permitted Transferee Assignee is in occupancy of the entire then-existing Premises.

2.2.2Option Rent.The Rent payable by Tenant during the Option Term (the "Option Rent") shall beequal to the Market Rent as set forth below; provided, however, that the average annual, effective (including free rent, if applicable, on a straight line basis) base rent component of Market Rent, shall not be lower than the then existing "Base Rent," as that term is set forth in Article 3 of this Lease, in effect immediately prior to the commencement of such Option Term. For purposes of this Lease, the term "Market Rent" shall mean rent (including additional rent, and considering (x) any "base year" or "expense stop" applicable thereto, as well as (y) the inclusion of any utility expenses as a part thereof), including all escalations, at which tenants, as of the commencement of the term are, pursuant to transactions completed within the twelve (12) months prior to the first day of the Option Term, provided that timing adjustments shall be made to reflect any changes in the Market Rent following the date of any particular Comparable Transaction up to the date of the commencement of the Option Term, leasing non-sublease, non-encumbered, non-synthetic, non-equity, non-expansion office space (unless such office space was leased pursuant to a definition of "fair market" comparable to the definition of Market Rent) comparable in size, location and quality to the Premises for a "Comparable Term," as that term is defined in this Section 2.2.2 (the "Comparable Deals"), whichcomparable office space is located in the "Comparable Buildings," as that term is defined in this Section 2.2.2, giving appropriate consideration to the annual rental rates per rentable square foot, the standard of measurement by which the rentable square footage is measured, the ratio of rentable square feet to usable square feet, and taking into consideration only, and granting only, the following concessions (provided that the rent payable in Comparable Deals in which the terms of such Comparable Deals are determined by use of a discounted fair market rate formula shall be equitably increased in order that such Comparable Deals will not reflect a discounted rate) (collectively, the "Rent Concessions"): (a) rental abatement concessions, if any, being granted such tenants in connection with such comparable spaces; (b) improvements or allowances provided or to be provided for such comparable space, taking into account the value of the existing improvements in the Premises, such value to be based upon the age, quality and layout of the improvements and the extent to which the same could be utilized by general office users as contrasted with this specific Tenant, (c) Proposition 13 protection, and (d) all other monetary concessions, if any, being granted such tenants in connection with such comparable space; provided, however, that notwithstanding anything to the contrary herein, no consideration shall be given to the fact that Landlord is or is not required to pay a real estate brokerage commission in connection with the applicable term or the fact that the Comparable Deals do or do not involve the payment of real estate brokerage commissions. The term "Comparable Term" shall refer to the length of the lease term, without consideration of options to extend such term, for the space in question. In addition, the determination of the Market Rent shall include a determination as to whether, and if so to what extent, Tenant must provide Landlord with financial security, such as a letter of credit or guaranty, for Tenant's rent obligations during any Option Tenn.   Such determination shall be made by reviewing the extent of financial security then generally being imposed in Comparable Deals upon tenants of comparable financial condition and credit history to the then existing financial condition and credit history of Tenant (with appropriate adjustments to account for differences in the then-existing financial condition of Tenant and such other tenants).  If in determining the Market Rent, Tenant is entitled to a improvement or comparable allowance for the improvement of the Premises (the "Option Term Improvement Allowance"), Landlord may, at Landlord's sole option, elect any or a portion of the following: (A) to grant some or all of the Option Term Improvement Allowance to Tenant in the form as described above (i.e., as an improvement allowance), and/or (B) to reduce the rental rate component of the Market Rent to be an effective rental rate which takes into consideration that Tenant will not receive the total dollar value of such excess Option Term Improvement Allowance (in which case the Option Term Improvement Allowance evidenced in the effective rental rate shall not be granted to Tenant).   The term "Comparable Buildings shall mean the Building, and other first-class institutionally-owned office buildings which are comparable to the Building in terms of tenant mix, age (based upon the date of completion of construction or major renovation as to the building containing the portion of the Premises in question), quality of construction, level of services and amenities (including the type (e.g., surface, covered, subterranean) and amount of parking), size and appearance, and are located in the "Comparable Area," which is the UTC (i.e., the area from two (2) blocks to the North of La Jolla Village Drive to two (2) blocks to the South of La Jolla Village Drive between the 1-5 and 1-805 freeways) area of San Diego, California.

2.2.3Exercise of Option.The option contained in this Section 2.2 shall be exercised by Tenant, if at all, only in the manner set forth in this Section 2.2.3. Tenant shall deliver notice (the "Exercise Notice") to Landlordnot more than ten (10) months nor less than seven (7) months prior to the expiration of the initial Lease Term, stating that Tenant is exercising its option.  Concurrently with such Exercise Notice, Tenant shall deliver to Landlord Tenant's calculation of the Market Rent (the "Tenant's Option Rent Calculation"). Landlord shall deliver notice (the "Landlord Response Notice") to Tenant on or before the date which is fifteen (15) days after Landlord's receipt of the Exercise Notice and Tenant's Option Rent Calculation (the "Landlord Response Date"), stating that (A) Landlord is accepting Tenant's Option Rent Calculation as the Market Rent, or (B) rejecting Tenant's Option Rent Calculation and setting forth Landlord's calculation of the Market Rent (the "Landlord's Option Rent Calculation"). Within ten (10) business days of its receipt of the Landlord Response Notice, Tenant shall deliver written notice (the "Ratification Notice") to Landlord setting forth, at its option, either (i) Tenant's acceptance of the Market Rent contained in the Landlord's Option Rent Calculation, or (ii) Tenant's rescission of its Exercise Notice.  If Tenant fails to timely deliver the Ratification Notice, Tenant shall be deemed to have accepted the Market Rent contained in the Landlord's Option Rent Calculation.

ARTICLE 3

BASE RENT

3.1In General.  Tenant shall pay, without prior notice or demand, to Landlord or Landlord's agent at the management office of the Project, or, at Landlord's option, at such other place as Landlord may from time to time designate in writing, by a check for currency which, at the time of payment is legal tender for private or public debts in the United States of America, base rent ("Base Rene) as set forth in Section 4 of the Summary, payable in equal monthly installments as set forth in Section 4 of the Summary in advance on or before the first day of each and every calendar month during the Lease Term, without any setoff or deduction whatsoever. The Base Rent for the first full month of the Lease Term which occurs after the expiration of any free rent period shall be paid at the time of Tenant's execution of this Lease. If any payment of Rent is for a period which is shorter than one month, the Rent for any such fractional month shall accrue' on a daily basis during such fractional month and shall total an amount equal to the product of (i) a 'fraction, the numerator of which is the number of days in such fractional month and the denominator of which is the actual number of days occurring in such calendar month, and (ii) the then-applicable Monthly Installment of Base Rent: All other payments or adjustments required to be made under the TCCs of this Lease that require proration on a time basis shall be prorated on the same basis.

3.2Abated Base Rent and Direct Expenses. Provided that no event of default is occurring during the month of August 2014 (the "Base Rent/Direct Expenses Abatement Period"), Tenant shall not be obligated to pay any Base Rent or "Direct Expenses" (as that term is defined in Section 1.1.2 of Exhibit C attached to this Lease) otherwise attributable to the Premises during such Base Rent/Direct Expenses Abatement Period (the "Base Rent/Direct Expenses Abatement"). Landlord and Tenant acknowledge that the aggregate amount of the Base Rent component of the Base Rent/Direct Expenses Abatement equals Thirty-Three Thousand Nine Hundred Forty-Six and 50/100 Dollars ($33,946.50). Tenant acknowledges and agrees that during such Base Rent/Direct Expenses Abatement Period, such abatement of Base Rent and Direct Expenses for the Premises shall have no effect on the calculation of any future increases in Base Rent or Direct Expenses payable by Tenant pursuant to the terms of this Lease, which increases shall be calculated without regard to such Base Rent/Direct Expenses Abatement. Additionally, except as expressly stated herein, Tenant shall be obligated to pay all "Additional Rent" (as that term is defined in Section 4.1 of this Lease) during the Base Rent/Direct Expenses Abatement Period.  Tenant acknowledges and agrees that the foregoing Base Rent/Direct Expenses Abatement has been granted to Tenant as additional consideration for entering into this Lease, and for agreeing to pay the Base Rent/Direct Expenses and perform the terms and conditions otherwise required under this Lease. If Tenant shall be in default under this Lease and shall fail to cure such default within the notice and cure period, if any, permitted for cure pursuant to this Lease, or if this Lease, is terminated for any reason other than Landlord's breach of this Lease, then the dollar amount of the unapplied portion of the Base Rent/Direct Expenses Abatement as of the date of such default or termination, as the case may be shall be converted to a credit to be applied to the Base Rent and Direct Expenses applicable at the end of the Lease Term and Tenant shall immediately be obligated to begin paying Base Rent and Direct Expenses for the Premises in full. The foregoing Base Rent and Direct Expenses abatement right set forth in this Section 3/ shall be personal to the Original Tenant any Permitted Transferee Assignee and any assignee approved by Landlord pursuant to the express terms of Article 14 of this Lease prior to, or during, such Base Rent/Direct Expenses Abatement Period.

ARTICLE 4

ADDITIONAL RENT

4.1In General.  In addition to paying the Base Rent specified in Article 3 of this Lease, Tenant shall pay "Tenant's Share" (as that term is defined in Section 1.1.6 of Exhibit C attached to this Lease) of the annual Direct Expenses . Such payments by Tenant, together with any and all other amounts payable by Tenant to Landlord pursuant to the Tees of this Lease, are hereinafter collectively referred to as the "Additional Rent," and the Base Rent and the Additional Rent are herein collectively referred to as "Rent." All amounts due under this Article 4 and Exhibit C as Additional Rent shall be payable for the same periods and in the same manner as the Base Rent Without limitation on other obligations of Tenant which survive the expiration of the Lease Term, the obligations of Tenant to pay the Additional Rent provided for in this Article 4 and Exhibit C shall survive the expiration of the Lease Term.

4.2Taxes and Other Charms for Which Tenant Is Directly Responsible.

4.2.1Tenant shall be liable for and shall pay ten (10) days before delinquency, taxes levied against Tenant's equipment furniture, fixtures and any, other personal property located in or about the Premises. If any such taxes on Tenant's equipment, furniture, fixtures and any other personal property are levied against Landlord or Landlord's property or if the assessed value of Landlord's property is increased by the inclusion therein of a value placed upon such equipment furniture, fixtures or any other personal property and if Landlord pays the taxes based upon such increased assessment which Landlord shall have the right to do regardless of the validity thereof but only under Proper protest if requested by Tenant shall upon demand repay to Landlord the taxes so levied against Landlord or the proportion of such taxes resulting from such increase in the assessment, as the case may be.

4.2.2If the improvements in the Premises, whether installed and/or paid for by Landlord or Tenant and whether or not affixed to the real property so as to become a part thereof, are assessed for real property tax purposes at a valuation higher than the valuation at which improvements conforming to Landlord's "building standard" in other space in the Building are assessed, then the Tax Expenses levied against Landlord or the property by reason of such excess assessed valuation shall be deemed to be taxes levied against personal property of Tenant and shall be governed by the provisions of Section 4.2.1, above.

4.2.3Notwithstanding any contrary provision herein, Tenant shall pay prior to delinquency any (i) rent tax or sales tax, service tax, transfer tax or value added tax, or any other applicable tax on the rent or services herein or otherwise respecting this Lease, (ii) taxes assessed upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion of the Project, including the Project parking facility; or (iii) taxes assessed upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises.

4.3Landlord's Records.  Upon Tenant's written request given not more than ninety (90) days after Tenant's receipt of a "Statement" (as that term is defined in Section 1.3.1. of Exhibit C) for a particular Expense Year, and provided that Tenant is not then in default under this Lease beyond the applicable notice and cure period provided in this Lease, specifically including, but not limited to, the timely payment of Additional Rent (whether or not the same is the subject of the audit contemplated herein), Landlord shall furnish Tenant with such reasonable supporting documentation in connection with said Direct Expenses as Tenant may reasonably request. Landlord shall provide said information to Tenant within sixty (60) days after Tenant's written request therefor. Within one hundred eighty (180) days after receipt of a Statement by Tenant (the "Audit Period"), if Tenant disputes the amount of Direct Expenses set forth in the Statement, an independent certified public accountant (which accountant (A) is a member of a nationally or regionally recognized certified public accounting firm which has previous experience in auditing financial operating records of landlords of office buildings, (B) shall not already be providing primary accounting and/or lease administration services to Tenant and shall not have provided primary accounting and/or lease administration services to Tenant in the past three (3) years, (C) is not working on a contingency fee basis [i.e., Tenant must be billed based on the actual time and materials that are incurred by the certified public accounting firm in the performance of the audit], and (D) shall not currently or in the future be providing accounting and/or lease administration services to another tenant in the Building and/or the Project in connection with a review or audit by such other tenant of Direct Expenses) designated and paid for by Tenant, may, after reasonable notice to Landlord and at reasonable times, audit Landlord's records with respect to the Statement at Landlord's corporate offices, provided that (i) Tenant is not then in default under this Lease (beyond the applicable notice and cure periods provided under this Lease), (ii) Tenant has paid all amounts required to be paid under the applicable "Estimate Statement" (as that term is defined in Section 1.3.2 of Exhibit C) and Statement, and (iii) a copy of the audit agreement between Tenant and its particular certified public accounting firm has been delivered to Landlord prior to the commencement of the audit.  In connection with such audit, Tenant and Tenant's certified public accounting firm must agree in advance to follow Landlord's reasonable rules and procedures regarding an audit of the aforementioned Landlord records, and shall execute a commercially reasonable confidentiality agreement regarding such audit. Any audit report prepared by Tenant's certified public accounting firm shall be delivered concurrently to Landlord and Tenant within the Audit Period.  Tenant's failure to dispute and/or audit the amount of Direct Expenses set forth in any Statement within the Audit Period shall be deemed to be Tenant's approval of such Statement and Tenant, thereafter, waives the right or ability to audit the amounts set forth in such Statement. If after such audit, Tenant still disputes such Direct Expenses, an audit to determine the proper amount shall be made, at Tenant's expense, by an independent certified public accountant (the "Accountant") selected by Landlord and subject to Tenant's reasonable approval; provided that if such audit by the Accountant proves that Direct Expenses set forth in the particular Statement were overstated by more than seven percent (7%), then the cost of the Accountant and the cost of such audit shall be paid for by Landlord. Tenant hereby acknowledges that Tenant's sole right to audit Landlord's records and to contest the amount of Direct Expenses payable by Tenant shall be as set forth in this Section 4.3, and Tenant hereby waives any and all other rights pursuant to applicable law to audit such records and/or to contest the amount of Direct Expenses payable by Tenant.

ARTICLE 5

USE OF PREMISES

Tenant shall use the Premises solely for the "Permitted Use," as that term is defined in Section 7 of the Summary, and Tenant shall not use or permit the Premises to be used for any other purpose or purposes whatsoever without the prior written consent of Landlord, which may be withheld in Landlord's sole and absolute discretion. Tenant shall not allow the average occupancy density of use of the total Premises which is greater than five (5) persons per thousand (5:1000) rentable square feet of space located in the Premises; provided, however, in no event shall such foregoing occupancy density restriction be deemed to grant Tenant additional parking rights or resources (i.e., above or otherwise in excess of those set forth in Section 9 of the Summary).  Tenant further covenants and agrees that it shall not use, or suffer or permit any person or persons to use, the Premises or any part thereof for any use or purpose contrary to the rules and regulations promulgated by Landlord from time to time ("Rules and Regulations"), the current set of which (as of the date of this Lease) is attached to this Lease as Exhibit D. or in violation of the laws of the United States of America, the State of California, or the ordinances, regulations or requirements of the local municipal or county governing body or other lawful authorities having jurisdiction over the Building, or in a manner otherwise inconsistent with the character of the Project as a first-class office building Project. Tenant shall faithfully observe and comply with the Rules and Regulations. Tenant shall comply with all recorded covenants, conditions, and restrictions currently affecting the Project.  Additionally, Tenant acknowledges that the Project may be subject to any future covenants, conditions and restrictions (the "CC&Rs") which Landlord, in Landlord's discretion, deems reasonably necessary or desirable, and Tenant agrees that this Lease shall be subject and subordinate to such CC&Rs and Tenant shall promptly recognize such CC&Rs by executing a commercially reasonable form of recognition.

ARTICLE 6

SERVICES AND UTILITIES

6.1Standard Tenant Services.  Landlord shall provide the following services on all days (unless otherwise stated below) during the Lease Term.

6.1.1Subject to reasonable changes implemented by Landlord and all governmental rules, regulations and guidelines applicable thereto, Landlord shall provide heating, ventilation and air conditioning ("HVAC") when necessary for normal comfort for normal office use in the Premises from 7:30 A.M. to 6:00 P.M. Monday through Friday, and from 9:00 A.M. to 12:00 P.M. on Saturday (collectively, the "Building Hours"), except for the date of observation of New Year's Day, President's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day (collectively, the "Holidays"). The daily time periods identified hereinabove are sometimes referred to as the "Business Hours."

6.1.2Subject to the other terms of this Lease, Landlord shall provide adequate electrical wiring andfacilities and power for normal general office use as determined by Landlord. Tenant will design Tenant's electrical system serving any equipment producing nonlinear electrical loads to accommodate such nonlinear electrical loads, including, but not limited to, oversizing neutral conductors, derating transformers and/or providing power-line filters.  Engineering plans shall include a calculation of Tenant's fully connected electrical design load with and without demand factors and shall indicate the number of watts of unmetered and submertered loads. Notwithstanding any provision to the contrary contained in this Lease, Tenant shall pay directly to the utility company pursuant to the utility company's separate meters (or to Landlord in the event Landlord provides submeters instead of the utility company's meters), the cost of all electricity, gas, water and sewer services provided to and/or consumed in the Premises (including normal and excess consumption and including the cost of electricity to operate the HVAC air handlers), which electricity, gas, water and sewer services shall be separately metered (as described above or otherwise equitably allocated and directly charged by Landlord to Tenant and other tenants of the Building). Tenant shall pay such cost (including the cost of such meters or submeters) within ten (10) days after demand and as Additional Rent under this Lease (and not as part of the Operating Expenses). Landlord shall designate the electricity utility provider from time to time.

6.1.3Landlord shall provide city water from the regular Building outlets for drinking, lavatory and toilet purposes

6.1.4Landlord shall provide nonexclusive, non-attended automatic passenger elevator service during the Building Hours, and shall have at least one elevator available at all other times. Landlord shall provide nonexclusive freight, elevator service subject to scheduling by Landlord.

Tenant shall cooperate fully with Landlord at all times and abide by all regulations and requirements that Landlord may reasonably prescribe for the proper functioning and protection of the HVAC, electrical, mechanical and plumbing systems.

6.2Overstandard Tenant Use, Tenant shall not, without Landlord's prior written consent, use heat-generating machines, machines other than normal fractional horsepower office machines, or equipment or lighting other than Building standard lights in the Premises, which may affect the temperature otherwise maintained by the air conditioning system or increase the water normally furnished for the Premises by Landlord pursuant to the terms of Section 6.1 of this Lease. If such consent is given, Landlord shall have the right to require installation of supplementary air conditioning units or other facilities in the Premises, including supplementary or additional metering devices, and the cost thereof; including the cost of installation, operation and maintenance, increased wear and tear on existing equipment and other similar charges, shall be paid by Tenant to Landlord upon billing by Landlord.  If Tenant uses water, electricity, heat, air conditioning or other service in excess of that supplied by Landlord pursuant to Section 6.1 of this Lease, Tenant shall pay to Landlord, upon billing, the cost of such excess consumption, the cost of the installation, operation, and maintenance of equipment which is installed in order to supply such excess consumption, and the cost of the increased wear and tear on existing equipment caused by such excess consumption; and Landlord may install devices to separately meter any increased use and in such event Tenant shall pay the increased cost directly to Landlord, including the cost of such additional metering devices. Tenant's use of electricity shall never exceed the capacity of the feeders to the Project or the risers or wiring installation, and subject to the terms of Section 29.26, below, Tenant shall not install or use or permit the installation or use of any computer or electronic data processing equipment in the Premises, without the prior written consent of Landlord.  If Tenant desires to use heat, ventilation or air conditioning during hours other than those for which Landlord is obligated to supply such utilities pursuant to the terms of Section 6.1 of this Lease, Tenant shall give Landlord such prior notice, if any, as Landlord shall from time to time establish as appropriate, of Tenant's desired use in order to supply such utilities, and Landlord shall supply such utilities to Tenant at such hourly cost to Tenant (which shall be treated as Additional Rent) as Landlord shall from time to nine establish.

6.3Tenant Maintained Janitorial Services.  Original Tenant and any Permitted Transferee shall itself (o• through a contractor retained directly by Tenant and acceptable to Landlord) provide the janitorial services to the Premises. Tenant shall be responsible for ensuring that commercially reasonable janitorial services are supplied to the Premises on a regular basis in compliance with the standards generally applicable to the Comparable Buildings.  Notwithstanding any provision to the contrary contained herein, if Tenant fails to provide such janitorial services in the Premises, Landlord may, after written notice to Tenant and Tenant's failure to provide the requisite janitorial services within five (5) days thereafter, but need not, provide the applicable janitorial services, and Tenant shall pay Landlord the cost thereof, including a percentage of the cost thereof (to be uniformly established for the Building and/or the Project) sufficient to reimburse Landlord for all overhead, general conditions, fees and other costs or expenses arising from Landlords involvement with such janitorial services forthwith upon being billed for same. Furthermore, Tenant hereby expressly agrees that it shall not use (and upon notice from Landlord shall cease using) janitors janitorial contractors, janitorial vendors and other janitorial related personnel that, in Landlord's reasonable judgment, would disturb labor harmony with the workforce or trades engaged in performing other work, labor or services in or about the Building or the Common Areas.

6.4Tenant Maintained Security. Tenant hereby acknowledges that Landlord shall have no obligation to provide guard service or other security measures for the benefit of the Premises, the Building or the Project Any such security measures for the benefit of the Premises shall be provided by Tenant at Tenant's sole cost and expense.  Tenant hereby assumes all responsibility for the protection of Tenant and its agent% employees, contractors, invitees and guests, and the property thereof, from acts of third parties, including keeping doors locked and other means of entry to the Premises closed.

6.5Interruption of Use.Tenantagrees that Landlord shall not be liable for 'damages, by abatement of Rent or otherwise, for failure to furnish or delay in furnishing any service (including telephone and telecommunication services), or for any diminution in the quality or quantity thereof, when such failure or delay or diminution is occasioned, in whole or in part, by breakage, repairs, replacements, or improvements, by any strike, lockout or other labor trouble, by inability to secure electricity, gas, water, or other fuel at the Building or Project after reasonable effort to do so, by any riot or other dangerous condition, emergency, accident or casualty whatsoever, by act or default of Tenant or other parties, or by any other, cause beyond Landlord's reasonable control; and such failures or delays or diminution shall never be deemed to constitute an eviction or disturbance of Tenant's use and possession of the Premises or relieve Tenant from paying Rent or performing any of its obligations under this Lease.  Furthermore, Landlord shall not be liable under any circumstances for a loss of, or injury to, property or for injury to, or interference with, Tenant's business, including, without limitation, loss of profits, however

KILROY REALTY

703 I 50.05/WLAKilroy University Center

888888-00775/I -8-I3//eg-5-M ioscience, Inc.)

occurring, through or in connection with or incidental to a failure to furnish any of the services or utilities as set forth in this

Article 6.

ARTICLE 7 REPAIRS

Tenant shall, at Tenant's own expense, keep the Premises, including all improvements, fixtures, equipment, interior window coverings, and furnishings therein, and the floor or floors of the Building on which the Premises is located, in good order, repair and condition at all times during the Lease Term.  In addition, Tenant shall, at Tenant's own expense, but under the supervision and subject to the prior approval of Landlord, and within any reasonable period of time specified by Landlord, promptly and adequately repair all damage to the Premises and replace or repair all damaged, broken, or worn fixtures and appurtenances, except for damage caused by ordinary wear and tear or beyond the reasonable control of Tenant; provided however, that, at Landlord's option, or if Tenant fails to make such repairs, Landlord may, after written notice to Tenant and Tenant's failure to repair within five (5) days thereafter, but need not, make such repairs and replacements, and Tenant shall pay Landlord the cost thereof, including a percentage of the cost thereof (to be uniformly established for the Building and/or the Project) sufficient to reimburse Landlord for all overhead, general conditions, fees and other costs or expenses arising from Landlord's involvement with such repairs and replacements forthwith upon being billed for same.   Notwithstanding the foregoing, Landlord shall be responsible for repairs to the exterior walls, foundation and roof of the Building, the structural portions of the floors of the Building, and the systems and equipment of the Building, except to the extent that such repairs are required due to the negligence or willful misconduct of Tenant; provided, however, that if such repairs are due to the negligence or willful misconduct of Tenant, Landlord shall nevertheless make such repairs at Tenant's expense, or, if covered by Landlord's insurance, Tenant shall only be obligated to pay any deductible in connection therewith. Landlord may, but shall not be required to, enter the Premises at all reasonable times to make such repairs, alterations, improvements or additions to the Premises or to the Project or to any equipment located in the Project as Landlord shall desire or deem necessary or as Landlord may be required to do by governmental or quasi-governmental authority or court order or decree; provided, however, except for (i) emergencies, (ii) repairs, alterations, improvements or additions required by governmental or quasi-governmental authorities or court order or decree, or (iii) repairs which are the obligation of Tenant hereunder, any such entry into the Premises by Landlord shall be performed in a manner so as not to materially interfere with Tenant's use of, or access to, the Premises; provided that, with respect to items (ii) and (iii) above, Landlord shall use commercially reasonable efforts to not materially interfere with Tenant's use of, or access to, 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 under any similar law, statute, or ordinance now or hereafter in effect.

ARTICLE 8

ADDITIONS AND ALTERATIONS

8.1Landlord's Consent to Alterations.  Tenant may not make any improvements, alterations, additions or changes to the Premises or any mechanical, plumbing or HVAC facilities or systems pertaining to the Premises (collectively, the "Alterations") without first procuring the prior written consent of Landlord to such Alterations, which consent shall be requested by Tenant not less than fifteen (15) business days prior to the commencement thereof, and which consent shall not be unreasonably withheld or delayed by Landlord, provided it shall be deemed reasonable for Landlord to withhold or delay its consent to any Alteration which adversely affects the structural portions or the systems or equipment of the Building or is visible from the exterior of the Building.  Notwithstanding the foregoing, Tenant shall be permitted to make Alterations following ten (10) business days notice to Landlord, but without Landlord's prior consent, to the extent that such Alterations do not (i) adversely affect the systems and equipment of the Building, exterior appearance of the Building, or structural aspects of the Building, (ii) adversely affect the value of the Premises or Building, (iii) require a building or construction permit, or (iv) cost more than Ten Thousand and 00/100 Dollars ($10,000.00) for a particular job of work (the "Cosmetic Alterations"). Landlord may impose, as a condition of its consent to any and all Alterations or repairs of the Premises or about the Premises, such requirements as Landlord in its reasonable discretion may deem desirable, including, but not limited to, the requirement that Tenant utilize for such purposes only contractors reasonably approved by Landlord, and any removal and/or restoration obligations required to be performed pursuant to the TCCs of Section 8.4 of this Lease. If Landlord shall give its consent, the consent shall be deemed conditioned upon Tenant acquiring a permit to do the work from appropriate governmental agencies, the furnishing of a copy of such permit to Landlord prior to the commencement of the work, and the compliance by Tenant with all conditions of said permit in a prompt and expeditious manner.  If such Alterations will involve the use of or disturb hazardous materials or substances existing in the Premises, Tenant shall comply with Landlord's rules and regulations concerning such hazardous materials or substances. Tenant shall construct such Alterations and perform such repairs in a good and workmanlike manner, in conformance with any and all applicable federal, state, county or municipal laws, rules and regulations and pursuant to a valid building permit, issued by the city in which the Building is located (or other applicable governmental authority), all in conformance with Landlord's construction rules and regulations; provided, however, that prior to commencing to construct any Alteration, Tenant shall meet with Landlord to discuss Landlord's design parameters and code compliance issues. In the event Tenant performs any Alterations in the Premises which require or give rise to governmentally required changes to the "Base Building," as that term is defined below, then Landlord shall, at Tenant's expense, make such changes to the Base Building. Since all or a portion of the Project is or may become in the future certified under the LEED (as that term is defined in Section 1.1.4 of Exhibit C) rating system (or other applicable certification standard) (all in Landlord's sole and absolute discretion), Tenant expressly acknowledges and agrees that without limitation as to other grounds for Landlord withholding or delaying its consent to any proposed Alteration, Landlord shall have the right to withhold or delay its consent to any proposed Alteration in the event that such Alteration is not compatible with such certification or recertification of the Project under such LEED rating system (or other applicable certification standard). Tenant agrees to seek and maintain a "LEED for Commercial Interiors" certification for any Alterations. The "Base Building" shall include the structural portions of the Building, and the public restrooms, elevators, exit stairwells and the systems and equipment located in the internal core of the Building on the floor or floors on which the Premises is located. In performing the work of any such Alterations, Tenant shall have the work performed in such manner so as not to obstruct access to the Project or any portion thereof, by any other tenant of the Project, and so as not to obstruct the business of Landlord or other tenants in the Project. Tenant shall retain any union trades to the extent designated by Landlord.  Further, Tenant shall not use (and upon notice from Landlord shall cease using) contractors, services, workmen, labor, materials or equipment that, in Landlord's reasonable judgment, would disturb labor harmony with the workforce or trades engaged in performing other work, labor or services in or about the Building or the Common Areas. In addition to Tenant's obligations under Article 9 of this Lease, upon completion of any Alterations, Tenant agrees to cause a Notice of Completion to be recorded in the office of the Recorder of the County of San Diego in accordance with Section 8182 of the Civil Code of the State of California or any successor statute, and as a condition precedent to the enforceability and validity of Landlord's consent, Tenant shall deliver to the management office for the Project a reproducible copy of the "as built" and CAD drawings of the Alterations, to the extent applicable, as well as all permits, approvals and other documents issued by any governmental agency in connection with the Alterations.

8.2Payment for Improvements.  If payment is made directly to contractors, Tenant shall (i) comply with Landlord's requirements for final lien releases and waivers in connection with Tenant's payment for work to contractors, and (ii) sign Landlord's standard contractor's rules and regulations. If Tenant orders any work directly from Landlord, Tenant shall pay to Landlord an amount equal to five percent (5%) of the cost of such work to compensate Landlord for all overhead, general conditions, fees and other costs "and expenses arising from Landlord's involvement with such work. If Tenant does not order any work directly from Landlord, Tenant shall reimburse Landlord for Landlord's reasonable, actual, out of-pocket costs and expenses actually incurred in connection with Landlord's review of such work,

8.3Construction Insurance. In addition to the requirements of Article 10 of this Lease, in the event that Tenant makes any Alterations, prior to the commencement of Such Alterations, Tenant shall provide Landlord with evidence that Tenant carries "Builder's All Risk" insurance in an amount reasonably approved by Landlord covering the construction of such Alterations, and such other insurance as Landlord may reasonably require, it being understood and agreed that all of such Alterations shall be insured by Tenant pursuant to Article 10 of this Lease immediately upon completion thereof. In addition, Landlord may, in its reasonable discretion, require Tenant to obtain a lien and completion bond or some alternate form of security satisfactory to Landlord in an amount sufficient to ensure the lien-free completion of such Alterations and naming Landlord as a co-obligee.

8.4Landlord's Property.Landlord and Tenant hereby acknowledge and agree that all Alterations, improvements, fixtures, equipment and/or appurtenances which may be installed or placed in or about the Premises (excluding Tenant's removable trade fixtures, furniture or non-affixed office equipment), from time to time shall be at the sole cost of Tenant and shall be and become part of the Premises and the property of Landlord, . Furthermore, Landlord may, at the time Landlord consents to the installation/performance of any Alterations or improvements, require Tenant, at Tenant's expense, to remove any such timely identified Alterations or improvements upon the expiration or earlier termination of this Lease, and to repair any damage to the Premises and Building caused by such removal and return the affected portion of the Premises to a building standard improved condition as determined by Landlord; provided, however, if, in connection with its notice to Landlord with respect to any Cosmetic Alterations, (x) Tenant requests Landlord's decision with regard to the removal of such Cosmetic Alterations, and (y) Landlord thereafter agrees in writing to waive the removal requirement with regard to such Cosmetic Alterations, then Tenant shall not be required to so remove such Cosmetic Alterations; provided further, however, that if Tenant requests such a determination from Landlord and Landlord, within ten (10) business days following Landlord's receipt of such request from Tenant with respect to Cosmetic Alterations, fails to address the removal requirement with regard to such Alterations or Cosmetic Alterations, Landlord shall be deemed to have agreed to waive the removal requirement with regard to such Cosmetic Alterations; provided further, however, if neither of the foregoing apply with respect to Cosmetic Alterations, Landlord may, upon the expiration or earlier termination of this Lease, require the Tenant to promptly remove "such Cosmetic Alterations and return the affected portion of the Premises to a building Standard improved condition as determined by Landlord. If Tenant fails to complete such removal and/or to repair any damage caused by the removal of any Alterations or improvements in the Premises, and/or to return the affected portion of the Premises to a building standard improved condition as determined by Landlord, then at Landlord's option, either (A) Tenant shall be deemed to be holding over in the Premises and Rent shall continue to accrue in accordance with the terms of Article 16, below, until such work shall be completed, and/or (B) Landlord may do so and may charge the cost thereof to Tenant.  Tenant hereby protects, defends, indemnifies and holds Landlord harmless from any liability, cost, obligation, expense or claim of lien in any manner relating to the installation, placement, removal or financing of any such Alterations, improvements, fixtures and/or equipment in, on or about the Premises, which obligations of Tenant shall survive the expiration or earlier termination of this Lease.

ARTICLE 9

COVENANT AGAINST LIENS

Tenant shall keep the Project and Premises free, from  any lien§ or encumbrances arising out of the work perforated, materials furnished or obligations incurred by or on behalf of Tenant, and shall "protect, defend; indemnify and hold Landlord harmless from and against any claims, liabilities, judgments or costs (including, without limitation, reasonable attorneys' fees and costs) arising out of same or in Connection therewith,. Tenant shall give Landlord notice at least twenty (20) days prior to the commencement of any such work on the Premises (or such additional time as may be necessary under applicable laws) to afford Landlord the opportunity of posting. and recording appropriate  notices of non-responsibility. Tenant shall remove any such lien Or encumbrance: by bond or otherwise within five (5) days after notice by Landlord, and if Tenant shall fail to do so, Landlord may pay the amount necessary to remove such lien or encumbrance, without being responsible for investigating the validity thereof.  The amount so pant shall be deemed Additional Rent under, this Lease payable upon demand, without limitation as to other remedies available to Landlord under this Lease. Nothing contained in this .Lease shall authorize Tenant to do any act which shall subject Landlord's title to the Building or Premises to any liens or encumbrances whether claimed by operation of law or express or implied contract. Any claim to a lien or encumbrance upon the Building or Premises arising in connection with any such work or respecting the Premises not performed by or at the request of Landlord shall be null and void, or at Landlord's option shall attach only against Tenant's interest in the Premises and shall in all respects be subordinate to Landlord's title to the Project, Building and Premises.

ARTICLE 10

INDEMNIFICATION AND INSURANCE

10.1Indemnification and Waiver.Tenant hereby assumes all risk of damage to property or injury to persons in, upon or about the Premises from any cause whatsoever and agrees that Landlord, its partners, subpartners and their respective officers, agents, servants, employees, and independent contractors (collectively, "Landlord Parties") shall not be liable for, and are hereby released from any responsibility for, any damage either to person or property or resulting from the loss of use thereof, which damage is sustained by Tenant or by other persons claiming through Tenant. Tenant shall indemnify, defend, protect, and hold harmless the Landlord Parties from and against any and all loss, cost, damage, expense and liability (including without limitation court costs and reasonable attorneys' fees) incurred in connection with or arising from: (a) any causes in, on or about the Premises; (b) the use or occupancy of the Premises by Tenant or any person claiming under Tenant; (c) any activity, work, or thing done, or permitted or suffered by Tenant in or about the Premises; (d) any acts, omission, or negligence of Tenant or any person claiming under Tenant, or the contractors, agents, employees, invitees, or visitors of Tenant or any such person, in, on or about the Project (collectively, "Tenant Parties"); (e) any breach, violation, or non-performance by Tenant or any person claiming under Tenant or the employees, agents, contractors, invitees, or visitors of Tenant or any such person of any term, covenant, or provision of this Lease or any law, ordinance, or governmental requirement of any kind; (1) any injury or damage to the person, property, or business of Tenant, its employees, agents, contractors, invitees, visitors, or any other person entering upon the Premises under the express or implied invitation of Tenant; or (g) the placement of any personal property or other items within the Premises.  Should Landlord be named as a defendant in any suit brought against Tenant in connection with or arising out of Tenant's occupancy of the Premises, Tenant shall pay to Landlord its costs and expenses incurred in such suit, including without limitation, its actual professional fees such as appraisers', accountants' and attorneys' fees. Further, Tenant's agreement to indemnify Landlord pursuant to this Section 10.1 is not intended and shall not relieve any insurance carrier of its obligations under policies required to be carried by Tenant pursuant to the provisions of this Lease, to the extent such policies cover the matters subject to Tenant's indemnification obligations; nor shall they supersede any inconsistent agreement of the parties set forth in any other provision of this Lease. The provisions of this Section 10.1 shall survive the expiration or sooner termination of this Lease with respect to any claims or liability arising in connection with any event occurring prior to such expiration or termination.

10.2Tenant's Compliance With Landlord's Fire and Casualty Insurance.Tenant shall, at Tenant's expense, comply with Landlord's insurance company requirements pertaining to the use of the Premises. If Tenant's conduct or use of the Premises causes any increase in the premium for such insurance policies then Tenant shall reimburse Landlord for any such increase.  Tenant, at Tenant's expense, shall comply with all rules, orders, regulations or requirements of the American Insurance Association (formerly the National Board of Fire Underwriters) and with any similar body.

10.3Tenant's Insurance. Throughout the Lease Term, Tenant shall maintain the following coverages in the following amounts.  The required evidence of coverage must be delivered to Landlord on or before the date required under Section 10.4(1) sub-sections (x) and (y), or Section 10.4(11) below (as applicable). Such policies shall be for a term of at least one (1) year, or the length of the remaining term of this Lease, whichever is less.

10.3.1Commercial General Liability Insurance, including Broad Form contractual liability covering the insured against claims of bodily injury, personal injury and property damage (including loss of use thereof) based upon or arising out of Tenant's operations, occupancy or maintenance of the Project and all areas appurtenant thereto. Such insurance shall be written on an "occurrence" basis. Landlord and any other party the Landlord so specifies that has a material financial interest in the Project, including Landlord's managing agent, ground lessor and/or lender, if any, shall be named as additional insureds as their interests may appear using Insurance Service Organization's form CG2011 or a comparable form approved by Landlord. Tenant shall provide an endorsement or policy excerpt showing that Tenant's coverage is primary and any insurance carried by Landlord shall be excess and non-contributing. The coverage shall also be extended to include damage caused by heat, smoke or fumes from a hostile fire. The policy shall not contain any intra-insured exclusions as between insured persons or organizations. This policy shall include coverage for all liabilities assumed under this Lease as an insured contract for the performance of all of Tenant's indemnity obligations under this Lease. The limits of said insurance shall not, however, limit the liability of Tenant nor relieve Tenant of any obligation hereunder. Limits of liability insurance shall not be less than the following; provided, however, such limits may be achieved through the use of an Umbrella/Excess Policy:

Bodily Injury and$5,000,000 each occurrence

Property Damage Liability

Personal Injury and Advertising Liability$5,000,000 each occurrence

Tenant Legal Liability/Damage to Rented$1,000,000.00

Premises Liability

10.3.2Property Insurance covering (i) all office furniture, personal property, business and trade fixtures, office equipment, free-standing cabinet work, movable partitions, merchandise and all other items of Tenant's business personal property on the Premises installed by, for, or at the expense of Tenant, (ii) any other improvements which exist in the Premises as of the Lease Commencement Date (excluding the Base Building) (the "Original Improvements"), and (iii) all Alterations performed in the Premises. Such insurance shall be written on a Special Form basis, for the full replacement cost value (subject to reasonable deductible amounts), without deduction for depreciation of the covered items and in amounts that meet any co-insurance clauses of the policies of insurance and shall include coverage for (a) all perils included in the CP 10 30 04 02 Coverage Special Form, and (b) water damage from any cause whatsoever, including, but not limited to, sprinkler leakage, bursting, leaking or stoppage of any pipes, explosion, and backup or overflow from sewers or drains.

10.3.2.1Increase in Project's Property Insurance.Tenant shall pay for any increase in the premiums for the property insurance of the Project if said increase is caused by Tenant's acts, omissions, use or occupancy of the Premises.

10.3.2.2Property Damage.  Tenant shall use the proceeds from any such insurance for the

replacement of personal property, trade fixtures, Original Improvements and Alterations.

10.3.2.3No Representation of Adequate Coverage.  Landlord makes no representation that

the limits or forms of coverage of insurance specified herein are adequate to cover Tenant's property, business operations or obligations under this Lease.

10.3.2.4 Property Insurance Subrogation.   Landlord and Tenant intend that their respective

property loss risks shall be borne by insurance carriers to the extent above provided (and, in the case of Tenant, by an insurance carrier satisfying the requirements of Section 10.4(i) below), and Landlord and Tenant hereby agree to look solely to, and seek recovery only from, their respective insurance carriers in the event of a property loss to the extent that such coverage is agreed to be provided hereunder. The parties each hereby waive all rights and claims against each other for such losses, and waive all rights of subrogation of their respective insurers. Landlord and Tenant hereby represent and warrant that their respective "all risk" property insurance policies include a waiver of (i) subrogation by the insurers, and (ii) all rights based upon an assignment from its insured, against Landlord and/or any of the Landlord Parties or Tenant and/or any of the Tenant Parties (as the case may be) in connection with any property loss risk thereby insured against  Tenant will cause all subtenants and licensees of the Premises claiming by under, or through Tenant to execute and deliver to Landlord a waiver of claims similar to the waiver in this Section 10.3.2A and to obtain such waiver of subrogation rights endorsements. If either party hereto fails to maintain the waivers set forth in items (i) and (ii) above, the party not maintaining the requisite waivers shall indemnify, defend, protect, and hold harmless the other party for, from and against any and all claims, losses, costs, damages, expenses and liabilities (including, without limitation, court costs and reasonable attorneys' fees) arising out of resulting from, or relating to such failure.

10.3.3Business Income Interruption for one year (1) plus Extra Expense insurance in such amounts as will reimburse Tenant for actual direct or indirect loss of earnings attributable to the risks outlined in Section 10.3.2 above.

10.3.4Worker's Compensation or other similar insurance pursuant to all applicable state and local statutes and regulations, and Employer's Liability with minimum limits of not less than $1,000,000 each accident/employee/disease.

10.3.5Commercial Automobile Liability Insurance covering all Owned (if any), Hired, or Non-owned vehicles with limits not less than $1,000,000 combined single limit for bodily injury and property damage.

10.4Form of Policies. The minimum limits of policies of insurance required of Tenant under this Lease shall in no event limit the liability of Tenant under this Lease. Such insurance shall (i) be issued by an insurance company having an AM Best rating of not less than A-X (or to the extent AM Best ratings are no longer available, then a similar rating from another comparable rating agency), or which is otherwise acceptable to Landlord and licensed to do business in the State of California, (ii) be in form and content reasonably acceptable to Landlord and complying with the requirements of Section 10.3 (including, Sections 10.3.1 through 10.3.5), (iii) Tenant shall not do or permit to be done anything which invalidates the required insurance policies, and (iv) provide that said insurance shall not be canceled or coverage changed unless thirty (30) days' prior written notice shall have been given to Landlord and any mortgagee of Landlord, the identity of whom has been provided to Tenant in writing. Tenant shall deliver said certificates thereof and applicable endorsements which meet the requirements of this Article 10 to Landlord on or before (I) the earlier to occur of: (x) the Lease Commencement Date, and (y) the date Tenant and/or its employees, contractors and/or agents first enter the Premises for occupancy, construction of improvements, alterations, or any other move-in activities, and (II) five (5) business days after the renewal of such policies. In the event Tenant shall fail to procure such insurance, or to deliver such policies or certificates and applicable endorsements, Landlord may, at its option, after written notice to Tenant and Tenant's failure to obtain such insurance within five (5) days thereafter, procure such policies for the account of Tenant and the sole benefit of Landlord, and the cost thereof shall be paid to Landlord after delivery to Tenant of bills therefor.

10.5Additional Insurance Obligations.  Tenant shall cagy and maintain during the entire Lease Term, at Tenant's sole cost and expense, increased amounts of the insurance required to be carried by Tenant pursuant to this Article 10 and such other reasonable types of insurance coverage and in such reasonable amounts covering the Premises and Tenant's operations therein, as may be reasonably requested by Landlord.

10.6Third-Party Contractors. Tenant shall obtain and deliver to Landlord, Third Party Contractor's certificates of insurance and applicable endorsements at least seven (7) business days prior to the commencement of work in or about the Premises by any vendor or any other third-party contractor (collectively, a "Third Party Contractor"). All such insurance shall (a) name Landlord as an additional insured under such party's liability policies as required by Section 10.3.1 above and this Section 10.6, (b) provide a waiver of subrogation in favor of Landlord under such Third Party Contractor's commercial general liability insurance, (c) be primary and any insurance carried by Landlord shall be excess and non-contributing, and (d) comply with Landlord's minimum insurance requirements.

ARTICLE 11

DAMAGE AND DESTRUCTION

11.1Repair of Damage to Premises by Landlord.  If the Base Building or any Common Areas serving or providing access to the Premises shall be damaged by a fire or any other casualty (collectively, a "Casualty"), Landlord shall promptly and diligently, subject to reasonable delays for insurance adjustment or other matters beyond Landlord's reasonable control, and subject to all other terms of this Article 11, restore the Base Building and such Common Areas. Such restoration shall be to substantially the same condition of the Base Building and the Common Areas prior to the Casualty, except for modifications required by zoning and building codes and other laws or by the holder of a mortgage on the Building or Project or any other modifications to the Common Areas deemed desirable by Landlord, provided access to the Premises and any common restrooms serving the Premises shall not be materially impaired.  Tenant shall promptly notify Landlord upon the occurrence of any damage to the Premises resulting from a Casualty, and Tenant shall promptly inform its insurance carrier of any such damage. Upon notice (the "Landlord Repair Notice") to Tenant from Landlord, Tenant shall assign to Landlord (or to any party designated by Landlord) all insurance proceeds payable to Tenant under Tenant's insurance required to be carried under Section 10.3 of this Lease, and Landlord shall repair any injury or damage to the Original Improvements installed in the Premises and shall return such Original Improvements to their original condition; provided that if the cost of such repair by Landlord exceeds the amount of insurance proceeds received by Landlord from Tenant's insurance carrier, as assigned by Tenant, the cost of such repairs shall be paid by Tenant to Landlord prior to Landlord's repair of the damage. In the event that Landlord does not deliver the Landlord Repair Notice within sixty (60) days following the date the Casualty becomes known to Landlord, Tenant shall, at its sole cost and expense, repair any injury or damage to the Original Improvements installed in the Premises and shall return such Original Improvements to their original condition. Whether or not Landlord delivers a Landlord Repair Notice, Tenant shall, prior to the commencement of construction, submit to Landlord, for Landlord's review and approval, all plans, specifications and working drawings relating thereto, and Landlord shall select the contractors to perform such improvement work. Landlord shall not be liable for any inconvenience or annoyance to Tenant or its visitors, or injury to Tenant's business resulting in any way from such damage or the repair thereof; provided however, that if such Casualty shall have damaged the Premises or Common Areas necessary to Tenant's occupancy, and if such damage is not the result of the willful misconduct of Tenant or Tenant's employees, contractors, licensees, or invitees, Landlord shall allow Tenant a proportionate abatement of Rent, during the time and to the extent the Premises are unfit for occupancy for the purposes permitted under this Lease, and not occupied by Tenant as a result thereof.  In the event that Landlord shall not deliver the Landlord Repair Notice, Tenant's right to rent abatement pursuant to the preceding sentence shall terminate as of the date which is reasonably determined by Landlord to be the date Tenant should have completed repairs to the Premises assuming Tenant used reasonable due diligence in connection therewith.

11.2Landlord's Option to Repair. Notwithstanding the terms of Section 11.1 of this Lease, Landlord may elect not to rebuild and/or restore the Premises, Building and/or Project, and instead terminate this Lease by notifying Tenant in writing of such termination within sixty (60) days after the date of discovery of the damage, such notice to include a termination date giving Tenant sixty (60) days to vacate the Premises, but Landlord may so elect only if the Building or Project shall be damaged by Casualty, whether or not the Premises is affected, and one or more of the following conditions is present: (i) in Landlord's reasonable judgment, repairs cannot reasonably be completed within one hundred eighty (180) days after the date of discovery of the damage (when such repairs are made without the payment of overtime or other premiums); (ii) the holder of any mortgage on the Building or Project or ground lessor with respect to the Building or Project shall require that the insurance proceeds or any portion thereof be used to retire the mortgage debt, or shall terminate the ground lease, as the case may be; (iii) the damage is not fully covered by Landlord's insurance policies; (iv) Landlord decides to rebuild the Building or Common Areas so that they will be substantially different structurally or architecturally; (v) the damage occurs during the last twelve (12) months of the Lease Term; or (vi) any owner of any other portion of the Project, other than Landlord, does not intend to repair the damage to such portion of the Project.  Upon any such termination of this Lease pursuant to this Section 11.2, Tenant shall pay the Base Rent and Additional Rent, properly apportioned up to such date of termination, and both parties hereto shall thereafter be freed and discharged of all further obligations hereunder, except as provided for in provisions of this Lease which by their terms survive the expiration or earlier termination of the Lease Term.

11.3Waiver of Statutory Provisions.  The provisions of this Lease, including this Article 11, constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Premises, the Building or the Project, and any statute or regulation of the state in which the Building is located, including, without limitation, Sections 1932 (2) and 1933(4) of the California Civil Code, with respect to any rights or obligations concerning damage or destruction in the absence of an express agreement between the parties, and any other statute or regulation, now or hereafter in effect, shall have no application to this Lease or any damage or destruction to all or any part of the Premises, the Building or the Project.

ARTICLE 12

NON WAIVER

No waiver of any provision of this Lease shall be implied by any failure of Landlord to enforce any remedy on account of the violation of such provision, even if such violation shall continue or be repeated subsequently, any waiver by Landlord of any provision of this Lease may only be in writing, and no express waiver shall affect any provision other than the one specified in such waiver and that one only for the time and in the manner specifically stated.  No receipt of monies by Landlord from Tenant after the termination of this Lease shall in any way alter the length of the Lease Term or of Tenant's right of possession hereunder or after the giving of any notice shall reinstate, continue or extend the Lease Term or affect any notice given Tenant prior to the receipt of such monies, it being agreed that after the service of notice or the commencement of a suit or after final judgment for possession of the Premises, Landlord may receive and collect any Rent due, and the payment of said Rent shall not waive or affect said notice, suit or judgment.

ARTICLE 13

CONDEMNATION

If the whole or any material part of the Premises, Building or Project shall be taken by power of eminent domain or condemned by any competent authority for any public or quasi-public use or purpose, or if any adjacent property or street shall be so taken or condemned, or reconfigured or vacated by such authority in such manner as to require the use, reconstruction or remodeling of any part of the Premises, Building or Project, or if Landlord shall grant a deed or other instrument in lieu of such taking by eminent domain or condemnation, Landlord shall have the option to terminate this Lease effective as of the date possession is required to be surrendered to the applicable authority. Tenant shall not because of such taking assert any claim against Landlord or the authority for any compensation because of such taking and Landlord shall be entitled to the entire award or payment in connection therewith, except that Tenant shall have the right to file any separate claim available to Tenant for any taking of Tenant's personal property and fixtures belonging to Tenant and removable by Tenant upon expiration of the Lease Term pursuant to the terms of this Lease, and for moving expenses, so long as such claims do not diminish the award available to Landlord, its ground lessor with respect to the Building or Project or its mortgagee, and such claim is payable separately to Tenant. All Rent shall be apportioned as of the date of such termination. Tenant hereby waives any and all rights it might otherwise have pursuant to Section 1265.130 of The California Code of Civil Procedure.

ARTICLE 14

ASSIGNMENT AND SUBLETTING

14.1Transfers.  Tenant shall not, without the prior written consent of Landlord, assign, mortgage, pledge, hypothecate, encumber, or permit any lien to attach to, or otherwise transfer, this Lease or any interest hereunder, permit any assignment, or other transfer of this Lease or any interest hereunder by operation of law, sublet the Premises or any part thereof, or enter into any license or concession agreements or otherwise permit the occupancy or use of the Premises or any part thereof by any persons other than Tenant and its employees and contractors (all of the foregoing are hereinafter sometimes referred to collectively as "Transfers" and any person or entity to whom any Transfer is made or sought to be made is hereinafter sometimes referred to as a "Transferee"). In connection with any such Transfer contemplated by Tenant, Tenant shall submit a written request for consent notice to Landlord, together with any information reasonably required by Landlord which will enable Landlord to determine (i) the financial responsibility, character, and reputation of the proposed Transferee, (ii) the nature of such Transferee's business, (iii) the proposed use of the applicable portion of the Premises (which applicable portion of the Premises to which the proposed Transfer relates shall be known as the "Subject Space"), and (iv) any other reasonable consent parameters.  Any Transfer made without Landlord's prior written consent shall, at Landlord's option, be null, void and of no effect, and shall, at Landlord's option, constitute a default by Tenant under this Lease.  Whether or not Landlord consents to any proposed Transfer, Tenant shall pay Landlord's review and processing fees, as well as any reasonable professional fees (including, without limitation, attorneys', accountants', architects', engineers' and consultants' fees) incurred by Landlord, within thirty (30) days after written request by Landlord, in an amount not to exceed Two Thousand Five Hundred and No/100 Dollars ($2,500.00) in the aggregate, but such limitation of fees shall only apply to the extent such Transfer is in the ordinary course of business.  Landlord and Tenant hereby agree that a proposed Transfer shall not be considered "in the ordinary course of business" if such Transfer involves the review of documentation by Landlord on more than two (2) occasions.

14.2Landlord's Consent.   Landlord shall not unreasonably withhold or delay its consent to any proposed Transfer of the Subject Space to the Transferee on the terms specified in Tenant's notice pertaining to the particular Transfer. Without limitation as to other reasonable grounds for withholding or delaying consent, the parties hereby agree that it shall be reasonable under this Lease and under any applicable law for Landlord to withhold or delay consent to any proposed Transfer where one or more of the following apply: (i) Transferee is of a character or reputation or engaged in a business which is not consistent with the quality of the Building or the Project; (ii) Transferee is not a party of reasonable financial worth and/or financial stability in light of the responsibilities to be undertaken in connection with the Transfer on the date consent is requested; (iii) Transferee intends to use the Subject Space for purposes which are not permitted under this Lease; (iv) Transferee is either a governmental agency or instrumentality thereof; or (v) the proposed Transfer would cause a violation of another lease for space in the Project, or would give an occupant of the Project a right to cancel its lease. Notwithstanding anything to the contrary in this Lease, if Tenant or any proposed Transferee claims that Landlord has unreasonably withheld or delayed its consent under this Section 14.2 or otherwise has breached or acted unreasonably under this Article 14, their sole remedies shall be a declaratory judgment and an injunction for the relief sought without any monetary damages, and Tenant hereby waives the provisions of Section 1995.310 of the California Civil Code, or any successor statute, and all other remedies, including, without limitation, any right at law or equity to terminate this Lease, on its own behalf and, to the extent permitted under all applicable laws, on behalf of the proposed Transferee. Tenant shall indemnify, defend and hold harmless Landlord from any and all liability, losses, claims, damages, costs, expenses, causes of action and proceedings involving any third party or parties (including without limitation Tenant's proposed subtenant or assignee) who claim they were damaged by Landlord's wrongful withholding, delaying or conditioning of Landlord's consent.

14.3Transfer Premium.  If Landlord consents to a Transfer, as a condition thereto which the parties hereby agree is reasonable, Tenant shall pay to Landlord fifty percent (50%) of any "Transfer Premium," as that term is defined in this Section 14.3, received by Tenant from such Transferee.  "Transfer Premium" shall mean all rent, additional rent or other consideration payable by such Transferee in connection with the Transfer in excess of the Rent and Additional Rent payable by Tenant under this Lease during the term of the Transfer (on a per rentable square foot basis if less than all of the Premises is transferred) after deducting the reasonable expenses incurred by Tenant for (i) any changes, alterations and improvements to the Premises in connection with the Transfer, (ii) any free base rent or other economic concessions reasonably provided to the Transferee, (iii) any brokerage commissions in connection with the Transfer, (iv) any attorneys' fees incurred by Tenant in connection with the Transfer, and (v) any review and processing fees paid to Landlord in connection with such Transfer. The "Transfer Premium" shall ' also include, but not be limited to key money, bonus money or other cash consideration paid by Transferee to Tenant in connection with such Transfer, and any payment in excess of fair market value for services rendered by Tenant to Transferee or for assets, fixtures, inventory, equipment, or furniture transferred by Tenant to Transferee in connection with such Transfer.

14.4Landlord's Option as to Subject Space.   Notwithstanding anything to the contrary contained in this Article 14, Landlord shall have the option, by giving written notice to Tenant within thirty (30) days after receipt of Tenant's written request for consent to such Transfer, to recapture the Subject Space. Such =attire notice' shall cancel and terminate this Lease with respect to the Subject Space as of the effective date of the promised transfer. In the event of a recapture by Landlord, if this Lease shall be canceled with respect to less than the entire Premises; the rent reserved herein shall be prorated on the basis of the number of rentable square feet retained by Tenant in proportion to the number of rentable square feet contained in the Subject Space, and this Lease as so amended shall continue thereafter in full force and effect, and upon request of either party, the parties shall execute written confirmation of the same.  If Landlord declines, or fails to elect in a timely manner to recapture the Subject Space under this Section 14.4, then, provided Landlord has consented to the proposed Transfer, Tenant shall be entitled to proceed to Transfer the Subject Space to the proposed Transferee, subject to provisions of this Article 14.

14.5Effect of Transfer. If Landlord consents to a Transfer, (i) the TCCs of this Lease shall in no way be deemed to have been waived or modified, (ii) such consent shall not be deemed consent to any further Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver to Landlord, promptly after execution, an original executed copy of all documentation pertaining to the Transfer in form reasonably acceptable to Landlord, (iv) Tenant shall furnish upon Landlord's request a complete statement, certified by an independent certified public accountant, or Tenant's chief financial officer, setting forth in detail the computation of any Transfer Premium Tenant has derived and shall derive from such Transfer, and (v) no Transfer relating to this Lease or agreement entered into with respect thereto, whether with or without Landlord's consent, shall relieve Tenant or any guarantor of the Lease from any liability under this Lease, including, without limitation, in connection with the Subject Space. Landlord or its authorized representatives shall have the right at all reasonable times to audit the books, records and papers of Tenant relating to any Transfer, and shall have the right to make copies thereof.  If the Transfer Premium respecting any Transfer shall be found understated, Tenant shall, within thirty (30) days after demand, pay the deficiency, and if understated by more than two percent (2%), Tenant shall pay Landlord's costs of such audit.

14.6Additional Transfers. For purposes of this Lease, the term "Transfer" shall also include (i) if Tenant is a partnership, the withdrawal or change, voluntary, involuntary or by operation of law, of more than fifty percent (50%) or more of the partners, or transfer of more than fifty percent (50%) or more of partnership interests, within a twelve (12)-month period, or the dissolution of the partnership without immediate reconstitution thereof, and (ii) if Tenant is a closely held corporation (i.e., whose stock is not publicly held and not traded through an exchange or over the counter), (A) the dissolution, merger, consolidation or other reorganization of Tenant or (B) the sale or other transfer of an aggregate of more than fifty percent (50%) or more of the voting shares of Tenant (other than to immediate family members by reason of gift or death), within a twelve (12)-month period, or (C) the sale, mortgage, hypothecation or pledge of an aggregate of more than fifty percent (50%) or more of the value of the unencumbered assets of Tenant within a twelve (12)-month period.

14.7Occurrence of Default.  Any Transfer hereunder shall be subordinate and subject to the provisions of this Lease, and if this Lease shall be terminated during the term of any Transfer, Landlord shall have the right to: (i) treat such Transfer as cancelled and repossess the Subject Space by any lawful means, or (ii) require that such Transferee attorn to and recognize Landlord as its landlord under any such Transfer. If Tenant shall be in default under this Lease, Landlord is hereby irrevocably authorized, as Tenant's agent and attorney-in-fact, to direct any Transferee to make all payments under or in connection with the Transfer directly to Landlord (which Landlord shall apply towards Tenant's obligations under this Lease) until such default is cured.  Such Transferee shall rely on any representation by Landlord that Tenant is in default hereunder, without any need for confirmation thereof by Tenant.  Upon any assignment, the assignee shall assume in writing all obligations and covenants of Tenant thereafter to be performed or observed under this Lease. No collection or acceptance of rent by Landlord from any Transferee shall be deemed a waiver of any provision of this Article 14 or the approval of any Transferee or a release of Tenant from any obligation under this Lease, whether theretofore or thereafter accruing. In no event shall Landlord's enforcement of any provision of this Lease against any Transferee be deemed a waiver of Landlord's right to enforce any term of this Lease against Tenant or any other person.  If Tenant's obligations hereunder have been guaranteed, Landlord's consent to any Transfer shall not be effective unless the guarantor also consents to such Transfer.

14.8Deemed Consent Transfers.  Notwithstanding anything to the contrary contained in this Lease, (A) an assignment or subletting of all or a portion of the Premises to an affiliate of Tenant (an entity which is controlled by, controls, or is under common control with, Tenant as of the date of this Lease), (B) a sale of corporate shares of capital stock in Tenant in connection with an initial public offering of Tenant's stock on a nationally-recognized stock exchange, (C) an assignment of the Lease to an entity which acquires all or substantially all of the stock or assets of Tenant, or (D) an assignment of the Lease to an entity which is the resulting entity of a merger or consolidation of Tenant during the Lease Term, shall not be deemed a Transfer requiring Landlord's consent under this Article 14 (any such assignee or sublessee described in items (A) through (D) of this Section 14.8 is hereinafter referred to as a "Permitted Transferee"), provided that (i) Tenant notifies Landlord at least thirty (30) days prior to the effective date of any such assignment or sublease and promptly supplies Landlord with any documents or information reasonably requested by Landlord regarding such Transfer or Permitted Transferee as set forth above, (ii) Tenant is not in default, beyond the applicable notice and cure period, and such assignment or sublease is not a subterfuge by Tenant to avoid its obligations under this Lease, (iii) such Permitted Transferee shall be of a character and reputation consistent with the quality of the Building, (iv) such Permitted Transferee shall have a tangible net worth (not including goodwill as an asset) computed in accordance with generally accepted accounting principles ("Net Worth") at least equal to the greater of (I) the Net Worth of Original Tenant on the date of this Lease, and (2) the Net Worth of Tenant on the day immediately preceding the effective date of such assignment or sublease, (v) no assignment or sublease relating to this Lease, whether with or without Landlord's consent, shall relieve Tenant from any liability under this Lease, and (vi) the liability of such Permitted Transferee under either an assignment or sublease shall be joint and several with Tenant.  An assignee of Tenant's entire interest in this Lease who qualifies as a Permitted Transferee may also be referred to herein as a "Permitted Transferee Assignee." "Control," as used in this Section 14.8, shall mean the ownership, directly or indirectly, of more than fifty percent (50%) of the voting securities of, or possession of the right to vote, in the ordinary direction of its affairs, of more than fifty percent (50%) of the voting interest in, any person or entity.

ARTICLE 15

SURRENDER OF PREMISES; OWNERSHIP AND REMOVAL OF TRADE FIXTURES

15.1Surrender of Premises. No act or thing done by Landlord or any agent or employee of Landlord during the Lease Term shall be deemed to constitute an acceptance by Landlord of a surrender of the Premises unless such intent is specifically acknowledged in writing by Landlord. The delivery of keys to the Premises to Landlord or any agent or employee of Landlord shall not constitute a surrender of the Premises or effect a termination of this Lease, whether or not the keys are thereafter retained by Landlord, and notwithstanding such delivery Tenant shall be entitled to the return of such keys at any reasonable time upon request until this Lease shall have been properly terminated.  The voluntary or other surrender of this Lease by Tenant, whether accepted by Landlord or not, or a mutual termination hereof, shall not work a merger, and at the option of Landlord shall operate as an assignment to Landlord of all subleases or subtenancies affecting the Premises or terminate any or all such sublessees or subtenancies.

15.2Removal of Tenant Property by Tenant.  Upon the expiration of the Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject to the provisions of this Article 15, quit and surrender possession of the Premises to Landlord in as good order and condition as when Tenant took possession and as thereafter improved by Landlord and/or Tenant, reasonable wear and tear and repairs which are specifically made the responsibility of Landlord hereunder excepted.  Upon such expiration or termination, in addition to Tenant's obligations under Section 29.26, below, Tenant shall, without expense to Landlord, remove or cause to be removed from the Premises all debris and rubbish, and such items of furniture, equipment, business and trade fixtures, free-standing cabinet work, server and telephone equipment, movable partitions and other articles of personal property owned by Tenant or installed or placed by Tenant at its expense in the Premises, and such similar articles of any other persons claiming under Tenant, as Landlord may, in its sole discretion, require to be removed, and Tenant shall repair at its own expense all damage to the Premises and Building resulting from such removal.

ARTICLE 16

HOLDING OVER

If Tenant holds over after the expiration of the Lease Term or earlier termination thereof, with or without the express or implied consent of Landlord, such tenancy shall be from month-to-month only, and shall not constitute a renewal hereof or an extension for any further term, and in such case Rent shall be payable at a monthly rate equal to the product of (A) the greater of (i) the Rent applicable during the last rental period of the Lease Term under this Lease, and (ii) the then fair market value applicable to the Premises as reasonably determined by Landlord, and (B) 'a percentage equal to (i) one hundred fifty percent (150%) during the first two (2) months immediately following the expiration or earlier termination of the Lease Term, and (ft) two hundred percent (200%) thereafter. Such month-to-month tenancy shall be subject to every other applicable term, covenant and agreement contained herein, Nothing contained in this Article 16 shall be construed as consent by Landlord to any holding over by Tenant, and Landlord expressly reserves the right to require Tenant to surrender possession of the Premises to Landlord as provided in this Lease upon the expiration or other termination of this Lease. The provisions of this Article 16 shall not be deemed to limit or constitute a waiver of any other rights or remedies of Landlord provided herein or at law. If Tenant fails to surrender the Premises upon the termination or expiration of this Lease, in addition to any other liabilities to Landlord accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord harmless from all loss, costs (including reasonable attorneys' fees) and liability resulting from such failure, including, without limiting the generality of the foregoing, any claims made by any succeeding tenant founded upon such failure to surrender and any lost profits to Landlord resulting therefrom.

ARTICLE 17

ESTOPPEL CERTIFICATES

Within ten (10) days following a request in writing by Landlord, Tenant shall execute, acknowledge and deliver to Landlord an estoppel certificate, which, as submitted by Landlord, shall be substantially in the form of Exhibit E, attached hereto (or such other form as may be required by any prospective mortgagee or purchaser of the Project, or any portion thereof), indicating therein any exceptions thereto that may exist at that time, and shall also contain any other information reasonably requested by Landlord or Landlord's mortgagee or prospective mortgagee. Any such certificate may be relied upon by any prospective mortgagee or purchaser of all or any portion of the Project. Tenant shall execute and deliver whatever other instruments may be reasonably required for such purposes. At any time during the Lease Term Landlord may require Tenant to provide Landlord with a current financial statement and financial statements of the two (2) years prior to the current financial statement year. Such statements shall be prepared in accordance with generally accepted accounting principles and, if such is the normal practice of Tenant, shall be audited by an independent certified public accountant.  Failure of Tenant to timely execute, acknowledge and deliver such estoppel certificate or other instruments shall constitute an acceptance of the Premises and an acknowledgment by Tenant that statements included in the estoppel certificate are true and correct, without exception.

ARTICLE 18

SUBORDINATION

This Lease shall be subject and subordinate to all present and future ground or underlying leases of the Building or Project and to the lien of any mortgage, trust deed or other encumbrances now or hereafter in force against the Building or Project or any part thereof, if any, and to all renewals, extensions, modifications, consolidations and replacements thereof, and to all advances made or hereafter to be made upon the security of such mortgages or trust deeds, unless the holders of such mortgages, trust deeds or other encumbrances, or the lessors under such ground lease or underlying leases, require in writing that this Lease be superior thereto. Tenant covenants and agrees in the event any proceedings are brought for the foreclosure of any such mortgage or deed in lieu thereof (or if any ground lease is terminated) to attorn without any deductions or setoffs whatsoever, to the lienholder or purchaser or any successors thereto upon any such foreclosure sale or deed in lieu thereof (or, to the ground lessor), if so requested to do so by such purchaser or lienholder or ground lessor, and to recognize such purchaser' or lienholder or ground lessor as the lessor under this Lease, provided such lienholder or purchaser or ground lessor shall agree to accept this Lease and not disturb Tenant's occupancy, so long as Tenant tamely pays the rent and observes and performs the TCCs of this Lease to be observed and performed by Tenant. Landlord's interest herein may be assigned as security at any time to any lienholder.   Tenant shall, within five (5) days of request by Landlord, execute Such farther instruments or assurances as Landlord may reasonably deem necessary to evidence   confirm the subordination or superiority of this Lease to any such Mortgages, trust deeds, ground leases or underlying teases. Tenant waives the provisions of any current or future statute, rule or law which may give or purport to give Tenant any right or election to terminate. Or otherwise adversely affect this Lease and the obligations of the Tenant hereunder in the event of any foreclosure proceeding or sale.

ARTICLE 19

DEFAULTS; REMEDIES

19.1Events of Default. The occurrence of any of the following shall constitute a default of this Lease by Tenant:

19.1.1Any failure by Tenant to pay any Rent or any other charge required to be paid under this Lease, or any part thereof, when due unless such failure is cured within five (5) business days after notice; or

19.1.2Except where a specific time period is otherwise set forth for Tenant's performance in this Lease, in which event the failure to perform by Tenant within such time period shall be a default by Tenant under this Section 19.1.2,any failure by Tenant to observe or perform any other provision, covenant or condition of this Lease to be observed or performed by Tenant where such failure continues for thirty (30) days after written notice thereof from Landlord to Tenant; provided that if the nature of such default is such that the same cannot reasonably be cured within a thirty (30) day period, Tenant shall not be deemed to be in default if it diligently commences such cure within such period and thereafter diligently proceeds to rectify and cure such default, but in no event exceeding a period of time in excess of sixty (60) days after written notice thereof from Landlord to Tenant; or

19.1.3 To the extent permitted by law,(i) Tenant or any guarantor of this Lease being placed into receivership or conservatorship, or becoming subject to similar proceedings under Federal or State law, or(ii) a general assignment by Tenant or any guarantor of this Lease for the benefit of creditors, or (iii) the taking of any corporate action in furtherance of bankruptcy or dissolution whether or not there exists any proceeding under an insolvency or bankruptcy law, or (iv) the filing by or against Tenant or any guarantor of any proceeding under an insolvency or bankruptcy law, unless in the case of such a proceeding filed against Tenant or any guarantor the same is dismissed within sixty (60) days, or (v) the appointment of a trustee or receiver to take possession of all or substantially all of the assets of Tenant or any guarantor, unless possession is restored to Tenant or such guarantor within thirty (30) days, or (vi) any execution or other judicially authorized seizure of all or substantially all of Tenant's assets located upon the Premises or of Tenant's interest in this Lease, unless such seizure is discharged within thirty (30) days; or

19.1.4Abandonment or vacation of all or a substantial portion of the Premises by Tenant; or

19.1.5The failure by Tenant to observe or perform according to the provisions of Articles 5, 14, 17 or 18 of this Lease where such failure continues for more than two (2) business days after notice from Landlord; or

19.1.6 Tenant's  failure  to  occupy  the  Premises  within  ten(10)  business  days  after  the  Lease Commencement Date. The notice periods provided herein are in lieu of, and not in addition to, any notice periods provided by law.

19.2Remedies Upon Default.  Upon the occurrence of any event of default by Tenant, Landlord shall have, in addition to any other remedies available to Landlord at law or in equity (all of which remedies shall be distinct, separate and cumulative), the option to pursue any one or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever.

19.2.1Terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises or any part thereof, without being liable for prosecution or any claim for damages therefor; and Landlord may recover from Tenant the following: (a)The worth at the time of award of any unpaid rent which has been earned at the time of such termination; plus (b)The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus (c) The worth at the time of award of the amount by which the unpaid rent for the balance of the Lease Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus (d) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, specifically including but not limited to, brokerage commissions and advertising expenses incurred, expenses of remodeling the Premises or any portion thereof for a new tenant, whether for the same or a different use, and any special concessions made to obtain a new tenant; and (e)At Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law. The term "rent" as used in this Section 19.2 shall be deemed to be and to mean all sums of every nature required to be paid by Tenant pursuant to the terms of this Lease, whether to Landlord or to others.  As used in Sections 19.2.1(0 and 02), above, the "worth at the time of award" shall be computed by allowing interest at the Interest Rate.  As used in Section 19.2.1(c), above, the "worth at the time of award" shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%).

19.2.2 Landlord shall have the remedy described in California Civil Code Section 1951.4 (lessor may continue lease in effect after lessee's breach and abandonment and recover rent as it becomes due, if lessee has the right to sublet or assign, subject only to reasonable limitations).  Accordingly, if Landlord does not elect to terminate this Lease on account of any default by Tenant, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies under this Lease, including the right to recover all rent as it becomes due.

19.2.3Landlord shall at all times have the rights and remedies (which shall be cumulative with each other and cumulative and in addition to those rights and remedies available under Sections 19.2.1 and 19.2.2, above, or any law or other provision of this Lease), without prior demand or notice except as required by applicable law, to seek any declaratory, injunctive or other equitable relief, and specifically enforce this Lease, or restrain or enjoin a violation or breach of any provision hereof.

19.3Subleases of Tenant.  Whether or not Landlord elects to terminate this Lease on account of any default by Tenant, as set forth in this Article 19, Landlord shall have the right to terminate any and all subleases, licenses, concessions or other consensual arrangements for possession entered into by Tenant and affecting the Premises or may, in Landlord's sole discretion, succeed to Tenant's interest in such subleases, licenses, concessions or arrangements.  In the event of Landlord's election to succeed to Tenant's interest in any such subleases, licenses, concessions or arrangements, Tenant shall, as of the date of notice by Landlord of such election, have no further right to or interest in the rent or other consideration receivable thereunder.

19.4Form of Payment After Default.Following the occurrence of an event of default by Tenant, Landlord shall have the right to require that any or all subsequent amounts paid by Tenant to Landlord hereunder, whether to cure the default in question or otherwise, be paid in the form of cash, money order, cashier's or certified check drawn on an institution acceptable to Landlord, or by other means approved by Landlord, notwithstanding any prior practice of accepting payments in any different form.

19.5Efforts to Relet. No re-entry or repossession, repairs, maintenance, changes, alterations and additions, reletting, appointment of a receiver to protect Landlord's interests hereunder, or any other action or omission by Landlord shall be construed as an election by Landlord to terminate this Lease or Tenant's right to possession, or to accept a surrender of the Premises, nor shall same operate to release Tenant in whole or in part from any of Tenant's obligations hereunder, unless express written notice of such intention is sent by Landlord to Tenant. Tenant hereby irrevocably waives any right otherwise available under any law to redeem or reinstate this Lease.

19.6Landlord Default. Notwithstanding anything to the contrary set forth in this Lease, Landlord shall be in default in the performance of any obligation required to be performed by Landlord pursuant to this Lease if Landlord fails to perform such obligation within thirty (30) days after the receipt of notice from Tenant specifying in detail Landlord's failure to perform; provided, however, if the nature of Landlord's obligation is such that more than thirty (30) days are required for its performance, then Landlord shall not be in default under this Lease if it shall commence such performance within such thirty (30) day period and thereafter diligently pursues the same to completion. Upon any such default by Landlord under this Lease, Tenant may except as otherwise specifically provided in this Lease to the contrary, exercise any of its rights provided at law or in equity.  Any award from a court or arbitrator in favor of Tenant requiring payment by Landlord which is not paid by Landlord within the time period directed by such award, may be offset by Tenant from Rent next due and payable under this Lease; provided, however, Tenant may not deduct the amount of the award against more than fifty percent (50%) of Base Rent next due and owing (until such time as the entire amount of such judgment is deducted) to the extent following a foreclosure or a deed-in-lieu of foreclosure.

ARTICLE 20

COVENANT OF OUIET ENJOYMENT

Landlord covenants that Tenant, on paying the Rent, charges for services and other payments herein reserved and on keeping, observing and performing all the other TCCs, provisions and agreements herein contained on the part of Tenant to be kept, observed and performed, shall, during the Lease Term, peaceably and quietly have, hold and enjoy the Premises subject to the TCCs, provisions and agreements hereof without interference by any persons lawfully claiming by or through Landlord. The foregoing covenant is in lieu of any other covenant express or implied.

ARTICLE 21

SECURITY DEPOSIT

Concurrent with Tenant's execution of this Lease, Tenant shall deposit with Landlord a security deposit (the "Security Deposit") in the amount set forth in Section 8 of the Summary, as security for the faithful performance by Tenant of all of its obligations under this Lease. If Tenant defaults with respect to any provisions of this Lease, including, but not limited to, the provisions relating to the payment of Rent, the removal of property and the repair of resultant damage, Landlord may, without notice to Tenant, but shall not be required to apply all or any part of the Security Deposit for the payment of any Rent or any other sum in default and Tenant shall, upon demand therefor, restore the Security Deposit to its original amount.  Any unapplied portion of the Security Deposit shall be returned to Tenant, or, at Landlord's option, to the last assignee of Tenant's interest hereunder, within sixty (60) days following the expiration of the Lease Term.  Tenant shall not be entitled to any interest on the Security Deposit. Tenant hereby irrevocably waives and relinquishes any and all rights, benefits, or protections, if any, Tenant now has, or in the future may have, under Section 1950.7 of the California Civil Code, any successor statute, and all other provisions of law, now or hereafter in effect, including, but not limited to any provision of law which (i) establishes the time -frame by which a landlord must refund a security deposit under a lease, or (ii) provides that a landlord may claim from a security deposit only those sums reasonably necessary to remedy defaults in the payment of rent, to repair damage caused by a tenant or to clean the subject premises. Tenant acknowledges and agrees that (A) any statutory time flames for the return of a security deposit are superseded by the express period identified in this Article 21, above, and (B) rather than be so limited, Landlord may claim from the Security Deposit (i) any and all sums expressly identified in this Article 21, above, and (ii) any additional sums reasonably necessary to compensate Landlord for any and all losses or damages caused by Tenant's default of this Lease, including, but not limited to all damages or rent due upon termination of this Lease pursuant to Section 1951.2 of the California Civil Code.

ARTICLE 22

INTENTIONALLY OMITTED

ARTICLE 23

SIGNS

23.1Full Floors.Subject to Landlord's prior written approval, in its sole discretion, and provided all signs are in keeping with the quality, design and style of the Building and Project, Tenant, if the Premises comprise an entire floor of the Building, at its sole cost and expense, may install identification signage anywhere in the Premises including in the elevator lobby of the Premises, provided that such signs must not be visible from the exterior of the Building.

23.2Multi-Tenant Floors.If other tenants occupy space on the floor on which the Premises is located, Tenant's identifying signage shall be provided by Landlord, at Tenant's cost, and such signage shall be comparable to that used by Landlord for other similar floors in the Building and shall comply with Landlord's Building standard signage program.

23.3Tenant's Signage.Tenant shall be entitled to install the following signage in connection with Tenant's lease of the Premises (collectively, the "Tenant's Signage"):

(i) Non-exclusive Building-top signage consisting of one(1) building-top sign (maximum size per building-top sign is100 square feet pursuant to the signage guidelines for the Project) identifying Tenant's name or logo located at the top of the Building in one (1) location.

(ii)One strip (lowest location) of non-exclusive signage on the monument located adjacent to the entrance of the Building(the "Building Monument Sign"); provided, however, Landlord shall be able to locate its standard identification signage on the Building Monument Sign (below Tenant's strip and the other strips available for the identification of other Building tenants).

(iii)Non-exclusive identification signage(highest location) on the small head-stone located adjacent to the Judicial Drive entrance to the Project (the "Head-Stone Sign"); provided,  however, Landlord shall be able to  locate  its standard identification signage on the Head-Stone Sign (below Tenant's signage and any other identification signage for other Building tenants).

23.3.1Specifications and Permits.Tenant's Signage shall set forth Tenant's name and logo as determined by Tenant in its sole discretion; provided, however, in no event shall Tenant's Signage include an "Objectionable Name," as that term is defined in Section 23.3.2, of this Lease. The graphics, materials, color, design, lettering, lighting, size, illumination, specifications and exact location of Tenant's Signage (collectively, the "Sign Specifications") shall be subject to the prior written approval of Landlord, which approval shall not be unreasonably withheld, conditioned or delayed, and shall be consistent and compatible with the quality and nature of the Project and the Building Standard Signage Specifications. For purposes of this Section 23.3.1, the reference to "name" shall mean name and/or logo. In addition, Tenant's Signage shall be subject to Tenant's receipt of all required governmental permits and approvals and shall be subject to all Applicable Law and to any covenants, conditions and restrictions affecting the Project.  Landlord shall use commercially reasonable efforts to assist Tenant in obtaining all necessary governmental permits and approvals for Tenant's Signage. Tenant hereby acknowledges that, notwithstanding Landlord's approval of Tenant's Signage, Landlord has made no representation or warranty to Tenant with respect to the probability of obtaining all necessary governmental approvals and permits for Tenant's Signage.  In the event Tenant does not receive the necessary governmental approvals and permits for Tenant's Signage, Tenant's and Landlord's rights and obligations under the remaining TCCs of this Lease shall be unaffected.

23.3.2Objectionable Name.To the extent Original Tenant or its Permitted Transferees desires to change the name and/or logo set forth on Tenant's Signage, such name and/or logo shall not have a name which relates to an entity which is of a character or reputation, or is associated with a political faction or orientation, which is inconsistent with the quality of the Project, or which would otherwise reasonably offend a landlord of the Comparable Buildings (an "Objectionable Name"). The parties hereby agree that the name "eBioscience, Inc." or any reasonable derivation thereof, shall not be deemed an Objectionable Name.

23.3.3Termination of Right to Tenant's Signage. The rights contained in this Section 23.3 shall be personal to the Original Tenant, and may only be exercised by the Original Tenant or its Permitted Transferees (and not any other assignee, sublessee or other transferee of the Original Tenant's interest in this Lease) if (i) the Original Tenant or its Permitted Transferees is in occupancy of no less than sixty percent (60%) of the then existing Premises, and (ii) Tenant has not been in economic default or material non-economic default under this Lease (beyond any applicable notice and cure periods) more than once during the prior twelve (12) month period, and (iv) Tenant has not been in economic default or material noneconomic default under this Lease (beyond any applicable notice and cure periods) more than three (3) times throughout the entire Lease Term.

23.3.4 Cost and Maintenance.  The costs of the actual signs comprising Tenant's Signage and the installation, design, construction, and any and all other costs associated with Tenant's Signage, including, without limitation, utility charges and hook-up fees, permits, and maintenance and repairs, shall be the sole responsibility of Tenant.  Should Tenant's Signage require repairs and/or maintenance, as determined in Landlord's reasonable judgment, Landlord shall have the right to provide Notice thereof to Tenant and Tenant shall cause such repairs and/or maintenance to be performed within thirty (30) days after receipt of such Notice from Landlord, at Tenant's sole cost and expense; provided, however, if such repairs and/or maintenance are reasonably expected to require longer than thirty (30) days to perform, Tenant shall commence such repairs and/or maintenance within such thirty (30) day period and shall diligently prosecute such repairs and maintenance to completion.  Should Tenant fail to perform such repairs and/or maintenance within the periods described in the immediately preceding sentence, Landlord shall, upon the delivery of an additional five (5) business days' prior written notice, have the right to cause such work to be performed and to charge Tenant as Additional Rent for the Actual Cost of such work. Upon the expiration or earlier termination of this Lease, Tenant shall, at Tenant's sole cost and expense, cause Tenant's Signage to be removed and shall cause the areas in which such Tenant's Signage was located to be restored to the condition existing immediately prior to the placement of such Tenant's Signage.  If Tenant fails to timely remove such Tenant's Signage or to restore the areas in which such Tenant's Signage was located, as provided in the immediately preceding sentence, then Landlord may perform such work, and all Actual Costs incurred by Landlord in so performing shall be reimbursed by Tenant to Landlord within thirty (30) days after Tenant's receipt of an invoice therefor. The TCCs of this Section 23.3.4 shall survive the expiration or earlier termination of this Lease.

ARTICLE 24

COMPLIANCE WITH LAW

Landlord shall comply with all Applicable Laws relating to the Base Building, provided that compliance with such Applicable Laws is not the responsibility of Tenant under this Lease, and provided further that Landlord's failure to comply therewith would prohibit Tenant from obtaining or maintaining a certificate of occupancy for the Premises, or would unreasonably and materially affect the safety of Tenant's employees or create a significant health hazard for Tenant's employees.  Landlord shall be permitted to include in Operating Expenses any costs or expenses incurred by Landlord under this Article 24 to the extent consistent with the terms of Section 1.1.4 of Exhibit C.Tenant shall not do anything or suffer anything to be done in or about the Premises which will in any way conflict with any law, statute, ordinance or other governmental rule, regulation or requirement now in force or which may hereafter be enacted or promulgated (collectively, "Applicable Laws"). At its sole cost and expense, Tenant shall promptly comply with all such governmental measures (including the making of any alterations to the Premises required by Applicable Laws). Should any standard or regulation now or hereafter be imposed on Landlord or Tenant by a state, federal or local governmental body charged with the establishment regulation and enforcement of occupational, health or safety standards for employers, employees, landlords or tenants, then Tenant agrees, at its sole cost and expense, to comply promptly with such standards or regulations. The judgment of any court of competent jurisdiction or the admission of Tenant in any judicial action, regardless of whether Landlord is a party thereto, that Tenant has violated any of said governmental measures, shall be conclusive of that fact as between Landlord and Tenant.

ARTICLE 25

LATE CHARGES

If any installment of Rent or any other sum due from Tenant shall not be received by Landlord or Landlord's designee when due, then Tenant shall pay to Landlord a late charge equal to five percent (5%) of the overdue amount plus any attorneys' fees inclined by Landlord by reason of Tenant's failure to pay Rent and/or other charges when due hereunder; provided, however, with regard to the first such failure in any twelve (12) month period, Landlord will waive such late charge to the extent Tenant cures such failure within five (5) business days following Tenant's receipt of written notice from Landlord that the same was not received when due. The late charge shall be deemed Additional Rent and the right to require it shall be in addition to all of Landlord's other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Landlord's remedies in any manner.  In addition to the late charge described above, any Rent or other amounts owing hereunder which are not paid within ten (10) days after the date they are due shall bear interest from the date when due until paid at the "Interest Rate." For purposes of this Lease, the "Interest Rate" shall be an annual rate equal to the lesser of (i) the annual "Bank Prime Loan" rate cited in the Federal Reserve Statistical Release Publication H.I5(519), published weekly (or such other comparable index as Landlord and Tenant shall reasonably agree upon if such rate ceases to be published), plus four (4) percentage points, and (ii) the highest rate permitted by applicable law.

ARTICLE 26

LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT

All covenants and agreements to be kept or performed by Tenant under this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any reduction of Rent. If Tenant shall fail to perform any of its obligations under this Lease, within a reasonable time after such performance is required by the terms of this Lease, Landlord may, but shall not be obligated to, after reasonable prior notice to Tenant, make any such payment or perform any such act on Tenant's part without waiving its right based upon any default of Tenant and without releasing Tenant from any obligations hereunder. Except as may be specifically provided to the contrary in this Lease, Tenant shall pay to Landlord, within fifteen (15) days after delivery by Landlord to Tenant of statements therefor: (i) sums equal to expenditures reasonably made and obligations incurred by Landlord in connection with the remedying by Landlord of Tenant's defaults pursuant to the provisions of this Article 26; (ii) sums equal to all losses, costs, liabilities, damages and expenses referred to in Article 10 of this Lease; and (iii) sums equal to all expenditures made and obligations incurred by Landlord in collecting or attempting to collect the Rent or in enforcing or attempting to enforce any rights of Landlord under this Lease or pursuant to law, including, without limitation, all legal fees and other amounts so expended. Tenant's obligations under this Article 26 shall survive the expiration or sooner termination of the Lease Tenn.

ARTICLE 27

ENTRY BY LANDLORD.

Landlord reserves the right at all reasonable times and upon reasonable notice to the Tenant to enter the Premises tort (i) inspect them;(ii) show the Premises to prospective purchasers; mortgagees or tenants, or to the ground or underlying lessors; (iii) post notices of non-responsibility; or (iv) alter, improve or repair the Premises or the Building if necessary to comply with current building codes or other applicable laws, or for structural alteration% repairs or improvements to the Building. Notwithstanding anything to the contrary contained in this Article 27, Landlord may enter the Premises at any time to (A) perform services required of Landlord; (B) take possession due to any breach of this Lease in the manner provided herein; and (C) perform any covenants of Tenant which Tenant fails to perform.  Any such entries shall be without the abatement of Rent and shall include the right to take such reasonable steps as required to accomplish the stated purposes. Tenant hereby waives any claims for damages or for any injuries or inconvenience to or interference with Tenant's business% lost profits, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby. For each of the above purpose% Landlord shall at all times have a key with which to unlock all the doors in the Premises, excluding Tenant's vaults, safes and special security areas designated in advance by Tenant In an emergency, Landlord shall have the right to use any means that Landlord may deem proper to open the doors in and to the Premises. Any entry into the Premises in the manner hereinbefore described shall not be deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an actual or constructive eviction of Tenant from any portion of the Premises.

ARTICLE 28

TENANT PARKING

Tenant shall, during the Lease Term (including any extensions thereof), be entitled to use commencing on the Lease Commencement Date, the amount of unreserved and reserved parking passes set forth in Section 9 of the Summary, all of which parking passes shall pertain to the Project parking facilities. Tenant's unreserved and reserved parking passes shall be without charge for the initial Lease Term only (excepting only any parking taxes or other charges imposed by governmental authorities in connection with the use of such parking [as more particularly contemplated below]). In addition to any fees that may be charged to Tenant in connection with its parking of automobiles in the Project parking facilities, Tenant shall be responsible for the full amount of any taxes imposed by any governmental authority in connection with the renting of such parking passes by Tenant or the use of the parking facility by Tenant. Tenant's continued right to use the parking passes is conditioned upon Tenant abiding by all rules and regulations which are prescribed from time to time for the orderly operation and use of the parking facility where the parking passes are located, including any sticker or other identification system established by Landlord, Tenant's cooperation in seeing that Tenant's employees and visitors also comply with such rules and regulations and Tenant not being in default under this Lease.  Landlord specifically reserves the right to change the size, configuration, design, layout and all other aspects of the Project parking facility at any time and Tenant acknowledges and agrees that Landlord may, without incurring any liability to Tenant and without any abatement of Rent under this Lease, from time to time, close-off or restrict access to the Project parking facility for purposes of permitting or facilitating any such construction, alteration or improvements. Landlord may delegate its responsibilities hereunder to a parking operator in which case such parking operator shall have all the rights of control attributed hereby to the Landlord. The parking passes rented by Tenant pursuant to this Article 28 are provided to Tenant solely for use by Tenant's own personnel and such passes may not be transferred, assigned, subleased or otherwise alienated by Tenant without Landlord's prior approval.  Tenant may validate visitor parking by such method or methods as the Landlord may establish, at the validation rate from time to time generally applicable to visitor parking.

ARTICLE 29

MISCELLANEOUS PROVISIONS

29.1Binding Effect.  Subject to all other provisions of this Lease, each of the covenants, conditions and provisions of this Lease shall extend to and shall, as the case may require, bind or inure to the benefit not only of Landlord and of Tenant, but also of their respective heirs, personal representatives, successors or assigns, provided this clause shall not permit any assignment by Tenant contrary to the provisions of Article 14 of this Lease.

29.2No Air Rights.No rights to any view or to light or air over any property, whether belonging to Landlord or any other person, are granted to Tenant by this Lease. If at any time any windows of the Premises are temporarily darkened or the light or view therefrom is obstructed by reason of any repairs, improvements, maintenance or cleaning in or about the Project, the same shall be without liability to Landlord and without any reduction or diminution of Tenant's obligations under this Lease.

29.3Modification of Lease. Should any current or prospective mortgagee or ground lessor for the Building or Project require a modification of this Lease, which modification will not cause an increased cost or expense to Tenant or in any other way materially and adversely change the rights and obligations of Tenant hereunder, then and in such event, Tenant agrees that this Lease may be so modified and agrees to execute whatever documents are reasonably required therefor and to deliver the same to Landlord within ten (10) days following a request therefor. At the request of Landlord or any mortgagee or ground lessor, Tenant agrees to execute a short form of Lease and deliver the same to Landlord within ten (10) days following the request therefor.

29.4Transfer of Landlord's Interest. Tenant acknowledges that Landlord has the right to transfer all or any portion of its interest in the Project or Building and in this Lease, and Tenant agrees that in the event of any such transfer, Landlord shall automatically be released from all liability under this Lease and Tenant agrees to look solely to such transferee for the performance of Landlord's obligations hereunder after the date of transfer and such transferee shall be deemed to have fully assumed and be liable for all obligations of this Lease to be performed by Landlord, including the return of any Security Deposit, and Tenant shall attorn to such transferee. Tenant further acknowledges that Landlord may assign its interest in this Lease to a mortgage lender as additional security and agrees that such an assignment shall not release Landlord from its obligations hereunder and that Tenant shall continue to look to Landlord for the performance of its obligations hereunder.

29.5Prohibition Against Recording or Publication. Neither this Lease, nor any memorandum, affidavit or other writing with respect thereto, shall be recorded or otherwise published by Tenant or by anyone acting through, under or on behalf of Tenant.

29.6Landlord's Title. Landlord's title is and always shall be paramount to the title of Tenant. Nothing herein contained shall empower Tenant to do any act which can, shall or may encumber the title of Landlord.

29.7Application of Payments.Landlord shall have the right to apply payments received from Tenant pursuant to this Lease, regardless of Tenant's designation of such payments, to satisfy any obligations of Tenant hereunder, in such order and amounts as Landlord, in its sole discretion, may elect.

29.8Time of Essence.Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor.

29.9Partial Invalidity.If any term, provision or condition contained in this Lease shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term, provision or condition to persons or circumstances other than those with respect to which it is invalid or unenforceable, shall not be affected thereby, and each and every other term, provision and condition of this Lease shall be valid and enforceable to the fullest extent possible permitted by law.

29.10No Warranty.  In executing and delivering this Lease, Tenant has not relied on any representations, including, but not limited to, any representation as to the amount of any item comprising Additional Rent or the amount of the Additional Rent in the aggregate or that Landlord is furnishing the same services to other tenants, at all, on the same level or on the same basis, or any warranty or any statement of Landlord which is not set forth herein or in one or more of the exhibits attached hereto. Tenant agrees that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the physical condition of the Building, the Project, the land upon which the Building or the Project are located, or the Premises, or the expenses of operation of the Premises, the Building or the Project, or any other matter or thing affecting or related to the Premises, except as herein expressly set forth in the provisions of this Lease.

29.11Landlord Exculpation.  The liability of Landlord or the Landlord Parties to Tenant for any default by Landlord under this Lease or arising in connection herewith or with Landlord's operation, management, leasing, repair, renovation, alteration or any other matter relating to the Project or the Premises shall be limited solely and exclusively to an amount which is equal to the lesser of (a) the interest of Landlord in the Building or (b) the equity interest Landlord would have in the Building if the Building were encumbered by third-party debt in an amount equal to ,eighty percent (80%) of the value of the Building (as such value is determined by Landlord), provided that in no event shall such liability extend to any sales or insurance proceeds received by Landlord or the Landlord Parties in connection with the Project, Building or Premises. Neither Landlord, nor any of the Landlord Parties shall have any personal liability therefor, and .Tenant hereby expressly waives and releases such personal liability on behalf of itself and all persons claiming by through or under Tenant  The limitations of liability contained in this Section 29.11 shall inure to the benefit of Landlords and the Landlord Parties' present and future partners, beneficiaries, officers, directors, trustees, shareholders, agents and employee , and their respective partners, heirs, successors and assigns. Under no circumstances shall any present or future partner of Landlord (if Landlord is a partnership), or trustee or beneficiary (if Landlord or any partner of Landlord is a trust), have any liability for the performance of Landlord's obligations under this Lease. Notwithstanding any contrary provision herein, neither Landlord nor the Landlord Parties shall be liable under any circumstances for injury or damage to, or interference with, Tenant's business, including but not limited to, loss of profits, loss of rents or other revenues, loss of business opportunity, loss of goodwill or loss of use, in each case, however occurring.

29.12Entire Agreement. It is understood and acknowledged that there are no oral agreements between the parties hereto affecting this Lease and this Lease constitutes the parties' entire agreement with respect to the leasing of the Premises and supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between the parties hereto or displayed by Landlord to Tenant with respect to the subject matter thereof, and none thereof shall be used to interpret or construe this Lease.  None of the terms, covenants, conditions or provisions of this Lease can be modified, deleted or added to except in writing signed by the parties hereto.

29.13Right to Lease. Landlord reserves the absolute right to effect such other tenancies in the Project as Landlord in the exercise of its sole business judgment shall determine to best promote the interests of the Building or Project. Tenant does not rely on the fact, nor does Landlord represent, that any specific tenant or type or number of tenants shall, during the Lease Term, occupy any space in the Building or Project.

29.14Force Majeure.  Any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God, inability to obtain services, labor, or materials or reasonable substitutes therefor, governmental actions, civil commotions, fire or other casualty, and other causes beyond the reasonable control of the party obligated to perform, except with respect to the obligations imposed with regard to Rent and other charges to be paid by Tenant pursuant to this Lease and except as to Tenant's obligations under Articles 5 and 24 of this Lease (collectively, a "Force Majeure"), notwithstanding anything to the contrary contained in this Lease, shall excuse the performance of such party for a period equal to any such prevention, delay or stoppage and, therefore, if this Lease specifies a time period for performance of an obligation of either party, that time period shall be extended by the period of any delay in such party's performance caused by a Force Majeure.

29.15Waiver of Redemption by Tenant.  Tenant hereby waives, for Tenant and for all those claiming under Tenant, any and all rights now or hereafter existing to redeem by order or judgment of any court or by any legal process or writ, Tenant's right of occupancy of the Premises after any termination of this Lease.

29.16Notices. All notices, demands, statements or communications (collectively, "Notices") given or required to be given by either party to the other hereunder shall be in writing, shall be (A) delivered by a nationally recognized overnight courier, or (B) delivered personally.  Any such Notice shall be delivered (i) to Tenant at the appropriate address set forth in Section 10 of the Summary, or to such other place as Tenant may from time to time designate in a Notice to Landlord; or (ii) to Landlord at the addresses set forth in Section 11 of the Summary, or to such other firm or to such other place as Landlord may from time to time designate in a Notice to Tenant.  Any Notice will be deemed given on the date of receipted delivery, of refusal to accept delivery or when delivery is first attempted but cannot be made due to a change of address for which no Notice was given.  If Tenant is notified of the identity and address of Landlord's mortgagee or ground or underlying lessor, Tenant shall give to such mortgagee or ground or underlying lessor written notice of any default by Landlord under the terms of this Lease by registered Or certified mail and such mortgagee or ground or underlying lessor shall be given a reasonable opportunity to cure such• default prior to Tenant's exercising any remedy available to Tenant The party delivering Notice shall use commercially reasonable efforts to provide a courtesy copy of each such notice to the receiving party via electronic mail.

29.17• Authority. If Tenant is a corporation; trust or partnership, each individual executing this Lease on behalf of Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do business in California and that Tenant has tuff right and authority to execute and deliver this Lease and that each person signing on behalf of Tenant is authorized to do so.  In such event, Tenant shall, within ten (10) days after execution of this Lease, deliver to Landlord satisfactory evidence of such authority and, if a corporation, upon demand by Landlord, also deliver to Landlord satisfactory evidence of (i) good standing in Tenant's state of incorporation and (ii) qualification to do business in California.

29.18Attorneys' Fees:  In the event that either Landlord or Tenant should bring suit for the possession of the Premises, for the recovery of any sum due under this Lease, or because of the breach of any provision of this Lease or for any other relief against the other, then all costs and expenses, including reasonable attorney& fees, incurred by the prevailing  party therein shall be paid by the other party, which obligation on the part of the other party shall be deemed to have accrued on the date of the commencement of such action and shall be enforceable whether or not the action is prosecuted to judgment.

29.19Governing Law; WAIVER OF TRIAL BY JURY.  This Lease shall be construed and enforced in accordance with the laws of the State of California.   IN ANY ACTION OR PROCEEDING ARISING HEREFROM, LANDLORD AND TENANT HEREBY CONSENT TO (I) THE JURISDICTION OF ANY COMPETENT COURT WITHIN THE STATE OF CALIFORNIA, (II) SERVICE OF PROCESS BY ANY MEANS AUTHORIZED BY CALIFORNIA LAW, AND (III) IN THE INTEREST OF SAVING TIME AND EXPENSE, TRIAL WITHOUT A JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR THEIR SUCCESSORS IN RESPECT OF ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY.  IN THE EVENT LANDLORD COMMENCES ANY SUMMARY PROCEEDINGS OR ACTION FOR NONPAYMENT OF BASE RENT OR ADDITIONAL RENT, TENANT SHALL NOT INTERPOSE ANY COUNTERCLAIM OF ANY NATURE OR DESCRIPTION (UNLESS SUCH COUNTERCLAIM SHALL BE MANDATORY) IN ANY SUCH PROCEEDING OR ACTION, BUT SHALL BE RELEGATED TO AN INDEPENDENT ACTION AT LAW.

29.20Brokers.  Landlord and Tenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, excepting only the real estate brokers or agents specified in Section 12 of the Summary (the "Brokers"), and that they know of no other real estate broker or agent who is entitled to a commission in connection with this Lease.  Landlord shall pay the Brokers pursuant to the terms of separate commission agreements. Each party agrees to indemnify and defend the other party against and hold the other party harmless from any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses (including without limitation reasonable attorneys' fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of any dealings with any real estate broker or agent, other than the Brokers, occurring by, through, or under the indemnifying party.

29.21Independent Covenants. This Lease shall be construed as though the covenants herein between Landlord and Tenant are independent and not dependent and Tenant hereby expressly waives the benefit of any statute to the contrary and agrees that if Landlord fails to perform its obligations set forth herein, Tenant shall not be entitled to make any repairs or perform any acts hereunder at Landlord's expense or to any setoff of the Rent or other amounts owing hereunder against Landlord.

29.22Counterparts.This Lease may be executed in counterparts with the same effect as if both parties hereto had executed the same document. Both counterparts shall be construed together and shall constitute a single lease.

29.23Confidentiality.  Tenant acknowledges that the content of this Lease and any related documents are confidential information.  Tenant shall keep such confidential information strictly confidential and shall not disclose such confidential information to any person or entity other than Tenant's financial, legal, and space planning consultants.

29.24Building Renovations.It is specifically understood and agreed that Landlord has made no representation or warranty to Tenant and has no obligation and has made no promises to alter, remodel, improve, renovate, repair or decorate the Premises, Building, or any part thereof and that no representations respecting the condition of the Premises or the Building have been made by Landlord to Tenant. However, Tenant hereby acknowledges that Landlord is currently renovating or may during the Lease Term renovate, improve, alter, or modify (collectively, the "Renovations") the Project, the Building and/or the Premises including without limitation the parking structure, common areas, systems and equipment, roof; and structural portions of the same, which Renovations may include, without limitation, (i) installing sprinklers in the Building common areas and tenant spaces, (ii) modifying the common areas and tenant spaces to comply with applicable laws and regulations, including regulations relating to the physically disabled, seismic conditions, and building safety and security, and (iii) installing new floor covering, lighting, and wall coverings in the Building common areas, and in connection with any Renovations, Landlord may, among other things, erect scaffolding or other necessary structures in the Building, limit or eliminate access to portions of the Project, including portions of the common areas, or perform work in the Building, which work may create noise, dust or leave debris in the Building. Tenant hereby agrees that such Renovations and Landlord's actions in connection with such Renovations shall in no way constitute a constructive eviction of Tenant nor entitle Tenant to any abatement of Rent. Landlord shall have no responsibility or for any reason be liable to Tenant for any direct or indirect injury to or interference with Tenant's business arising from the Renovations, nor shall Tenant be entitled to any compensation or damages from Landlord for loss of the use of the whole or any part of the Premises or of Tenant's personal property or improvements resulting from the Renovations or Landlord's actions in connection with such Renovations, or for any inconvenience or annoyance occasioned by such Renovations or Landlord's actions.

29.25No Violation.Tenant hereby warrants and represents that neither its execution of nor performance under this Lease shall cause Tenant to be in violation of any agreement, instrument, contract, law, rule or regulation by which Tenant is bound, and Tenant shall protect, defend, indemnify and hold Landlord harmless against any claims, demands, losses, damages, liabilities, costs and expenses, including, without limitation, reasonable attorneys' fees and costs, arising from Tenant's breach of this warranty and representation.

29.26Communications and Computer Lines.  Tenant may install, maintain, replace, remove or use any communications or computer wires and cables (collectively, the "Lines") at the Project in or serving the Premises, provided that (i) Tenant shall obtain Landlord's prior written consent, use Landlord's designated contractor for provision of cabling and riser management services (or, if Landlord does not have a designated contractor, then an experienced and qualified contractor reasonably designated by Landlord), and comply with all of the other provisions of Articles 7 and 8 of this Lease, (ii) an acceptable number of spare Lines and space for additional Lines shall be maintained for existing and future occupants of the Project,  as  determined  in Landlord's reasonable  opinion, (iii) the  Lines  therefor (including riser cables) shall be (x) appropriately insulated to prevent excessive electromagnetic fields or radiation, (y) surrounded by a protective conduit reasonably acceptable to Landlord, and (z) identified in accordance with the "Identification Requirements," as that term is set forth hereinbelow, (iv) any new or existing Lines servicing the Premises shall comply with all applicable governmental laws and regulations, (v) as a condition to permitting the installation of new Lines, Tenant shall remove existing Lines located in or serving the Premises and repair any damage in connection with such removal, and (vi) Tenant shall pay all costs in connection therewith. All Lines shall be clearly marked with adhesive plastic labels (or plastic tags attached to such Lines with wire) to show Tenant's name, suite number, telephone number and the name of the person to contact in the case of an emergency (A) every four feet (4') outside the Premises (specifically including, but not limited to, the electrical room risers and other Common Areas), and (B) at the Lines' termination point(s) (collectively, the "Identification Requirements"). Upon the expiration of the Lease Term, or immediately following any earlier termination of this Lease, Tenant shall, at Tenant's sole cost and expense, remove all Lines installed by Tenant, and repair any damage caused by such removal.  In the event that Tenant fails to complete such removal and/or fails to repair any damage caused by the removal of any Lines, Landlord may do so and maycharge the cost thereof to Tenant. Landlord reserves the right to require that Tenant remove any Lines located in or serving the Premises which are installed in violation of these provisions, or which are at any time (1) are in violation of any Applicable Laws, (2) are inconsistent with then-existing industry standards (such as the standards promulgated by the National Fire Protection Association (e.g., such organization's "2002 National Electrical Code")), or (3) otherwise represent a dangerous or potentially dangerous condition.

29.27Development of the Project.

29.27.1Subdivision. Landlord reserves the right to further subdivide all or a portion of the Project. Tenant agrees to execute and deliver, upon demand by Landlord and in the form requested by Landlord, any additional documents needed to conform this Lease to the circumstances resulting from such subdivision.

29.27.2The Other Improvements.  If portions of the Project or property adjacent to the Project (collectively, the "Other Improvements") are owned by an entity other than Landlord, Landlord, at its option, may enter into an agreement with the owner or owners of any or all of the Other Improvements to provide (i) for reciprocal rights of access and/or use of the Project and the Other Improvements, (ii) for the common management, operation, maintenance, improvement and/or repair of all or any portion of the Project and the Other Improvements, (iii) for the allocation of a portion of the Direct Expenses to the Other Improvements and the operating expenses and taxes for the Other Improvements to the Project, and (iv) for the use or improvement of the Other Improvements and/or the Project in connection with the improvement, construction, and/or excavation of the Other Improvements and/or the Project. Nothing contained herein shall be deemed or construed to limit or otherwise affect Landlord's right to convey all or any portion of the Project or any other of Landlord's rights described in this Lease.

29.27.3Construction of Project and Other Improvements.Tenant acknowledges that portions of the Project and/or the Other Improvements may be under construction following Tenant's occupancy of the Premises, and that such construction may result in levels of noise, dust, obstruction of access, etc.  which are in excess of that present in a fully constructed project.  Tenant hereby waives any and all rent offsets or claims of constructive eviction which may arise in connection with such construction.

29.28Hazardous Substances. Landlord and Tenant hereby acknowledge and agree that the terms of Exhibit G attached hereto are incorporated into this Lease by this reference.

29.29No Discrimination.Tenant covenants by and for itself, its heirs, executors, administrators and assigns, and all persons claiming under or through Tenant, and this Lease is made and accepted upon and subject to the following conditions: that there shall be no discrimination against or segregation of any person or group of persons, on account of race, color, creed, sex, religion, marital status, ancestry or national origin in the leasing, subleasing, transferring, use, or enjoyment of the Premises, nor shall Tenant itself, or any person claiming under or through Tenant, establish or permit such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy, of tenants, lessees, sublessees, subtenants or vendees in the Premises.

29.30Intentionally Omitted.

29.31Joint and Several.If there is more than one Tenant, the obligations imposed upon Tenant under this Lease

shall be joint and several.

29.32Project or Building Name and Signage.Landlord shall have the right at any time to change the name of the Project or Building and to install, affix and maintain any and all signs on the exterior and on the interior of the Project or Building as Landlord may, in Landlord's sole discretion, desire. Tenant shall not use the name of the Project or Building or use pictures or illustrations of the Project or Building in advertising or other publicity or for any purpose other than as the address of the business to be conducted by Tenant in the Premises, without the prior written consent of Landlord.

29.33Transportation Management. Tenant shall fully comply with all present or future programs intended to manage parking, transportation or traffic in and around the Building, and in connection therewith, Tenant shall take responsible action for the transportation planning and management of all employees located at the Premises by working directly with Landlord, any governmental transportation management organization or any other transportation-related committees or entities.

29.34LEED Certification. Landlord may, in Landlord's sole and absolute discretion and at Landlord's sole cost and expense (subject to Landlord ability to pass through the cost thereof to the extent allowable pursuant to the express terms of Exhibit C attached to this Lease and made a part hereof), elect to apply to obtain or maintain a LEED certification for the Project (or portion thereof), or other' applicable certification in connection with Landlord's sustainability practices for the Project (as such sustainability practices' are to be determined by Landlord, in its sole and absolute discretion, from time to time). In the event that Landlord elects to pursue such an aforementioned certification, Tenant shall, at Tenant's sole cost and expense, promptly cooperate with the Landlord's efforts in connection therewith and provide Landlord with any documentation it may need in order to obtain or maintain the aforementioned certification (which cooperation : may include,: but shall not be limited to, Tenant complying with certain. standards pertaining to the purchase of materials used in Connection with any Alterations or improvements undertaken by Tenant in the Project, the sharing of .documentation pertaining to any., Alterations or improvements undertaken the Project with Landlord, and the sharing of Tenant's billing information pertaining to trash removal' and recycling related to Tenant's operations in the Project.

29.35Utility Billing Information. 1 In the event that the Tenant is permitted to contract directly for the provision of electricity, gas and/or water services to the Premises with the third-party provider thereof (all in Landlord's sole and absolute discretion), Tenant shall promptly, but in no event more than five (5) business days following its receipt of each and every invoice for such items from the applicable provider, provide Landlord with a copy of each such invoice.

29.36Green Cleaning/Recycling. To the extent a "green cleaning program" and/or a recycling program is implemented by Landlord in the Building and/or Project in order to comply with Applicable Laws or otherwise, Tenant shall, at Tenant's sole cost and expense, comply with the provisions of each of the foregoing programs (e.g., Tenant shall separate waste appropriately SO that it can be efficiently processed by Landlord's particular recycling contractors). To the extent Tenant fails to comply with any of Landlord's recycling programs contemplated by the foregoing, Tenant shall be required to pay any contamination charges related to such non-compliance.

IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be executed the day and date first above

written.

"LANDLORD":

KILROY REALTY, L.P.,

A Delaware limited partnership

By:  Kilroy Realty Corporation

A Maryland corporation

General Partner

By:  /s/ Jeffrey C. Hawken

Its:Executive Vice President

 Chief Operation Officer

By:  /s/ John T. Fucci

Its:Senior Vice President

 Asset Management

"TENANT"

EBIOSCIENCE, INC.

A California corporation

By:  /s/ Donald Tarte

Its: SVP & GM

By:  /s/ Andrew Ward

Its: VP Commercial Affairs

By:  /s/ Ryan M. Simon

Its: Div. General Counsel & Asst. Sec.

*NOTE:

If Tenant is a California corporation, then one of the following alternative requirements must be satisfied:

(A)   This Lease must be signed by two (2) officers of such corporation: one being the chairman of the board, the president or a vice president, and the other being the secretary, an assistant secretary, the chief financial officer or an assistant treasurer. If one (1) individual is signing in two (2) of the foregoing capacities, that individual must identify the two (2) capacities.

(B)If the requirements of (A) above are not satisfied, then Tenant shall deliver to Landlord evidence in a form reasonably acceptable to Landlord that the signatory(ies) is (are) authorized to execute this Lease.

If Tenant is a corporation incorporated in a state other than California, then Tenant shall deliver to Landlord evidence in a form reasonably acceptable to Landlord that the signatory(ies) is (are) authorized to execute this Lease.

EXHIBIT A

KILROY UNIVERSITY CENTEROUTLINE OF PREMISES

EXHIBIT B

KILROY UNIVERSITY CENTER INTENTIONALLY OMITTED

EXHIBIT C

KILROY UNIVERSITY CENTER

OPERATING EXPENSE DEFINITIONS AND CALCULATION PROCEDURES

1.1Definitions of Key Terms Relating to Additional Rent. As used in this Exhibit Cthe following terms

shall have the meanings hereinafter set forth:

1.1.1Intentionally Omitted.

1.1.2"Direct Expenses" shall mean "Operating Expenses" and "Tax Expenses"

1.1.3"Expense Year" shall mean each calendar year in which any portion of the Lease Term falls,

through and including the calendar year in which the Lease Term expires, provided that Landlord, upon notice to Tenant, may change the Expense Year from time to time to any other twelve (12) consecutive month period, and, in the event of any such change, Tenant's Share of Direct Expenses shall be equitably adjusted for any Expense Year involved in any such change.

1.1.4"Operating Expenses" shall mean all expenses, costs and amounts of every kind and nature which Landlord pays or accrues during any Expense Year because of or in connection with the ownership, management, maintenance, security, repair, replacement, renovation, restoration or operation of the Project, or any portion thereof, in accordance with sound real estate management and accounting practices, consistently applied. Without limiting the generality of the foregoing, Operating Expenses shall specifically include any and all of the following: (i) the cost of supplying all utilities (but excluding the cost of electricity, gas, water and sewer services consumed in the Premises and the premises of other tenants of the Building and any other buildings in the Project (since Tenant is separately paying for the cost of electricity, gas, water and sewer services pursuant to Section 6.1.2 of the Lease)), the cost of operating, repairing, replacing, maintaining, renovating and restoring the utility, telephone, mechanical, sanitary, storm drainage, and elevator systems, and the cost of maintenance and service contracts in connection therewith; (ii) the cost of licenses, certificates, permits and inspections and the cost of contesting any governmental enactments which may affect Operating Expenses, and the costs incurred in connection with a governmentally mandated transportation system management program or similar program; (iii) the cost of all insurance carried by Landlord in connection with the Project; (iv) the cost of landscaping, relamping, and all supplies, tools, equipment and materials used in the operation, repair and maintenance of the Project, or any portion thereof; (v) costs incurred in connection with the parking areas servicing the Project; (vi) fees and other costs, including management fees, consulting fees, legal fees and accounting fees, of all contractors and consultants in connection with the management, operation, maintenance, replacement, renovation, repair and restoration of the Project; (vii) payments under any equipment rental agreements and the fair rental value of any management office space; (viii) wages, salaries and other compensation and benefits, including taxes levied thereon, of all persons (other than persons generally considered to be higher in rank than the position of "Senior Asset Manager") engaged in the operation, maintenance and security of the Project; (ix) costs under any instrument pertaining to the sharing of costs by the Project; (x) operation, repair, maintenance, renovation, replacement and restoration of all systems and equipment and components thereof of the Project; (xi) the cost of janitorial, alarm, security and other services, replacement, renovation, restoration and repair of wall and floor coverings, ceiling tiles and fixtures in common areas, maintenance, replacement, renovation, repair and restoration of curbs and walkways, repair to roofs and re-roofing; (xii) amortization of the cost of acquiring or the rental expense of personal property used in the maintenance, operation and repair of the Project, or any portion thereof (which amortization calculation shall include interest at the "Interest Rate," as that term is set forth in Article 25 of this Lease); (xiii) the cost of capital improvements or other costs incurred in connection with the Project (A) which are intended to effect economies in the operation or maintenance of the Project, or any portion thereof; (B) that are required to comply with present or anticipated conservation programs, (C) which are replacements or modifications of nonstructural items located in the Common Areas required to keep the Common Areas in good order or condition, (D) that are required under any governmental law or regulation by a federal, state or local governmental agency, except for capital repairs, replacements or other improvements to remedy a condition existing prior to the Lease Commencement Date which an applicable governmental authority, if it had knowledge of such condition prior to the Lease Commencement Date, would have then required to be remedied pursuant to then-current governmental laws or regulations in their form existing as of the Lease Commencement Date and pursuant to the then-current interpretation of such governmental laws or regulations by the applicable governmental authority as of the Lease Commencement Date, (E) which are required in order for the Project, or any portion thereof; to obtain or maintain a certification under the U.S.   Green Building Council's Leadership in Energy and Environmental Design ("LEED"), or other applicable certification agency in connection with Landlord's sustainability practices for the Project (as such sustainability practices are to be determined by Landlord, in its sole and absolute discretion, from time to time), or (F) that relate to the safety or security of the Project; provided, however, that any capital expenditure shall be amortized with interest at the Interest Rate over the shorter of (X) seven (7) years, (Y) its useful life as Landlord shall reasonably determine in accordance with sound real estate management and accounting practices consistently applied or (Z) with respect to those items included under item (A) above, their recovery/payback period as Landlord shall reasonably determine in accordance with sound real estate management and accounting practices; (xiv) costs, fees, charges or assessments imposed by, or resulting from any mandate imposed on Landlord by any federal, state or local government for fire and police protection, trash removal, community services, or other services which do not constitute "Tax Expenses" as that term is defined in Section 1.1.5.1, below; (xv) payments under any easement, license, operating agreement, declaration, restrictive covenant, or instrument pertaining to the sharing of costs by the Building and/or the Project, and (xvi) costs of any additional services not provided to the Building and/or the Project as of the Lease Commencement Date but which are thereafter provided by Landlord in connection with its prudent management of the Building and/or the Project. Notwithstanding the foregoing, for purposes of this Lease, Operating Expenses shall not, however, include:

(a)costs,  including marketing costs,  legal fees,  space planners' fees, advertising and promotional expenses, and brokerage fees incurred in connection with the original construction or development, or original or future leasing of the Project, and costs, including permit, license and inspection costs, incurred with respect to the installation of improvements made for new tenants initially occupying space in the Project after the Lease Commencement Date or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space for tenants or other occupants of the Project (excluding, however, such costs relating to any common areas of the Project or parking facilities);

(b)except as set forth in items (xii), (xiii), and (xiv) above, depreciation, interest and principal payments on mortgages and other debt costs, if any, penalties and interest;

(c)costs for which the Landlord is reimbursed by any tenant or occupant of the Project or by insurance by its carrier or any tenant's carrier or by anyone else (except to the extent of deductibles), and electric power costs for which any tenant directly contracts with the local public service company;

(d)any bad debt loss, rent loss, or reserves for bad debts or rent loss;

(e)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 (which shall specifically include, but not be limited to, accounting costs associated with the operation of the Project).  Costs associated with the operation of the business of the partnership or entity which constitutes the Landlord include costs of partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee (except as the actions of the Tenant may be in issue), costs of selling, syndicating, financing, mortgaging or hypothecating any of the Landlord's interest in the Project, and costs incurred in connection with any disputes between Landlord and its employees, between Landlord and Project management, or between Landlord and other tenants or occupants, and Landlord's general corporate overhead and general and administrative expenses;

(f)the wages and benefits of any employee who does not devote substantially all of his or her employed time to the Project unless such wages and benefits are prorated to reflect time spent on operating and managing the Project vis-a-vis time spent on matters unrelated to operating and managing the Project; provided, that in no event shall Operating Expenses for purposes of this Lease include wages and/or benefits attributable to personnel above the level of Senior Asset Manager;

(g)amount paid as ground rental for the Project by the Landlord;

(h)overhead and profit increment paid to the Landlord or to subsidiaries or affiliates of the Landlord for services in the Project to the extent the same exceeds the costs of such services rendered by qualified, first-class unaffiliated third parties on a competitive basis;

(i)any compensation paid to clerks, attendants or other persons in commercial concessions operated by the Landlord, provided that any compensation paid to any concierge or parking attendants at the Project shall be includable as an Operating Expense;

(j)rentals and other related expenses incurred in leasing air conditioning systems, elevators or other equipment which if purchased the cost of which would be excluded from Operating Expenses as a capital cost, except equipment not affixed to the Project which is used in providing janitorial or similar services and, further excepting from this exclusion such equipment rented or leased to remedy or ameliorate an emergency condition in the Project;

(k)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;

(1)costs, other than those incurred in ordinary maintenance and repair, for sculpture, paintings, fountains or other objects of art;

(m)any costs expressly excluded from Operating Expenses elsewhere in this Lease;

(n)rent for any office space occupied by Project management personnel to the extent the size or rental rate of such office space exceeds the size or fair market rental value of office space occupied by management personnel of the Comparable Buildings, with adjustment where appropriate for the size of the applicable project;

(o)costs to the extent arising from the gross negligence or willful misconduct of Landlord or its agents, employees, vendors, contractors, or providers of materials or services;

(p)costs incurred to comply with laws relating to the removal of hazardous material (as defined under applicable law) which was in existence in the Building or on the Project prior to the Lease Commencement Date, and was of such a nature that a federal, State or municipal governmental authority, if it had then had knowledge of the presence of such hazardous material, in the state, and under the conditions that it then existed in the Building or on the Project, would have then required the removal of such hazardous material or other remedial or containment action with respect thereto, but only to the extent those laws were then being actively enforced by the applicable government authority; and costs incurred to remove, remedy, contain, or treat hazardous material, which hazardous material is brought into the Building or onto the Project after the date hereof by Landlord or any other tenant of the Project and is of such a nature, at that time, that a federal, State or municipal governmental authority, if it had then had knowledge of the presence of such hazardous material, in the state, and under the conditions, that it then exists in the Building or on the Project, would have then required the removal of such hazardous material or other remedial or containment action with respect thereto, but only to the extent those laws were then being actively enforced by the applicable government authority; and

(q)Amounts of the management fee Paid or charged in connection with the management of the  Project which exceeds the greater of (A) three and one-half percent (31/2%) of the Project's gross receipts, and (B) the management fee customarily paid by owners of Comparable Buildings to independent managing agents with respect to the management of the particular project in which the Comparable Building is located.

If Landlord is not furnishing any particular work or service (the cost of which, if performed by Landlord, would be included in Operating Expenses) to a tenant who has undertaken to perform such work or service in lieu of the performance thereof by Landlord, Operating Expenses shall be deemed to be increased by an amount equal to the additional Operating Expenses which would reasonably have been incurred during such period by Landlord if it had at its own expense finished such work or service to such tenant. If the Project is not at least one hundred percent (100%) occupied during all or a portion of the any Expense Year, Landlord may elect to make an appropriate adjustment to the components of Operating Expenses for such year to determine the amount of Operating Expenses that would have been incurred had the Project been one hundred percent (100%) occupied; and the amount so determined shall be deemed to have been the amount of Operating Expenses for such year.  Landlord shall not (i) make a profit by charging items to Operating Expenses that are otherwise also charged separately to others and (ii) subject to Landlord's right to adjust the components of Operating Expenses described above in this paragraph, collect Operating Expenses from Tenant and all other tenants in the Building in an amount in excess of what Landlord incurs for the items included in Operating Expenses.

1.1.5Taxes.

1.1.5.1"Tax Expenses" shall mean all federal, state, county, or local governmental or municipaltaxes, fees, charges or other impositions of every kind and nature, whether general, special, ordinary or extraordinary, (including, without limitation, real estate taxes, general and special assessments, transit taxes, leasehold taxes or taxes based upon the receipt of rent, including gross receipts or sales taxes applicable to the receipt of rent, unless required to be paid by Tenant, personal property taxes imposed upon the fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances, furniture and other personal property used in connection with the Project, or any portion thereof), which shall be paid or accrued during any Expense Year (without regard to any different fiscal year used by such governmental or municipal authority) because of or in connection with the ownership, leasing and operation of the Project, or any portion thereof (including, without limitation, the land upon which the Building and the [parking facilities], [parking structure], and [parking structures] serving the Building are located).

1.1.5.2 Tax Expenses shall include, without limitation: (i) Any tax on the rent, right to rent or other income from the Project, or any portion thereof, or as against the business of leasing the Project, or any portion thereof; (ii) Any assessment, tax, fee, levy or charge in addition to, or in substitution, partially or totally, of any assessment, tax, fee, levy or charge previously included within the definition of real property tax, it being acknowledged by Tenant and Landlord that Proposition 13 was adopted by the voters of the State of California in the June 1978 election ("Proposition 13") and that assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such services as fire protection, street, sidewalk and road maintenance, refuse removal and for other governmental services formerly provided without charge to property owners or occupants, and, in further recognition of the decrease in the level and quality of governmental services and amenities as a result of Proposition 13, Tax Expenses shall also include any governmental or private assessments or the Project's contribution towards a governmental or private cost-sharing agreement for the purpose of augmenting or improving the quality of services and amenities normally provided by governmental agencies; (iii) Any assessment, tax, fee, levy, or charge allocable to or measured by the area of the Premises or the Rent payable hereunder, including, without limitation, any business or gross income tax or excise tax with respect to the receipt of such rent, or upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof, (iv) Any assessment, tax, fee, levy or charge, upon this transaction or any document to which Tenant is a party, creating or transferring an interest or an estate in the Premises; and (v) all of the real estate taxes and assessments imposed upon or with respect to the Building and all of the real estate taxes and assessments imposed on the land and improvements comprising the Project.

1.1.5.3Any costs and expenses (including, without limitation, reasonable attorneys' fees) incurred in attempting to protest, reduce or minimize Tax Expenses shall be included in Tax Expenses in the Expense Year such expenses are paid.  Refunds of Tax Expenses shall be credited against Tax Expenses and refunded to Tenant regardless of when received, based on the Expense Year to which the refund is applicable, provided that in no event shall the amount to be refunded to Tenant for any such Expense Year exceed the total amount paid by Tenant as Tax Expenses under this Exhibit C for such Expense Year.  If Tax Expenses for any period during the Lease Term or any extension thereof are increased after payment thereof for any reason, including, without limitation, error or reassessment by applicable governmental or municipal authorities, Tenant shall pay Landlord upon demand Tenant's Share of any such increased Tax Expenses included by Landlord as Building Tax Expenses pursuant to the TCCs of this Lease.  Notwithstanding anything to the contrary contained in this Section 1.1.5.3 (except as set forth in Section 1.1.5.2, above), there shall be excluded from Tax Expenses (i) all excess profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and succession taxes, estate taxes, federal and state income taxes, and other taxes to the extent applicable to Landlord's general or net income (as opposed to rents, receipts or income attributable to operations at the Project), (ii) any items included as Operating Expenses, and (iii) any items paid by Tenant under Section 4.2 of the Lease. Notwithstanding anything to the contrary set forth in this Lease, only Landlord may institute proceedings to reduce Tax Expenses and the filing of any such proceeding by Tenant without Landlord's consent shall constitute an event of default by Tenant under this Lease. Notwithstanding the foregoing, Landlord shall not be obligated to file any application or institute any proceeding seeking a reduction in Tax Expenses.

1.1.6"Tenant's Share" shall mean the percentage set forth in Section 6 of the Summary.

1.2Intentionally Omitted.

1.3Calculation and Payment of Additional Rent. Tenant shall pay to Landlord, in the manner set forth in Section 1.3.1, below, and as Additional Rent, Tenant's Share of Direct Expenses for each Expense Year.

1.3.1Statement of Actual Direct Expenses and Payment by Tenant. Landlord shall give to Tenant following the end of each Expense Year, a statement (the "Statement") which shall state in general major categories the Direct Expenses incurred or accrued for such preceding Expense Year, and which shall indicate the amount of Tenant's Share of Direct Expenses, Landlord shall use commercially reasonable efforts to deliver such Statement to Tenant on or before May 1 following the end of the Expense Year to which such Statement relates. Upon receipt of the Statement for each Expense Year commencing or ending during the Lease Term Tenant shall pay, within thirty (30) days after receipt of the Statement, the full amount of Tenant's Share of Direct Expenses for such Expense Year, less the amounts, if any, paid during such Expense Year as "Estimated Direct Expenses," as that term is defined in Section 1.3.2, below, and if Tenant paid more as Estimated Direct Expenses than the actual Tenant's Share of Direct Expenses (an "Excess"), Tenant shall receive a credit in the amount of such Excess against Rent next due under this Lease. The failure of Landlord to timely furnish the Statement for any Expense Year shall not prejudice Landlord or Tenant from enforcing its rights under this Exhibit C. Even though the Lease Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant's Share of Direct Expenses for the Expense Year in which this Lease terminates, if Tenant's Share of Direct Expenses is greater than the amount of Estimated Direct Expenses previously paid by Tenant to Landlord, Tenant shall, within thirty (30) days after receipt of the Statement, pay to Landlord such amount, and if Tenant paid more as Estimated Direct Expenses than the actual Tenant's Share of Direct Expenses (again, an Excess), Landlord shall, within thirty (30) days, deliver a check payable to Tenant in the amount of such Excess. The provisions of this Section 1.3.1  shall survive the expiration or earlier termination of the Lease Term. Notwithstanding the immediately preceding sentence, Tenant shall not be responsible for Tenant's Share of any Direct Expenses attributable to any Expense Year which are first billed to Tenant more than two (2) calendar years after the Lease Expiration Date, provided that in any event Tenant shall be responsible for Tenant's Share of Direct Expenses levied by any governmental authority or by any public utility companies at any time following the Lease Expiration Date which are attributable to any Expense Year.

1.3.2Statement of Estimated Direct Expenses.  In addition, Landlord shall endeavor to give Tenant a yearly expense estimate statement (the "Estimate Statement") which shall set forth in general major categories Landlord's reasonable estimate (the "Estimate") of what the total amount of Direct Expenses for the then-current Expense Year shall be and the estimated Tenant's Share of Direct Expenses (the "Estimated Direct Expenses"). The failure of Landlord to timely furnish the Estimate Statement for any Expense Year shall not preclude Landlord from enforcing its rights to collect any Estimated Direct Expenses under this Exhibit C, nor shall Landlord be prohibited from revising any Estimate Statement or Estimated Direct Expenses theretofore delivered to the extent necessary. Thereafter, Tenant shall pay, within thirty (30) days after receipt of the Estimate Statement, a fraction of the Estimated Direct Expenses for the then-current Expense Year (reduced by any amounts paid pursuant to the second to last sentence of this Section 1.3.2). Such fraction shall have as its numerator the number of months which have elapsed in such current Expense Year, including the month of such payment, and twelve (12) as its denominator. Until a new Estimate Statement is furnished (which Landlord shall have the right to deliver to Tenant at any time), Tenant shall pay monthly, with the monthly Base Rent installments, an amount equal to one-twelfth (1/12) of the total Estimated Direct Expenses set forth in the previous Estimate Statement delivered by Landlord to Tenant.  Throughout the Lease Term Landlord shall maintain records with respect to Direct Expenses in accordance with sound real estate management and accounting practices, consistently applied

EXHIBIT D

KILROY UNIVERSITY CENTER RULES AND REGULATIONS

Tenant shall faithfully observe and comply with the following Rules and Regulations.   Landlord shall not be responsible to Tenant for the nonperformance of any of said Rules and Regulations by or otherwise with respect to the acts or omissions of any other tenants or occupants of the Project. In the event of any conflict between the Rules and Regulations and the other provisions of this Lease, the latter shall control.

1.Tenant shall not alter any lock or install any new or additional locks or bolts on any doors or windows of the Premises without obtaining Landlord's prior written consent. Tenant shall bear the cost of any lock changes or repairs required by Tenant.  Two keys will be furnished by Landlord for the Premises, and any additional keys required by Tenant must be obtained from Landlord at a reasonable cost to be established by Landlord. Upon the termination of this Lease, Tenant shall restore to Landlord all keys of stores, offices, and toilet rooms, either furnished to, or otherwise procured by, Tenant and in the event of the loss of keys so furnished, Tenant shall pay to Landlord the cost of replacing same or of changing the lock or locks opened by such lost key if Landlord shall deem it necessary to make such changes.

2.All doors opening to public corridors shall be kept closed at all times except for normal ingress and egress to the Premises.

3.Landlord reserves the right to close and keep locked all entrance and exit doors of the Building during such hours as are customary for comparable buildings in the San Diego, California area. Tenant, its employees and agents must be sure that the doors to the Building are securely closed and locked when leaving the Premises if it is after the normal  hours of business for the Building. Any tenant, its employees, agents or any other persons entering or leaving the Building at any time when it is so locked, or any time when it is considered to be after normal business hours for the Building, may be required to sign the Building register. Access to the Building may be refused unless the person seeking access has proper identification or has a previously arranged pass for access to the Building. Landlord will furnish passes to persons for whom Tenant requests same in writing. Tenant shall be responsible for all persons for whom Tenant requests passes and shall be liable to Landlord for all acts of such persons. The Landlord and his agents shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Building of any person.  In case of invasion, mob, riot, public excitement, or other commotion, Landlord reserves the right to prevent access to the Building or the Project during the continuance thereof by any means it deems appropriate for the safety and protection of life and property.

4.No furniture, freight or equipment of any kind shall be brought into the Building without prior notice to Landlord. All moving activity into or out of the Building shall be scheduled with Landlord and done only at such time and in such manner as Landlord designates. Landlord shall have the right to prescribe the weight, size and position of all safes and other heavy property brought into the Building and also the times and manner of moving the same in and out of the Building. Safes and other heavy objects shall, if considered necessary by Landlord, stand on supports of such thickness as is necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any such safe or property in any case. Any damage to any part of the Building, its contents, occupants or visitors by moving or maintaining any such safe or other property shall be the sole responsibility and expense of Tenant.

5.No furniture, packages, supplies, equipment or merchandise will be received in the Building or carried up or down in the elevators, except between such hours, in such specific elevator and by such personnel as shall be designated by Landlord.

6.The requirements of Tenant will be attended to only upon application at the management office for the Project or at such office location designated by Landlord. Employees of Landlord shall not perform any work or do anything outside their regular duties unless under special instructions from Landlord.

7.No sign, advertisement, notice or handbill shall be exhibited, distributed, painted or affixed by Tenant on any part of the Premises or the Building without the prior written consent of the Landlord. Tenant shall not disturb, solicit, peddle, or canvass any occupant of the Project and shall cooperate with Landlord and its agents of Landlord to prevent same.

8.The toilet rooms, 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 therein. The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose servants, employees, agents, visitors or licensees shall have caused same.

9.Tenant shall not overload the floor of the Premises, nor mark, drive nails or screws, or drill into the partitions, woodwork or drywall or in any way deface the Premises or any part thereof without Landlord's prior written consent.  Tenant shall not purchase spring water, ice, towel, linen, maintenance or other like services from any person or persons not approved by Landlord.

10.Except for vending machines intended for the sole use of Tenant's employees and invitees, no vending machine or machines other than fractional horsepower office machines shall be installed, maintained or operated upon the Premises without the written consent of Landlord.

11.Tenant shall not use or keep in or on the Premises, the Building, or the Project any kerosene, gasoline, explosive material, corrosive material, material capable of emitting toxic fumes, or other inflammable or combustible fluid chemical, substitute or material. Tenant shall provide material safety data sheets for any Hazardous Material used or kept on the Premises.

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

13.Tenant shall not use, keep or permit to be used or kept, any foul or noxious gas or substance in or on the Premises, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Project by reason of noise, odors, or vibrations, or interfere with other tenants or those having business therein, whether by the use of any musical instrument, radio, phonograph, or in any other way. Tenant shall not throw anything out of doors, windows or skylights or down passageways.

14.Tenant shall not bring into or keep within the Project, the Building or the Premises any firearms, animals, birds, aquariums, or, except in areas designated by Landlord, bicycles or other vehicles.

15.No cooking shall be done or permitted on the Premises, nor shall the Premises be used for the storage of merchandise, for lodging or for any improper, objectionable or immoral purposes.   Notwithstanding the foregoing, Underwriters' laboratory-approved equipment and microwave ovens may be used in the Premises for heating food and brewing coffee, tea, hot chocolate and similar beverages for employees and visitors, provided that such use is in accordance with all applicable federal, state, county and city laws, codes, ordinances, rules and regulations.

16.The Premises shall not be used for manufacturing or for the storage of merchandise except as such storage may be incidental to the use of the Premises provided for in the Summary. Tenant shall not occupy or permit any portion of the Premises to be occupied as an office for a messenger-type operation or dispatch office, public stenographer or typist or for the manufacture or sale of liquor; narcotics, or tobacco in any form, or as a medical office, or as a barber or manicure shop, or as an employment bureau without the express prior written consent of Landlord.  Tenant shall not engage or pay any employees on the Premises except those actually working for such tenant on the Premises nor advertise for laborers giving an address at the Premises.

17.Landlord reserves the right to exclude or expel from the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of these Rules and Regulations.

18.Tenant, its employees and agents shall not loiter in or on the entrances, corridors, sidewalks, lobbies, courts, halls, stairways, elevators, vestibules or any Common Areas for the purpose of smoking tobacco products or for any other purpose, nor in any way obstruct such areas, and shall use them only as a means of ingress and egress for the Premises. .

19.Tenant shall not waste electricity, water or air conditioning and agrees to cooperate fully with Landlord to ensure the most effective operation of the Building's heating and air conditioning system, and shall refrain from attempting to adjust any controls. Tenant shall participate in recycling programs undertaken by Landlord.

20.Tenant shall store all its trash and garbage within the interior of the Premises. No material shall be placed in the trash boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in San Diego, California without violation of any law or ordinance governing such disposal. All trash, garbage and refuse disposal shall be made only through entry-ways and elevators provided for such purposes at such times as Landlord shall designate. If the Premises is or becomes infested with vermin as a result of the use or any misuse or neglect of the Premises by Tenant, its agents, servants, employees, contractors, visitors or licensees, Tenant shall forthwith, at Tenant's expense, cause the Premises to be exterminated from time to time to the satisfaction of Landlord and shall employ such licensed exterminators as shall be approved in writing in advance by Landlord.

21.Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency.

22.Any persons employed by Tenant to do janitorial work shall be subject to the prior written approval of Landlord, and while in the Building and outside of the Premises, shall be subject to and under the control and direction of the Building manager (but not as an agent or servant of such manager or of Landlord), and Tenant shall be responsible for all acts of such persons.

23.No awnings or other projection shall be attached to the outside walls of the Building without the prior written consent of Landlord, and no curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with, any window or door of the Premises other than Landlord standard drapes. All electrical ceiling fixtures hung in the Premises or spaces along the perimeter of the Building must be fluorescent and/or of a quality, type, design and a warm white bulb color approved in advance in writing by Landlord.  Neither the interior nor exterior of any windows shall be coated or otherwise sunscreened without the prior written consent of Landlord. Tenant shall be responsible for any damage to the window film on the exterior windows of the Premises and shall promptly repair any such damage at Tenant's sole cost and expense. Tenant shall keep its window coverings closed during any period of the day when the sun is shining directly on the windows of the Premises. Prior to leaving the Premises for the day, Tenant shall draw or lower window coverings and extinguish all lights. Tenant shall abide by Landlord's regulations concerning the opening and closing of window coverings which are attached to the windows in the Premises, if any, which have a view of any interior portion of the Building or Building Common Areas.

24.The sashes, sash doors, skylights, windows, and doors that reflect or admit light and air into the halls, passageways or other public places in the Building shall not be covered or obstructed by Tenant, nor shall any bottles, parcels or other articles be placed on the windowsills.

25.Tenant must comply with requests by the Landlord concerning the informing of their employees of items of importance to the Landlord,

26.Tenant must comply with any City of San Diego "NO-SMOKING" ordinances. If Tenant is required under the ordinance to adopt a written smoking policy; a copy  of said policy shall be on file in the office of the Building. In addition, no smoking of any substance shall be permitted within the Project except in specifically designated outdoor areas. Within such designated outdoor areas, all remnants of consumed cigarettes and related paraphernalia shall be deposited in ash trays and/or waste receptacles. No cigarettes shall be extinguished and/or left on the ground or any other surface of the Project. Cigarettes shall be extinguished only in ashtrays, Furthermore, in no event shall Tenant, its employees or agents smoke tobacco products or other substances (x) within any interior areas of the Project, or (y) within two hundred feet (200') of the main entrance of the Building or the main entrance of any of the adjacent buildings, or (z) within seventy-five feet (75') of any other entryways into the Building.

27.Tenant hereby acknowledges that Landlord shall have no obligation to provide guard service or other security measures for the benefit of the Premises, the Building or the Project.  Tenant hereby assumes all responsibility for the protection of Tenant and its agents, employees, contractors, invitees and guests, and the property thereof, from acts of third parties, including keeping doors locked and other means of entry to the Premises closed, whether or not Landlord, at its option, elects to provide security protection for the Project or any portion thereof. Tenant further assumes the risk that any safety and security devices, services and programs which Landlord elects, in its sole discretion, to provide may not be effective, or may malfunction or be circumvented by an unauthorized third party, and Tenant shall, in addition to its other insurance obligations under this Lease, obtain its own insurance coverage to the extent Tenant desires protection against losses related to such occurrences. Tenant shall cooperate in any reasonable safety or security program developed by Landlord or required by law.

28.All office equipment of any electrical or mechanical nature shall be placed by Tenant in the Premises in settings approved by Landlord, to absorb or prevent any vibration, noise and annoyance.

29.Tenant shall not use in any space or in the public halls of the Building, any hand trucks except those equipped with rubber tires and rubber side guards.

30.No auction, liquidation, fire sale, going-out-of-business or bankruptcy sale shall be conducted in the Premises without the prior written consent of Landlord.

31.No tenant shall use or permit the use of any portion of the Premises for living quarters, sleeping apartments or lodging rooms.

32.Tenant shall not purchase spring water, towels, janitorial or maintenance or other similar services from any company or persons not approved by Landlord.  Landlord shall approve a sufficient number of sources of such services to provide Tenant with a reasonable selection, but only in such instances and to such extent as Landlord in its judgment shall consider consistent with the security and proper operation of the Building.

33.Tenant shall install and maintain, at Tenant's sole cost and expense, an adequate, visibly marked and properly operational fire extinguisher next to any duplicating or photocopying machines or similar heat producing equipment, which may or may not contain combustible material, in the Premises.

Landlord reserves the right at any time to change or rescind any one or more of these Rules and Regulations, or to make such other and further reasonable Rules and Regulations as in Landlord's judgment may from time to time be necessary for the management, safety, care and cleanliness of the Premises, Building, the Common Areas and the Project, and for the preservation of good order therein, as well as for the convenience of other occupants and tenants therein. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenants, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of any other tenant, nor prevent Landlord from thereafter enforcing any such Rules or Regulations against any or all tenants of the Project. Tenant shall be deemed to have read these Rules and Regulations and to have agreed to abide by them as a condition of its occupancy of the Premises.

EXHIBIT E

KILROY UNIVERSITY CENTER

FORM OF TENANT'S ESTOPPEL CERTIFICATE

The undersigned as Tenant under that certain Office Lease (the "Lease") made and entered into as of 20_by and betweenas Landlord, and the undersigned as Tenant, for Premises on the floor(s) of the office building located at, California, certifies as follows:

1.Attached hereto as Exhibit A is a true and correct copy of the Lease and all amendments and modifications thereto. The documents contained in Exhibit A represent the entire agreement between the parties as to the Premises.

2.The undersigned currently occupies the Premises described in the Lease, the Lease Term commenced on, and the Lease Term expires on, and the undersigned has no option to terminate or cancel the Lease

or to purchase all or any part of the Premises, the Building and/or the Project.

3.Base Rent became payable on.

4.The Lease is in full force and effect and has not been modified, supplemented or amended in any way except

as provided in Exhibit A.

5.Tenant has not transferred, assigned, or sublet any portion of the Premises nor entered into any license or

concession agreements with respect thereto except as follows:

6.Tenant shall not modify the documents contained in Exhibit A without the prior written consent of Landlord's mortgagee.

7.All monthly installments of Base Rent, all Additional Rent and all monthly installments of estimated Additional Rent have been paid when due through              .The current monthly installment of Base Rent is $.

8.All conditions of the Lease to be performed by Landlord necessary to the enforceability of the Lease have been satisfied and Landlord is not in default thereunder. In addition, the undersigned has not delivered any notice to Landlord regarding a default by Landlord thereunder.

9.No rental has been paid more than thirty (30) days in advance and no security has been deposited with Landlord except as provided in the Lease.

10.As of the date hereof, there are no existing defenses or offsets, or, to the undersigned's knowledge, claims or any basis for a claim that the undersigned has against Landlord.

11.If Tenant is a corporation or partnership, each individual executing this Estoppel Certificate on behalf of Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do business in California and that Tenant has full right and authority to execute and deliver this Estoppel Certificate and that each person signing on behalf of Tenant is authorized to do so.

12.There are no actions pending against the undersigned under the bankruptcy or similar laws of the United

States or any state.

13.Other than in compliance with all applicable laws and incidental to the ordinary course of the use of the Premises, the undersigned has not used or stored any hazardous substances in the Premises.

14.To the undersigned's knowledge, all improvement work to be performed by Landlord under the Lease has been completed in accordance with the Lease and has been accepted by the undersigned and all reimbursements and allowances due to the undersigned under the Lease in connection with any improvement work have been paid in full.

The undersigned acknowledges that this Estoppel Certificate may be delivered to Landlord or to a prospective mortgagee or prospective purchaser, and acknowledges that said prospective mortgagee or prospective purchaser will be relying upon the statements contained herein in making the loan or acquiring the property of which the Premises is a part and that receipt by it of this certificate is a condition of making such loan or acquiring such property.

Executed aton theday of, 20

"Tenant:

a

By:

Its:

By:

Its:

KILROY REALTY

703150.05/WLAEXHIBIT EKilroy University Center

888888-00775/1-8-13//eg-1-[EBioscience, Inc.]

EXHIBIT F

KILROY UNIVERSITY CENTER,

NOTICE OF LEASE TERM DATES

To

Re:Office Lease dated20 _ (the "Lease"), by and between, a("Landlord"), anda("Tenant"), for l[approximately]rentable square feet of space commonly known as Suite(the "Premises"), located on the (     ) floor of that certain office building located at (the "Building").

Dear,

Notwithstanding any provision to the contrary contained in the Lease, this letter is to confirm and agree upon the following:

1.Tenant  has  accepted  the  above-referenced  Premises  as  being  delivered  in  accordance  with  the Lease [optional:, and there is no deficiency in construction].

2.The  Lease  Term  shall  commence  on  or  has  commenced  on for  a  term  of ending on.

3.Rent commenced to accrue on, in the amount of.

4.If the Lease Commencement Date is other than the first day of the month, the first billing will contain a pro rata adjustment. Each billing thereafter shall be for the full amount of the monthly installment as provided for in the Lease.

5.Your rent checks should be made payable toat.

6.Subject to Section1.2 of the Lease, the] OR {The]' rentable [optional: and usable] square feet of the Premises areand, respectively.

7.Tenant's Share of Direct Expenses with respect to the Premises is% of the Project.

8.Capitalized terms used herein that are defined in the Lease shall have the same meaning when used herein. Tenant confirms that the Lease has not been modified or altered except as set forth herein, and the Lease is in full force and effect.  Landlord and Tenant acknowledge and agree that to each party's actual knowledge, neither party is in default or violation of any covenant, provision, obligation, agreement or condition in the Lease.

If the provisions of this letter correctly set forth our understanding, please so acknowledge by signing at the place provided below on the enclosed copy of this letter and returning the same to Landlord.

"Landlord":

a

By:

Its:

By:

Its:

Agreed to and Accepted

as of, 20___

"Tenant":

a

By:

Its:

By:

Its:

EXHIBIT G

KILROY UNIVERSITY CENTER

HAZARDOUS MATERIALS

1.1Definitions.For purposes of this Lease, the following definitions shall apply: "Hazardous Material(s)" shall mean any solid, liquid or gaseous substance or material that is described or characterized as a toxic or hazardous substance, waste, material, pollutant, contaminant or infectious waste, or any matter that in certain specified quantities would be injurious to the public health or welfare, or words of similar import, in any of the "Environmental Laws," as that term is defined below, or any other words which are intended to define, list or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, toxicity or reproductive toxicity and includes, without limitation, asbestos, petroleum (including crude oil or any fraction thereof, natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel, or any mixture thereof), petroleum products, polychlorinated biphenyls, urea formaldehyde, radon gas, nuclear or radioactive matter, medical waste, soot, vapors, fumes, acids, alkalis, chemicals, microbial matters (such as molds, fungi or other bacterial matters), biological agents and chemicals which may cause adverse health effects, including but not limited to cancers and /or toxicity.  "Environmental Laws" shall mean any and all federal, state, local or quasi-governmental laws (whether under common law, statute or otherwise), ordinances, decrees, codes, rulings, awards, rules, regulations or guidance or policy documents now or hereafter enacted or promulgated and as amended from time to time, in any way relating to (i) the protection of the environment, the health and safety of persons (including employees), property or the public welfare from actual or potential release, discharge, escape or emission (whether past or present) of any Hazardous Materials or (ii) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of any Hazardous Materials.

1.2Compliance with Environmental Laws.  Landlord covenants that during the Lease Term, Landlord shall comply with all Environmental Laws in accordance with, and as required by, the TCCs of Article 24 of this Lease.  Tenant represents and warrants that, except as herein set forth, it will not use, store or dispose of any Hazardous Materials in or on the Premises. However, notwithstanding the preceding sentence, Landlord agrees that Tenant may use, store and properly dispose of commonly available household cleaners and chemicals to maintain the Premises and Tenant's routine office operations (such as printer toner and copier toner) (hereinafter the "Permitted Chemicals"). Landlord and Tenant acknowledge that any or all of the Permitted Chemicals described in this paragraph may constitute Hazardous Materials. However, Tenant may use, store and dispose of same, provided that in doing so, Tenant fully complies with all Environmental Laws.

1.3Tenant Hazardous Materials. Tenant will (i) obtain and maintain in full force and effect all Environmental Permits (as defined below) that may be required from time to time under any Environmental Laws applicable to Tenant or the Premises, and (ii) be and remain in compliance with all terms and conditions of all such Environmental Permits and with all other Environmental Laws.  "Environmental Permits" means, collectively, any and all permits, consents, licenses, approvals and registrations of any nature at any time required pursuant to, or in order to comply with any Environmental Law.  On or before the Lease Commencement Date and on each annual anniversary of the Commencement Date thereafter, as well as at any other time following Tenant's receipt of a reasonable request from Landlord, Tenant agrees to deliver to Landlord a list of all Hazardous Materials anticipated to be used by Tenant in the Premises and the quantities thereof. At any time following Tenant's receipt of a request from Landlord, Tenant shall promptly complete a "hazardous materials questionnaire" using the form then-provided by Landlord.  Upon the expiration or earlier termination of this Lease, Tenant agrees to promptly remove from the Premises, the Building and the Project, at its sole cost and expense, any and all Hazardous Materials, including any equipment or systems containing Hazardous Materials, which are installed, brought upon, stored, used, generated or released upon, in, under or about the Premises, the Building, and/or the Project or any portion thereof by Tenant and/or any Tenant Parties (such obligation to survive the expiration or sooner termination of this Lease).

1.4Landlord's Right of Environmental Audit.Landlord may, upon reasonable notice to Tenant, be granted access to and enter the Premises no more than once annually to perform or cause to have performed an environmental inspection, site assessment or audit. Such environmental inspector or auditor may be chosen by Landlord, in its sole discretion, and be performed at Landlord's sole expense. To the extent that the report prepared upon such inspection, assessment or audit, indicates the presence of Hazardous Materials in violation of Environmental Laws, or provides recommendations or suggestions to prohibit the release, discharge, escape or emission of any Hazardous Materials at upon, under or within the Premises, or to comply with any Environmental Laws, Tenant shall promptly, at Tenant's sole expense, comply with such recommendations or suggestions, including, but not limited to performing such additional investigative or subsurface investigations or remediation(s) as recommended by such inspector or auditor.  Notwithstanding the above, if at any time, Landlord has actual notice or reasonable cause to believe that Tenant has violated, or permitted any violations of any Environmental Law, then Landlord will be entitled to perform its environmental inspection, assessment or audit at any time, notwithstanding the above mentioned 'annual limitation, and Tenant must reimburse Landlord for the cost or fees incurred for such as Additional Rent,

1.5Indemnifications.  Landlord agrees to indemnify, defend; protect and hold harmless the Tenant Parties from and against any liability; Obligation, damage or costs, including without limitation, attorneys' fees and costs, resulting directly or indirectly from any use, presence, removal or disposal of any Hazardous Materials to the extent such liability, obligation, damage or costs was a result of actions caused or knowingly permitted by Landlord or a Landlord Party. Tenant agrees to indemnify, defend, protect and hold harmless the Landlord Parties from and against any liability, obligation, damage or costs, including without limitation, attorneys' fees and costs, resulting directly or indirectly from any use presence, removal or disposal of any Hazardous Materials or breach of any provision of this section, to the extent such liability, obligation, damage or costs was a result of actions caused or permitted by Tenant or a Tenant Party.

EX-10.32

EXHIBIT 10.32

SUBLEASE AGREEMENT

between

LIGAND PHARMACEUTICALS INCORPORATED as Sublandlord

and

eBIOSCIENCE, INC. as Subtenant

Building Address: 10255 Science Center Drive

San Diego, California 92121

SUBLEASE AGREEMENT

THIS SUBLEASE AGREEMENT ("Sublease") is made as of December 6, 2007, by and between  LIGAND  PHARMACEUTICALS  INCORPORATED,  a  Delaware  corporation ("Sublandlord") and eBIOSCIENCE, INC., a California  corporation ("Subtenant"), with Sublandlord and Subtenant hereinafter sometimes referred to collectively as the "Parties" and individually as a "Party"), with reference to the following facts:

RECITALS

A.Sublandlord and BMR 10255 Science Center Drive LLC, a Delaware limited liability company ("Master Landlord") are parties to that certain Lease dated July 6, 1994, by and between Sublandlord and Master Landlord' predecessor, Chevron/Nexus Partnership (Lot 13), as amended by that certain First Amendment to Lease dated December 15, 1994, and by that certain Second Amendment to Lease dated January 30, 1997 (collectively, the "Master Lease"). The Master Lease covers certain space consisting of approximately 52,800 rentable square feet (the "Premises") consisting of the entire building at 10255 Science Center Drive, San Diego, California 92121 (the "Building").

B.Sublandlord desires to sublease to Subtenant, and Subtenant desires to sublease from Sublandlord, all of the Premises on the terms, covenants and conditions herein.

C.Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Master Lease.

AGREEMENT

NOW, THEREFORE, in consideration of the recitals and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Sublandlord and Subtenant hereby agree as follows.

1.Definitions:The following definitions apply in this Sublease:

1.1Base Rent; Adjustment.Commencing on the Sublease Commencement Date, Base Rent shall be $64,944.00 per month ($1.23 per rentable square foot).  On January 1, 2009 and each January 1 thereafter ("Rent Adjustment Date"),the Base Rent shall be increased by 3% of the Base Rent in effect immediately prior to such Rent Adjustment Date.

1.2Security Deposit:$259,776 in cash.

1.3Premises: All of the Premises described under the Master Lease, as depicted on Exhibit B-1 attached hereto.

1.4Term:   The term of this Sublease ("Sublease Term")shall commence on January 1, 2008 ("Sublease Commencement Date").The Sublease Term shall expire on July 30, 2015("Sublease Expiration Date"), which is one day prior to the expiration of the term of the Master Lease.  Subtenant shall be permitted to occupy the Premises prior to the Sublease Commencement Date upon (i) payment of the first month's Base Rent and the Security Deposit in accordance with Section 5.3, (ii) the obtaining of the Master Landlord's Consent described in Section 21 below, and (iii) the compliance by Subtenant of all of its obligations with respect to insurance and insurance certificates pursuant to Section 11 below.

2.Sublease.

2.1Sublandlord hereby subleases to Subtenant, and Subtenant hereby subleases from Sublandlord, the Premises, together with all appurtenances thereto as provided in the Master Lease.

2.2Sublandlord, as part of the Premises additionally leases to Subtenant, and Subtenant hereby subleases from Sublandlord, the telephone wiring and switches and the movable personal property that currently exists in the Premises owned by Sublandlord and that is described in the inventory attached hereto as Exhibit B-2 (the "Furniture"). The Furniture includes various desks, workstations, conference table, chairs, telephone wiring and switches, but does not include the existing movable equipment and instrumentation in the vivarium described on the attached Exhibit B-3 ("Sublandlord's Vivarium Equipment").  If Sublandlord has not completed the inventories of the Furniture or of Sublandlord's Vivarium Equipment by the time this Sublease is executed, Exhibits B-2 and B-3 shall be left blank, and the parties shall reasonably agree upon their form, and attach such agreed forms to the Sublease, as soon as practicable, but in no event later than the Sublease Commencement Date.  At the expiration or early termination of the Sublease term, Subtenant shall return the Furniture to Sublandlord in the Premises in its current state of repair, reasonable wear and tear excepted. Subtenant shall, at its sole cost, keep the Furniture insured against fire and other casualty under an "all-risk" policy of fire or casualty insurance, with loss payable to Sublandlord.

2.3Sublandlord is the tenant of an adjacent building located at 10275 Science Center Drive,  A portion of the outdoor common area of such adjacent building that is also adjacent to the Premises contains certain eating/picnic areas and tables, a sports field and a basketball court (collectively, the "Off-Premises Recreation Area"). Sublandlord grants to Subtenant (and Subtenant's employees and invitees authorized by Subtenant) a nonexclusive license to use the Off-Premises Recreation Area in common with Sublandlord and its employees and invitees, subject  to  the  following: (i) all  of Subtenant's  indemnification  obligations  in  favor of Sublandlord with respect to the Premises shall apply to the use of the Off-Premises Recreation Area by Subtenant and its employees and invitees, (ii) Sublandlord shall have the right to adopt (and Subtenant and its employees and invitees shall observe) reasonable rules and regulations with respect to the use of the Off-Premises Recreation Area, including without limitation with respect to the scheduling of company events and hours of use, and (iii) all of Subtenant's use and rights to use the Off-Premises Recreation Area shall be subject to the lease that Sublandlord has with the owner of the Off-Premises Recreation Area and to the revocation of such license in whole or in part if Sublandlord reasonably determines that such use is not permitted pursuant to such other lease.  All of Subtenant's obligations with respect to indemnification and liability insurance shall apply to the use by Subtenant of the Off-Premises Recreation Area by Subtenant and its employees and invitees.

3.Condition of Premises.

3.1Subtenant acknowledges and agrees that Sublandlord (and any person purporting to act on behalf of Sublandlord) has not made, does not make and specifically negates and disclaims any representations, warranties, promises, covenants, agreements or guaranties of any kind or character whatsoever, whether express or implied, oral or written, past, present or future, of, as to, concerning or with respect to (i) value; (ii) the suitability of the Premises for any and all activities and uses that Subtenant may conduct thereon, including the possibilities for future development of the Premises; (iii) the habitability, merchantability, marketability, profitability or fitness for a particular purpose of the Premises; (iv) the manner, quality, state of repair or lack of repair of the Premises; (v) the nature, quality or condition of the Premises; (vi) the compliance of or by the Premises or its operation with any laws, rules, ordinances or regulations of any applicable governmental authority or body; (vii) the manner or quality of the construction or materials, if any, incorporated into the Premises; (viii) whether the Premises is in compliance with any environmental protection, pollution or land use laws, rules, regulations, orders or requirements, including but not limited to, the following laws and any amendments thereto: Title III of the Americans with Disabilities Act of 1990, California Health & Safety Code, the Federal Water Pollution Control Act, the Federal Resource Conservation and Recovery Act, the U.S Environmental Protection Agency Regulations at 40 C.F.R., Part 261, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as Amended ("CERCLA"), the Resource Conservation and Recovery Act of 1976 ("RCRA"), the Safe Drinking Water Act, the Hazardous Materials Transportation Act, the Toxic Substance Control Act, and regulations promulgated under any of the foregoing; (ix) whether there is the presence or absence of Hazardous Materials in, at, on, under, or adjacent to the Premises that were not caused by Sublandlord; (x) the conformity of the Premises to past, current or future applicable zoning or building requirements; (xi) the ownership of, title to or other rights in the Intangible Personal Premises or any portion thereof, or (xii) with respect to any other matter.  Subtenant further acknowledges and agrees that Subtenant has been given the opportunity to inspect the Premises and to review information and documentation affecting the Premises and that Subtenant is relying solely on its own investigation of the Premises and review of such information and documentation, and not on any information provided or to be provided by Sublandlord.

3.2SUBTENANT FURTHER ACKNOWLEDGES AND AGREES THAT TO THE MAXIMUM EXTENT PERMITTED BY LAW, SUBTENANT ACCEPTS THE PREMISES AS IN THEIR "AS IS" CONDITION AND BASIS WITH ALL FAULTS, AND THAT SUBLANDLORD HAS NO OBLIGATIONS TO MAKE REPAIRS, REPLACEMENTS OR IMPROVEMENTS, SUBTENANT REPRESENTS, WARRANTS AND COVENANTS TO SUBLANDLORD THAT SUBTENANT IS RELYING SOLELY UPON SUBTENANT'S OWN INVESTIGATION OF THE PREMISES IN ENTERING INTO THIS SUBLEASE.

4.Rent.

4.1Base Rent. During the Sublease Term, Subtenant shall pay Sublandlord the Base Rent as set forth in Section 1 of this Sublease, without set-off or deduction whatsoever.  Base Rent shall be due and payable by Subtenant in immediately available funds, in advance on or before the first day of each calendar month without notice or demand.

4.2Additional Rent.  In addition to the Base Rent, Subtenant shall pay (i), any and all charges, expenses or other sums Subtenant is required to pay under the terms of this Sublease, and (ii) any and all "Additional Rent" as defined in the Master Lease (which Additional Rent encompasses, among other things, Operating Costs, Taxes and Assessments, Utilities and Services, Repairs and Maintenance, and the costs of management services), the periodic payments into the Reserve Fund as provided in Section 18.5 of the Master Lease, and all other amounts required to be paid by Sublandlord under the Master Lease ("Additional Rent," and together with Base Rent, "Subtenant's Rent"), whether directly to Master Landlord or directly to the taxing authorities or to the providers of any of the services, utilities, insurance policies or other matters to be paid for by Subtenant.  Sublandlord shall have the same rights and remedies with respect to payment of Additional Rent as Sublandlord shall have with respect to the Base Rent. Subtenant shall remain responsible for Subtenant's Rent and any other charges, expenses or other sums that first arise, accrue or are invoiced at any time during or after the expiration of the Sublease Term, whether by Sublandlord or Master Landlord, to the extent they arise or accrue with respect to any period during the Sublease Term from any liabilities or obligations of Subtenant under the provisions of this Sublease (including any obligations under the Master Lease that are incorporated herein as liabilities or obligations of Subtenant).

4.3Impounds and Reserve Funds.

a.If any portion of Additional Rent is paid in advance or on an estimated basis (so called "impound payments") under the Master Lease, Tenant shall pay such impound payments in the amount due under the Master Lease monthly in advance at the same time as provided for the payment of Base Rent.   Any reconciliation of any impound payments for periods prior to the Sublease Commencement Date shall belong to, or be paid by, Sublandlord.

b.Prior to the Rent Commencement Date, Subtenant shall reimburse Sublandlord for the then-current balance of the Reserve Account established pursuant to Section 18.5 of the Master Lease.  The parties estimate that as of the Sublease Commencement Date, the balance of the Reserve Account will be approximately $105,477. Upon such payment, Subtenant shall have the right to exercise all rights of "Tenant" under Section 18.5 of the Master Lease with respect to payments to be made from the Reserve Account.  So long as Subtenant is not in default hereunder, at the end of the Sublease Term, Sublandlord shall cause all amounts remaining in the Reserve Account to be returned to Subtenant in accordance with the terms of Section18.5.

5.Rent Payments.

5.1Subtenant's Rent and all other charges, expenses or other sums Subtenant is required to pay to Sublandlord hereunder shall be due and payable without billing or demand, and without deduction, set-off or counterclaim, except as otherwise provided herein, in lawful money of the United States of America, at Sublandlord's address for notices in Section 24 hereof or to such other person or at such other place as Sublandlord may designate in writing, and shall be due and payable by Subtenant to Sublandlord on or before the date specified in this Sublease, provided that if no date is specified as to the applicable payment, then on or before (i) five (5) business days prior to the corresponding date provided in the Master Lease for payment of the same by Sublandlord to Master Landlord or (ii) if there is no corresponding date provided in the Master Lease for payment of the same by Sublandlord to Master  Landlord,  then  five (5) business days  after written  request  from  Sublandlord  to Subtenant.  The failure of Subtenant to make payment in full of Subtenant's Rent or any other charges, expenses or other sums Subtenant is required to pay to Sublandlord hereunder by the due date provided herein for such payment, shall subject Subtenant to the obligation to pay to Sublandlord interest in accordance with the provisions of Section 17,

5.2Sublandlord may upon reasonable prior written notice (which notice shall include Master Landlord's address and Master Landlord's acknowledgement of such notice) instruct Subtenant to make any payment of Subtenant's Rent directly to Master Landlord, in which event Subtenant shall timely make all such payments so instructed directly to Master Landlord (with a copy of the check or other evidence of payment to be contemporaneously forwarded by Subtenant to Sublandlord at the time of making of each such payment), and in such event Sublandlord shall have no responsibility to Subtenant for the payment of any such amount, and Subtenant shall be solely responsible for any interest or late charges that may be imposed as a result of any failure of Subtenant to have timely and properly made any such payment to Master Landlord. Any payment made directly by Subtenant to Master Landlord at the request of Sublandlord shall be credited against any of Subtenant's Rent due under this Sublease as and when received by Master Landlord.

5.3Within two (2) business days following mutual execution and delivery of this Sublease, Subtenant shall pay to Sublandlord the first installment of Base Rent (which shall be applicable to the month of January, 2008), and the full amount of the Security Deposit.

6.Use. Subtenant shall use and occupy the Premises only for the purposes permitted under, and in a manner consistent with, the provisions of the Master Lease.

7.Security Deposit. Upon execution of this Sublease, Subtenant shall deposit with Sublandlord the amount specified in Section 1.2 (the "Security Deposit"), to be held by Sublandlord, without liability for interest, as security for Subtenant's performance of its obligations under this Sublease.  Sublandlord shall not be required to keep the Security Deposit separate from its other accounts,  Sublandlord may apply all or a part of the Security Deposit to any unpaid Subtenant Rent or other monetary payments due from Subtenant or to cure any other default of Subtenant hereunder and to compensate Sublandlord for all damage and expense sustained as a result of such default. If all or any portion of the Security Deposit is so applied, Subtenant shall deposit cash sufficient to restore the Security Deposit to its original amount within fifteen (15) days after receipt of Sublandlord's written demand.  If Subtenant fully and faithfully performs each of its obligations under this Sublease, the Security Deposit or any balance thereof shall be returned to Subtenant within thirty (30) days of the later of the expiration or earlier termination of this Sublease or the vacation of the Premises by Subtenant.

8.Status of Master Lease.

8.1Sublandlord and Subtenant confirm and agree that this Sublease is subject and subordinate to all of the terms, covenants and conditions of the Master Lease, and to the matters to which the Master Lease shall be subordinate. Without limiting the generality of the foregoing, in the event of termination of Sublandlord's interest under the Master Lease for any reason (including, without limitation, upon the occurrence of any casualty or condemnation pertaining to the Premises) this Sublease shall terminate concurrently therewith and Sublandlord shall return to Subtenant the unapplied balance of the Security Deposit and any prepaid Subtenant's Rent within thirty (30) days of such termination.

8.2Sublandlord represents to Subtenant that to Sublandlord's current actual knowledge, as of the Sublease Commencement Date, (i) Sublandlord is not, and Sublandlord has not received any written notice from Master Landlord that Sublandlord is, in breach of any material term, covenant, or conditions of the Master Lease, including the provisions of the Master Lease related to Hazardous Materials and (ii) there are no breaches or defaults under the Master Lease by Master Landlord or Sublandlord, (iii) Sublandlord knows of no events or circumstances that with the passage of time or the giving of notice or both would constitute a default under the Master Lease by either Master Landlord or Sublandlord; and (iv) Sublandlord has received no written notice from Master Landlord that any material repairs are required at the Premises.  Sublandlord agrees to perform all of its obligations under the Master Lease and, except for a termination of the Master Lease in connection with a casualty or condemnation pursuant to Sublandlord's express rights as set forth therein, to maintain the Master Lease in full force and effect, except to the extent that any failure to maintain the Master Lease is due to the failure of Subtenant to comply with any of its obligations under this Sublease. Sublandlord shall not amend or modify the Master Lease in such a manner as to materially adversely affect Subtenant's use of the Subleased Premises or increase the obligations or decrease the rights of Subtenant hereunder, without the prior written consent of Subtenant.

8.3if Sublandlord fails to pay any sum of money to Master Landlord, or fails to perform any other act on its part to be performed under the Master Lease or this Sublease, then Subtenant may, but shall not be obligated to, make such payment or perform such act. All such sums paid, and all reasonable costs and expenses of performing any such act, shall be payable by Sublandlord to Subtenant upon demand.

8.4In the event that Subtenant desires to make any alterations or improvements, or otherwise take any action that will require the consent of Master Landlord, then (i) Subtenant shall seek and obtain Sublandlord's consent or approval in the same manner and under the same standards as apply to the consent of Master Landlord under the Master Lease, and (ii) Subtenant shall additionally obtain the consent directly from Master Landlord as required under the Master Lease.  Sublandlord shall cooperate, at no cost or expense to Sublandlord, in connection with Subtenant's request for such consent of Master Landlord.

9,Remedies.

In addition to the remedies set forth in the Master Lease, in the event of any default by Subtenant, Master Landlord shall, in addition to any and all other rights and remedies set forth in the Master Sublease or provided by law, Sublandlord shall have the remedy described in California Civil Code Section 1951.4 (Sublandlord may continue this Sublease in effect after Subtenant's breach and abandonment and recover rent as it becomes due, if Subtenant has the right to sublet or assign, subject only to reasonable limitations), as follows: Sublandlord can continue this Sublease in  full  force and effect without terminating Subtenant's right of possession, and Sublandlord shall have the right to collect rent and other monetary charges when due and to enforce all other obligations of Subtenant hereunder. Sublandlord shall have the right to enter the Premises to do acts of maintenance and preservation of the Premises, to make alterations and repairs in order to relet the Premises, and/or to undertake other efforts to relet the Premises. Sublandlord may also remove personal property from the Premises and store the same in a public warehouse at Subtenant's expense and risk. No act by Sublandlord permitted under this Section shall terminate this Sublease unless a written notice of termination is given by Sublandlord to Subtenant or unless the termination is decreed by a court of competent jurisdiction. Sublandlord shall not, by any re-entry or other act, be deemed to have accepted any surrender by Subtenant of the Premises or Subtenant's interest therein, or be deemed to have terminated this Sublease or Subtenant's right to possession of the Premises or the liability of Subtenant to pay rent accruing thereafter or Subtenant's liability for damages under any of the provisions hereof, unless Sublandlord shall have given Subtenant notice in writing that it has so elected to terminate this Sublease.

10.Incorporation of Master Lease Terms.

10.1The applicable terms, covenants and conditions contained in the Master Lease are hereby incorporated herein and shall, as between Sublandlord and Subtenant, constitute additional terms, covenants and conditions of this Sublease, except to the extent set forth below. Except as provided in this Section 10, all references in the Master Lease to "Master Landlord," "Tenant,"  "Master  Lease," "Commencement  Date" and "Rent"  shall, for  purposes of incorporation thereof into this Sublease, mean and refer to "Sublandlord," "Subtenant," "Sublease," "Sublease Commencement Date" and "Subtenant's Rent," respectively.  Subtenant agrees to be bound by the provisions of the Master Lease incorporated herein and to keep, observe and perform for the benefit of the Master Landlord and Sublandlord each of the terms, covenants and conditions on its part to be kept, observed and performed hereunder as well as those applicable terms, covenants and conditions to be observed and performed by Sublandlord as Tenant under the Master Lease with respect to the Premises. Without limiting the foregoing, Subtenant shall not commit or permit to be committed on the Premises any act or omission that shall violate any term, covenant or condition of the Master Lease.  Subtenant shall under no circumstances have any rights with respect to the Premises greater than Sublandlord's rights under the Master Lease.

10.2In the event of conflict between any provision of the Master Lease that is incorporated herein as described above in this Section 10 and any provision of this Sublease, the provisions of this Sublease shall control.

10.3The following Sections and provisions of the Master Lease do not apply to, shall not be a part of, and are not incorporated into this Sublease.  Notwithstanding in such sections are not incorporated in the terms of this Sublease, such subsections nevertheless form a part of the Master Lease, and any definitions set forth in such excluded sections shall continue to be applicable hereto.

SectionSubject Matter

2.1.2Basic Annual Rent

2.1.3Monthly Installments of Basic Annual Rent

2.1.4Term

2.1.5Security Deposit

2.1.7Address for Notice

3 — All SubsectionsTerm

4 — All SubsectionsConstruction

5,1Rent

5.2Rent

5.3Rent

5.4Rent

6. — All SubsectionsRental Adjustments

7.4Pre-commencement Operating Expenses

7.8Additional Tenant Improvement Contribution

9. — All SubsectionsSecurity Deposit

8. — All SubsectionsRentable Area

10.5Master Landlord Warranty

1.Brokers

12.2Holdover

14.4Master Landlord Warranty

20.2Master Landlord indemnity

28.2Construction

30. — All SubsectionsRemoval of Property at end of Term

31,4Construction

35. — All SubsectionsSubordination and Attornment

39.8Master Landlord Representation

40. — All SubsectionsRight of First Refusal

41. — All SubsectionsOption to Purchase

1. of First AmendmentOption to Purchase

10.4Sublandlord and Subtenant agree that Sublandlord shall not be responsible or liable to Subtenant for the performance or non-performance of any obligations of Master Landlord under the Master Lease, and in furtherance thereof agree as follows:

a.Notwithstanding anything to the contrary contained in this Sublease, Sublandlord shall not be required to (A) provide or perform any insurance and services or any alterations, improvements, improvement allowances or other construction obligations as to the Premises, except with respect to Hazardous Materials insurance as set forth in paragraph 8.2 above, (B) perform any maintenance or make any of the repairs to the Premises or Building, (C) comply  with  any  laws  or  requirements  of governmental  authorities  regarding  the maintenance or operation of the Premises after Subtenant takes possession of the Premises or prior thereto the extent required to be complied with by Master Landlord under the Master Lease, (D) take any other action relating to the operation, maintenance, repair, alteration or servicing of the Premises that Master Landlord may have agreed to provide, furnish, make, comply with, or take, or cause to be provided, furnished, made, complied with or taken under the Master Lease, or (E) provide Subtenant with any rebate, credit, allowance or other concession required of Master Landlord for any reason pursuant to the Master Lease unless Sublandlord receives a rent abatement with respect to the Premises and Subtenant is not in default of its obligations under the Sublease, beyond all applicable notice and cure periods. Sublandlord makes no representation or warranty of quiet enjoyment as to any persons claiming by, through or under Master Landlord, but Sublandlord warrants quiet enjoyment as against any person claiming by, through or under Sublandlord.

b.Sublandlord agrees, upon request of Subtenant, to use reasonable efforts, at Subtenant's sole cost and expense, to cause Master Landlord to provide, furnish, or comply with any of Master Landlord's obligations under the Master Lease or to provide any required consents or approvals; provided, however, that Sublandlord shall not be obligated to use such efforts or take any action that, in Sublandlord's reasonable judgment, might give rise to a default by Sublandlord under the Master Lease, nor shall Sublandlord be required to commence, pursue, or be a party to any litigation, arbitration or other legal action.  Such efforts shall include, without limitation, upon Subtenant's request, notifying Master Landlord of its non-performance under the Master Lease and requesting that Master Landlord perform in its obligations thereunder. If Master Landlord shall default in the performance of any of its obligations under the Master Lease or at law, Sublandlord shall, upon request and at the expense of Subtenant, cooperate as aforesaid with Subtenant in Subtenant's efforts to have Master Landlord (A) make such repairs, furnish such electricity, provide such services or comply with any other obligation of Master Landlord under the Master Lease or as required by law, (B) compensate Subtenant for any earlier default by Master Landlord in the payment or performance of its liabilities and obligations under the Master Lease during the Sublease Term, and/or (C) assigning Sublandlord's rights under the Master Lease to Subtenant to the extent necessary to permit Subtenant to institute legal proceedings against Master Landlord to obtain the performance of Master Landlord's obligations under the Master Lease; provided, however, that if Subtenant commences a lawsuit arbitration or other legal action, Subtenant shall pay all costs and expenses incurred in connection therewith (with any matter affecting the Premises, or a proportionate share of such costs if the matter also effects  the  Master Premises),  Subtenant shall  indemnify  Sublandlord against, and hold Sublandlord harmless from, all costs and expenses incurred by Sublandlord in connection therewith, and Sublandlord shall not be required to commence, pursue, or be a party to any litigation, arbitration or other legal action.

c.Subtenant shall not make, and Subtenant hereby waives and releases Sublandlord and the Sublandlord partners from any and all claims against Sublandlord for any damage that may arise by reason of: (i) the failure of Master Landlord to keep, observe or perform any of its obligations under the Master Lease; or (ii) the acts or omissions of Master Landlord or its employees, agents, licensees, contractors or invitees.

d.Subtenant agrees that any waiver of liability, waiver of subrogation rights, or indemnification provisions in the Master Lease that are incorporated herein as waivers or obligations of Subtenant, shall be deemed expanded so as to provide for Subtenant to make such waivers and provide such indemnities not only in favor of Sublandlord, but also in favor of Master Landlord, and the  respective affiliated employees, agents and the like of both Sublandlord and Master Landlord as enumerated in such provisions.

10.5In the event that Sublandlord, as Tenant,  is entitled to and exercises any termination rights for all or a portion of the Premises, including, without limitation, as a result of (i) damage and destruction under Section 22 of the Master Lease, or (ii) a condemnation under Section 23 of the Master Lease, then Subtenant shall be entitled to similar termination rights with respect to the portion or all of the Premises affected; provided, however, that Sublandlord shall exercise any voluntary termination rights arising from such damage, destruction or condemnation only at the direction of Subtenant.

10.6in the event that Sublandlord, as Tenant, receives a rent abatement for all or a portion of the Premises, including, without limitation, as a result of (i) damage and destruction under Section 23 of the Master. Lease, or (ii) a partial condemnation under Section 22 of the Master Lease, then Subtenant shall be entitled to abatement of Subtenant's Rent in the proportion to the abatement afforded Sublandlord under the Master Lease.

11.Insurance.  Subtenant shall comply at all times and in all respects with the provisions of Section 9 of the Master Lease with regard to the maintenance of insurance by Sublandlord as "Tenant." Such insurance shall name, as additional insureds, Sublandlord, Master Landlord, and any other parties required to be named under the tenets of the Master Lease, and a policy or certificate thereof shall be provided to Sublandlord not later than two (2) business days prior to the Sublease Commencement Date. The maintenance of insurance coverage with respect to the Premises and any property of Subtenant shall be the sole obligation of Subtenant. All insurance required to be maintained by Subtenant shall provide for thirty (30) days prior written notice to Sublandlord, Master Landlord and such other parties in the event of any termination or reduction in coverage of such insurance. All property insurance policies that either Party obtains affecting the Premises shall include a clause or endorsement denying the insurer any rights of subrogation against the other Party or Master Landlord.

12.Surrender of Premises; Holding Over.

12.1At the expiration or earlier termination of the Sublease Term, Subtenant shall surrender the Premises to Sublandlord in the condition required for surrender of the Premises at the end of the Master Lease Term. Subtenant will concurrently deliver to Sublandlord all keys to the Premises.

12.2At the expiration or earlier termination of the Sublease Term, Sublandlord may require the removal of any or all furniture, personal property and equipment from the Premises, and the restoration of the Premises to its prior condition, except for reasonable wear and tear, at Subtenant's expense. All of Subtenant's furniture, personal property and equipment on or about the Premises, shall be removed from the Premises by Subtenant at the expiration or termination of the Sublease Term. All removals by Subtenant will be accomplished in a good and workmanlike manner so as not to damage any portion of the Premises or, Building, and Subtenant will promptly repair and restore all damage done except for normal wear and tear. If Subtenant does not so remove any property that it has the right or duty to remove, Sublandlord may immediately either claim it as abandoned property, or remove, store and dispose of it in any manner Sublandlord may choose, at Subtenant's cost and without liability to Subtenant or any other party.

12.3If Subtenant does not surrender the Premises as required and holds over after its right to possession ends, Subtenant shall become a tenant at sufferance only, at a monthly rental rate equal to the greater of (i) one hundred fifty percent (150%) of the total Subtenant's Rent payable in the last prior full month, or (ii) the amount payable by Sublandlord as "Tenant" under the Master Lease as a result of such holdover, without renewal, extension or expansion rights, and otherwise subject to the terms, covenants and conditions herein specified, so far as applicable. Nothing other than a fully executed written agreement of the Parties creates any other relationship. Subtenant will be liable for Sublandlord's loss, costs and damage from such holding over, including, without limitation, those from Sublandlord's delay in delivering possession to other parties.  These provisions are in addition to other rights of Sublandlord hereunder and as provided by law.

13.Subordination.

In connection with Sublandlord's compliance with Section 35 of the Master Lease, Subtenant agrees to execute, deliver and acknowledge, any and all documents necessary to permit Master Landlord to comply with such Section, or that may be required by Master Landlord or Master Landlord's lender in connection therewith.

14.Waiver and Indemnification.

In addition to and not in limitation of the provisions of the Master Lease relating to waiver of liability, waiver of subrogation and indemnification that apply to this Sublease as incorporated by Section 10 hereof, Subtenant agree as follows: Subtenant shall indemnify, protect, hold harmless and defend Sublandlord and Sublandlord's officers, directors, shareholders, partners, members, principals, employees, agents, representatives, and other related entities and individuals, and their respective successors and assigns (collectively, "Sublandlord's Related Entities"), from and against any and all claims, actions, damages, liability, costs, and expenses, including attorneys' fees and costs, arising from personal  injury, death,  and/or property damage and arising from: (a) Subtenant's use or occupation of the Premises or any work or activity done or permitted by Subtenant in or about the Premises (including without limitation any storage or display of materials or merchandise, or other activity by Subtenant in the Common Facilities), (b) any activity, condition or occurrence in the Premises or other area under the control of Subtenant, (c) any breach or failure to perform any obligation imposed on Subtenant under this Sublease, (d) any breach or failure by Subtenant to cause the Premises (and any and all other areas of the Center under the control of Subtenant or that Subtenant is required to maintain) to comply with all Legal Requirements related to disabled persons or access, or (e) any other act or omission of Subtenant or its assignees or subtenants or their respective agents, contractors, employees, customers, invitees or licensees.   Subtenant's obligation to indemnify, protect, hold harmless and defend shall include, but not be limited to, claims based on duties, obligations, or liabilities imposed on Sublandlord or Sublandlord's Related Entities by statute, ordinance, regulation, or other law, such as claims based on theories of peculiar risk and nondelegable duty, and to any and all other claims based on the negligent act or omission of Sublandlord or Sublandlord's Related Entities.   The parties intend that this provision be interpreted as the broadest Type I indemnity provision as defined in McDonald & Kruse, Inc. v. San Jose Steel Co., 29 Cal. App. 3rd 413 (1972), and as allowed by law between a landlord and a tenant.  Upon notice from Sublandlord, Subtenant shall, at Subtenant's sole expense and by counsel satisfactory to Sublandlord, defend any action or proceeding brought against Sublandlord or Sublandlord's Related Entities by reason of any such claim. If Sublandlord or any of Sublandlord's Related Entities is  made a party to any litigation commenced by or against Subtenant, then Subtenant shall indemnify, protect, hold harmless and defend Sublandlord and Sublandlord's Related Entities from and against any and all claims, actions, damages, liability, costs, expenses and attorneys' fees and costs incurred or paid in connection with such litigation. Subtenant, as a material part of the consideration to Sublandlord hereunder, assumes all risk of and waives all claims against Sublandlord for, personal injury or property damage in, upon or about the Premises, from any cause whatsoever.  Provided, however, that the indemnifications and waivers of Subtenant set forth in this Section shall not apply to damage and liability caused (1) by the gross negligence or willful misconduct of Sublandlord or violation of the Hazardous Material provisions of the Master Lease by Sublandlord, and/or (ii) through no fault of Subtenant, its assignees or subtenants, or their respective agents, contractors, employees, customers, invitees or licensees.

15.Hazardous Materials.  The provisions of the Master Lease relating to Hazardous Materials shall apply to this Sublease as incorporated by Section 10. Notwithstanding anything in this Sublease to the contrary, Subtenant shall have no liability or obligation whatsoever for any Hazardous Materials located in, on or about the Center, Building or Premises prior to the Sublease Commencement Date or that migrate onto the property on which the Center is located or appear within the Building or Premises, provided that neither Subtenant nor its employees, agents, licensees, contractors or invitees was the cause or source of such Hazardous Materials. To the extent required by law or for Subtenant's use and occupancy of the Building and Premises. Sublandlord shall cause, at its sole cost and expense, any and all such Hazardous Materials discovered in, on or about the Building or Premises to be removed or otherwise remediated.

16.Assignment and Subletting. All of the terms and provisions of Section 25 of the Master Lease shall apply to this Sublease as if fully set forth herein (as provided in Section 10), except that (i) all permissions, submissions and consents provided therein shall be rendered to and required  of both Sublandlord and Master Landlord, and (ii) the  words "one-half of any consideration" appearing in the fourth and fifth lines of Section 25.9 shall be replaced with the words "all of the consideration."

17.Interest on Subtenant's Obligations. Any Subtenant's Rent or other charge, expense or other sum due from Subtenant to Sublandlord under this Sublease that is not paid on the date due, shall bear interest from the date such payment is due until paid (computed on the basis of a 365-day-year) at the lesser of (a) the maximum lawful rate per annum or (b) twelve percent (12%) per annum. The payment of such interest shall not excuse or cure a default by Subtenant hereunder.

18.Signage and Access.  Subject to Master Landlord's approval, Subtenant shall have the right to install signage at the Center, Building and Premises, at its sole cost and expense, subject to, and in compliance with, the provisions of the Master Lease.

19.Commissions. Sublandlord has entered, into certain listing agreements with Burnham Real Estate pursuant to which Sublandlord shall pay any commission payable in connection with this Sublease.  Sublandlord hereby represents and warrants to Subtenant, and Subtenant hereby represents and warrants to Subtenant, that no other broker or finder has been engaged by it, respectively, in connection with any of the transactions contemplated by this Sublease or to its knowledge is in any way connected with any such transactions. In the event of any other claims for brokers' or finders' fees or commissions in connection with the negotiation, execution or consummation of this Sublease, then Subtenant shall indemnify, save harmless and defend Sublandlord  from and  against such claims  if they shall be based upon any statement, representation or agreement by Subtenant, and Sublandlord shall indemnify, save harmless and defend Subtenant from and against such claims if they shall be based upon any statement, representation or agreement by Sublandlord.

20.Parking.Subtenant shall have the right to use all parking areas available to Sublandlord under the Master Lease in accordance with and subject to the terms and provisions of the Master Lease.

2LMaster Landlord Consent. This Sublease shall not become effective and shall not be deemed to be an offer to sublease or create any rights or obligations between Subtenant or Sublandlord unless and until Sublandlord and Subtenant have executed and delivered the same, and Master Landlord has executed and delivered a consent to this Sublease in the form attached hereto as Exhibit C, with such changes as may reasonably be accepted by Subtenant and Sublandlord.  Sublandlord shall use commercially reasonable efforts to obtain the consent of Master Landlord promptly following mutual execution hereon.  If no such consent to this Sublease is given by Master Landlord within thirty (30) days after the delivery of a copy of the fully executed Sublease to Master Landlord, then either Sublandlord or Subtenant shall have the right, by written notice to the other, to terminate this Sublease at any time prior to such consent from Master Landlord being given. By delivering this Sublease, each Party hereby represents and warrants to the other that such execution and delivery has been duly authorized by all necessary corporate or partnership action and that the person(s) executing same have been duly authorized to do so.

In the event the Master Lease is terminated prior to the expiration of the Sublease Term, whether as a result of a voluntary termination by Sublandlord or a default on the part of Sublandlord, this Sublease shall, upon notice from Master Landlord to Subtenant, remain in full force and effect as a direct lease between Subtenant and Master Landlord (in which event Subtenant shall attorn to Master Landlord).

22.Possible Future Assignment. If during the Sublease Term Master Landlord agrees to consent to an assignment of the Master Lease to Subtenant on terms and conditions acceptable to Sublandlord, then, at the election of Sublandlord, Subtenant agrees to enter into good faith negotiations with Sublandlord for such assignment.  The terms to be negotiated in connection with any such assignment shall include without limitation the assumption of the Master Lease, Subtenant's liability for the remaining term of the Master Lease, the release of Sublandlord's liability under the Master Lease, and Sublandlord's payment, if appropriate, of an amount reasonably calculated to compensate Subtenant for any difference between the rent payable under this Sublease and the rent payable under the Master Lease for the then-remaining term of the Master Lease.

23.Vivarium Use by Sublandlord.Notwithstanding anything contained in this Sublease to the contrary, for a period of up to sixty (60) days after the Sublease Commencement Date, Sublandlord shall be entitled to retain possession of the vivarium space in the Premises for the operation of its vivarium operations, and shall have reasonable access thereto through the remainder of the Premises by card key or otherwise. Subtenant shall maintain the utility service currently serving the vivarium during such period, and Sublandlord shall be entitled to use such utilities for the normal operation of the vivarium no additional cost. Sublandlord shall assume all risks associated with access to and use of the vivarium during such time.  Such vivarium space encompasses approximately 5,000 rentable square feet; accordingly, Subtenant shall be entitled to a credit against Base Rent for such use of $6,150 per month, prorated on a daily basis on the basis of a 30-day month. Upon vacation of such vivarium space, Sublandlord shall be permitted to remove its vivarium equipment described in Exhibit B-3, and shall leave the same broom clean and otherwise in its current configuration and condition.

24.Notices.  In the event any notice from the Master Landlord or otherwise relating to this Sublease is delivered to, or is otherwise received by, Sublandlord, then Sublandlord shall, as soon thereafter as possible, but in any event within forty-eight (48) hours, deliver such notice to Subtenant if such notice is written or advise Subtenant thereof by telephone if such notice is oral. All notices, demands, statements and other communications that may or are required to be given by either Party to the other hereunder shall be in writing and shall be (i) personally delivered to the address or addressee provided herein, or (ii) sent by certified mail, postage prepaid and return receipt requested or (iii) delivered by a reputable messenger or overnight courier service and, in any case, addressed as follows:

If to Sublandlord:

With a copy at the same time to:

Ligand Pharmaceuticals Incorporated 10275 Science Center Drive

San Diego, CA  92121-1117 Attn: Mr. John Sharp

Telephone:  (858) 550-7573 Facsimile: (858) 550-5608

Luce, Forward, Hamilton & Scripps LLP 600 West Broadway, Suite 2600

San Diego, CA 92101-3372 Attention: Robert D. Buell, Esq. File No. 21088-2

Telephone: (619) 699-2466 Facsimile: (619) 645-5332

If to Subtenant:eBioscience, Inc.

6042 Cornerstone Court, West

San Diego, California 92121

Attn: Todd R. Nelson Ph.D.

Telephone:(858) 642.2058

With a copy at the same time to:Wirtz Hellenkamp LLP

12760 High Bluff Drive, Suite 300 San Diego, CA 92130

Attention: Richard M. Wirtz, Esq. File No. 2445

Telephone:858.259.5009

Facsimile:858.259.6008

Email; rwirtz@wirtzlaw.com

Any notice or document addressed to the Parties hereto at the respective addresses set forth on this Sublease or at such other address as they may specify from time to time by written notice delivered in accordance with this Section 24 shall be considered delivered (w) in the case of personal delivery, at the time of delivery or refusal to accept delivery; (x) on the third day after deposit in the United States mail, certified mail, postage prepaid; (y) in the case of reputable messenger or overnight courier service, upon delivery or refusal to accept delivery; or (z) in the event of failure of delivery by reason of changed address of which no notice was delivered or refusal to accept delivery, as of the date of such failure or refusal. If any such day of delivery is not a business day, the notice or document will be considered delivered on the next business day.

25.Miscellaneous.

25.1Time is of the essence of each and every term of this Sublease.

25.2Subtenant waives any right it may now or hereafter have (i) for exemption of property from liability for debt or for distress for rent or (ii) relating to notice or delay in levy of execution in case of eviction for nonpayment of rent.

25.3If there is more than one party constituting .Subtenant, their obligations are joint and several, and Sublandlord need not first proceed against all of them before proceeding against any or all of the others.

25.4Subtenant acquires no rights by implication from this Sublease, and is not a beneficiary of any past, current or future agreements between Sublandlord and third parties.

25.5California law governs this Sublease. Neither Party may record this Sublease or a copy or memorandum thereof. Submission of this Sublease to Subtenant is not an offer, and Subtenant will have no rights hereunder until each Party executes a counterpart and delivers it to the other Party.

25.6This Sublease cannot be changed terminated orally.  All informal understandings and agreements, representation or warranties heretofore made between the Parties are merged in this Sublease, which alone fully and completely expresses the agreement between Sublandlord and Subtenant as to the subleasing of the Premises.

25.7Each and every indemnification obligation set forth in this Sublease, or incorporated into this Sublease from the Master Lease, shall survive the expiration or earlier termination of the term of this Sublease.

25.8If, for any reason, any suit be initiated between Sublandlord and Subtenant to interpret or enforce any provision of this Sublease, the prevailing Party shall be entitled to recover from the other Party its legal costs, expert witness expenses, and reasonable attorneys' fees, as fixed by the court.

25.9The Parties mutually acknowledge that this Sublease has been negotiated at arm's length. The provisions of this Sublease shall be deemed to have been drafted by all of the Parties and this Sublease shall not be interpreted or constructed against any Party solely by virtue of the fact that such Party or its counsel was responsible for its preparation.

25.10 This Sublease may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.

25.11 By delivering this Sublease, each Party hereby represents and warrants to the other that such execution and delivery has been duly authorized by all necessary corporate or partnership action and that the person(s) executing same have been duly authorized to do so.

25.12 The captions in this Sublease are used for convenience and reference only and are not to be taken as part of this Sublease or to be used in determining the intent of the Parties or otherwise interpreting this Sublease.

25.13  Subject to the restrictions on assignment set forth in this Sublease, this Sublease shall be binding upon and inure to the benefit of Sublandlord and Subtenant and their respective successors and assigns.

25.14 Subtenant represents, warrants and  covenants that any financial  statements heretofore furnished to Sublandlord, in connection with this Sublease, are accurate and are not materially misleading.

[Remainder of page intentionally blank]

IN WITNESS WHEREOF, this Sublease has been executed as of the day and year first above written.

"SUBLANDLORD":"SUBTENANT":

LIGAND PHARMACEUTICALSeBIOSCIENCE, INC., a California

INCORPORATED, a Delaware corporationcorporation

By: /s/ John SharpBy:  /s/ [Illegible]

Name: John SharpName:  [Illegible]

Title: VP, Finance & CFOTitle:CEO

Annex A

Master Lease

LEASE

THIS LEASE ("Lease") is made as of the 6^thday of July 1994, by and between CHEVRON/NEXUS PARTNERSHIP (LOT13), a California general partnership ("Landlord"), and LIGAND PHARMACEUTICALS, INC., a Delaware corporation ("Tenant").

1.Lease Premises.

1.1  Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, those certain premises ("Premises") consisting of (i) that certain real property ("RealProperty") legally described as Lot 13 of Torrey  Pines  Science Center Unit No. 2, City and County of San Diego, Map No. 12845, filed July 23, 1991, (ii) the entirety  of the  building (the "Building") to be constructed on the Real Property, to consist of two levels over a single level of subterranean parking, (iii) all landscaping, drainage, irrigation, lighting, parking facilities, walkways, driveways and other improvements and appurtenances related thereto, including, but not limited to, ingress and egress to the public right-of-way as shown on the plans  prepared pursuant to the Work Latter attached hereto as Exhibit "A", and (iv) Landlord's Property (defined  in Section 4. 7 below).  The Premises are part of a development known as Torrey Pines Science Center.

2.Basic Lease Provisions.

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

2. 1. 1Rentable Area of Premises: 52,800 square feet, subject to adjustment as provided in Section 9.2

2.1.2Basic Annual Rent: $1,260,864.00 ($23.88 per square foot of Rentable Area per year), subject to adjustment as provided in Section 8.2

2.1.3    Monthly Installment of Basic Annual Rent: $105,072.00 ($1.93 per square foot of Rentable Area per month), subject to adjustment as provided in Section 8.2

2.1.4(a)Estimated Term Commencement Date: August 1,1995

(b)Term expiration Date: Twenty (20) years from the Term Commencement-Date

2.1.5Security Deposit: $1,260,064.00 Letter of Credit

2.1.6Permitted Use: Uses permitted in Section10.1

2.1.7Address for Rent Payment and Notices to Landlord:

Chevron/Nexus Partnership (Lot13)

6333 Greenwich Drive,  Suite 250

San Diego,  California 92122

Address for Notices to Tenant:

Ligand Pharmaceuticals, Inc.

9393 Towne Centre Drive, Suite100

San Diego, California 92121

2.2Capitalized terms not otherwise defined in this Lease shall have the meaning set forth in the Work Letter attached hereto as Exhibit "A"("Work Letter").

3.Terms.

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

3.2The approximate term. of this Lease is as set forth in  Section 2.1.4.  The  actual  term  of  this  Lease  will  be  that period  from the Term Commencement Date through the Tern Expiration Date,  subject to earlier termination of this Lease or extension of the  term of  this Lease as  provided herein.

4.Construction,  Possession and Commencement Date.

4.1Landlord shall construct Landlord's Work in accordance with the provisions of the Work Letter. Except as provided in the Work Letter, all costs and expenses associated with Landlord's Work shall be paid by Landlord.  Landlord must commence Construction of Landlord's Work prior to November 1, 1994, as such date is extended by Tenant-Caused Delays.  If Landlord has not for any other reason commenced construction by such date (as extended by Tenant Caused Delays), then, at any time thereafter, Tenant shall have the right to terminate this Lease by giving thirty (30) days prior written notice to Landlord unless construction commences within such thirty (30) day period. To "commence construction" shall mean to commence grading of the Real Property.  Once Landlord has commenced grading, Landlord will diligently pursue Landlord's Work and Tenant's Improvement Work to completion.

4. 2Landlord shall cause the Project Contractor to construct Tenant's Improvement work in accordance with the provisions of the Work Letter.  Except asotherwise provided in the Work Letter, all costs and expenses associated with Tenant's Improvement Work shall be paid from the "Tenant Improvement Fund," which shall consist of the following:

(a)Funds contributed by Landlord ("Tenant Improvement Allowance") equal to the sum of (l) Two Million Six Hundred Forty Thousand Dollars ($2,640,000.00) (Fifty Dollars ($50.00) multiplied by the 52,800 square feet of Rentable Area in the Premises), and (ii) One Hundred Eighty Nine Thousand Nine Hundred Dollars ($189,900.00) (to defray the expense of construction of core improvements such as required fire exit corridors on the ground floor, first and second floor lobbies, and rest rooms); and

(b)Funds contributed by Tenant in an amount equal to all costs of Tenant's  Improvement Work in excess of the Tenant Improvement Allowance, in a minimum amount of Three Million Six Hundred Ninety Six Thousand Dollars ($3,696,000.00) (Seventy Dollars ($70.00) multiplied by the 52,800 square feet of Rentable Area in the Premises) ("Tenant's Improvement Contribution").  It is the understanding of the parties hereto that all costs and expenses associated with Tenant's Improvement Work in excess of the Tenant Improvement Allowance will be paid by Tenant; therefore, the amount of Tenant's Improvement Contribution set forth in this section is a  minimum only, and the actual Tenant's Improvement Contribution may exceed such amount.

Contributions to the Tenant Improvement Fund shall be made first by Landlord to the extent of the Tenant Improvement Allowance, and then by Tenant, as Tenant's Improvement Contribution, to the extent of the entire balance of the Tenant Improvement Fund, in accordance with the provisions of Section 2.2 of  the Work Letter.

4.3Landlord shall endeavor to tender possession of the Premises, with Landlord's  Work and Tenant's Improvement Work Substantially Completed, to Tenant on the estimated Term Commencement Date as set forth in Section 2.1.4(a), as such date may be expended by Tenant-Causes Delays and Force-Majeure Delays under Article 6 of the Work Letter.  Tenant agrees that in the event Landlord fails to tender possession of the Premises with such work Substantially Completed on or before the estimated Term Commencement Date as  so extended, this Lease shall not be void or voidable and Landlord shall not be liable to Tenant for any loss of damage resulting therefrom except as expressly provided herein.  In such event, however, Tenant's  obligation to pay Basic Annual Rent shall not commence  until such time as the Term Commencement Date would have occurred but for the Tenant-Caused Delays, and Tenant's obligation to pay Operating Expenses shall not commence until the actual Term Commencement Date.

If   Landlord   fails   to  tender  possession  of  the Premises with such work Substantially Completed within ninety (90) days  following the estimated Term Commencement Date (as extended by Tenant-Caused Delays and Force-Majeure Delays), Landlord and Tenant agree   Tenant  will   suffer  damages  which  would  be   difficult  to ascertain but a reasonable estimate of which would be Two Thousand Dollars ($2,000.00) per  day  for  each  day  of  delay  thereafter. Therefore,   in  the  event  of  such  delay,  Landlord  agrees  to  pay Tenant  liquidated damages of Two Thousand Dollars($2,000.00)  per day   commencing   on   the   ninety-first (91st)   day   following   the estimated  Term  Commencement  Date (as   extended  by  Tenant-Caused Delays   and   Force-Majeure   Delays)   and  continuing   on   each  day thereafter   until   the   Premises   with   such   work   Substantially Completed have been tendered to Tenant.   Notwithstanding anything else to the contrary in this Lease, any such liquidated damages not paid to  Tenant prior to  the Term Commencement Date may be offset against  Rent hereunder.

Without limiting the generality of the foregoing, Tenant  expressly waives any right to terminate this Lease because of  delays  in  completion  of  construction  of  Landlord's  Work  or Tenant's  Improvement Work,  except Tenant shall  have  the right to terminate this Lease and recover damages (in addition to the daily liquidated  damages  described  in  the  preceding paragraph),  in an amount   not   to   exceed   the   amount   of   Tenant's   Improvement Contribution  actually  contributed by Tenant (as  increased  by  an assumed interest rate of ten percent (10%)  per annum from the date each   portion was  made),  due   to  nonperformance  by  Landlord  if Landlord has not tendered possession of the Premises with such work Substantially  Completed  on or  before  a  date  one  year  after  the estimated  Term Commencement Date,  as such date is extended by the number of days of Tenant-Caused Delays and Force-Majeure Delays.

4.4The actual Term Commencement Date shall be two (2) business days following the date Landlord tenders possession of the Premises   to   Tenant   with   all   Landlord's   Work   and   Tenant's Improvement   Work   required   by   the   Work   Letter   Substantially Completed.  Landlord   and   Tenant   shall   execute   a   written acknowledgment   of   the   Term   Commencement   Date   and   the   Term Expiration Date when such is established in substantially the form attached  hereto  as  Exhibit  "B"  and  attach  it  to  this  Lease  as Exhibit   "B-1";   however,   failure   to   execute   and   deliver   such acknowledgement shall not affect Tenant's liability hereunder.

4. 5As used in Section 4.4 above and elsewhere in this Lease  and  the  Work  Letter,  the  terms  "Substantially  Complete", "Substantially Completed", and "Substantial Completion" shall mean the date of receipt of an interim or final right to occupy from the City of  San Diego   or check-off of  line 61,   "approved  to  occupy," of   the   inspection   card,   or-comparable   line   if   the   card   is modified),   and   all   conditions   to   the   issuance   of   a   final certificate of occupancy have been satisfied, including any offsite conditions,   and   the   only   steps   which   must   be   taken   by   the appropriate governmental  agency to issue the final certificate of occupancy   are   purely   ministerial   in   nature. "Substantial Completion"  is  not dependent upon completion of punch-list  items described  in  Section 6.3 of  the  Work  Letter,  validation  of  any pilot   plant   manufacturing   facility,   or   receipt   of   a   formal certificate of occupancy.   However,  "Substantial Completion" shall not  be  earlier  than the date the air in the Premises  is  balanced sufficiently   to   allow   the   conduct   of   Tenant's   business (as certified by the mechanical subcontractor),  and shall not be later than the date Tenant actually commences the conduct of its business on the  Premises (regardless- of the state of the air balancing).

4.6 Prior to entry by Tenant onto the Premises before the   Term   Commencement   Date   for   the   purposes   of   installing improvements  or  the  placement  of  personal property which  are  not part of Tenant's  Improvement Work within the Premises, Tenant shall furnish   to   Landlord   evidence   satisfactory   to   Landlord   that insurance  coverages   required  of  Tenant  under  the  provisions  of Article 21 axe in effect.   Entry by Tenant onto the Premises prior to the Term Commencement Date for such purposes shall be subject to all   of   the  terms   and  conditions   of  this  Lease  other  than  the payment  of  Basic  Annual_  Rent  and  Operating  Expenses,   shall  not interfere   with   the   performance   by   Landlord   or   the   Project Contractor with Landlord's Work or Tenant's Improvement work,  shall be  limited  to  the  last  ninety (90) days  prior  to  the  estimated Substantial Completion of the Premises,  and shall be made only with the advance written consent of Landlord, which consent shall not be unreasonably withheld.   Landlord shall  allow Tenant such entry no later   than   at   least   thirty (30) days   prior   to   Substantial Completion of the Premises.   In the event of entry by Tenant or its agents   onto   the   Premises   prior  to  the  Term  Commencement   Date, Tenant   agrees   to   indemnify,   protect,   defend  and   hold  Landlord harmless  from  any  and  all  loss  or damage  to  property,  completed work,   fixtures,   equipment,   materials   or  merchandise,  or  from liability  for  death  of  or  injury  to  any  person,   except  to  the extent  caused by  the  active negligence of Landlord or its  agents. Tenant's  entry  prior  to  the  Term  Commencement  Date  shall  not  be deemed Tenant's acceptance of  the Premises.

4.7  Prior to the Term Commencement Date, or as soon as practical (but not later than sixty (60) days)  thereafter, Landlord Shall,   subject   to   Tenant's   prior  approval   which   shall   not   be unreasonably withheld, allocate ownership of Tenant's Improvements, including  improvements,   fixtures  and  personal  property,   between Landlord and Tenant,  as  follows:

(i)  To  Landlord,  (i) To Landlord, to the  extent of Two Million Eight   Hundred   Twenty   Nine   Thousand   Nine   Hundred   Dollars ($2,829,900.00) (the amount of-the Tenant Improvement Allowance, to be   adjusted   pursuant   to   Sections 4. 9 and 8.2)("Landlord's Property");

(ii)  To Tenant,  to the extent of Three Million Six   Hundred   Ninety   Six   Thousand   Dollars ($3,696,000.00) (the minimum Tenant's  Improvement Contribution,  to serve as  additional security  for performance of Tenant's obligations under this Lease as  set  forth in Section 4.8  below) ("Landlord's  Collateral");  and

(iii)  to  Tenant,  to  the extent of  the balance of Tenant's  Improvement  Contribution ("Tenant's  Property").

Such  allocations shall be made on a pro rata basis according to  the  amount  contributed by  each  party  to  the  Tenant Improvement according to the amount contributed by each party to the Tenant Improvement Fund.   Allocations of "soft" and "indirect" costs, such as architectural  fees,  engineering fees, permits, and labor,  shall be made on a pro rata basis among all of the property,  rather than to any specific items of property, based on the ratio between total "soft"   and  "indirect"  costs  to  total  "hard"  and  "direct"  costs. Landlord  shall  endeavor  to  allocate  specific  items  of  property, rather  than  undivided interests  in such property.   Landlord shall also endeavor to  allocate (i)  property removable by Tenant at  the expiration of the  term under Article 30  hereof,  first  to Tenant's Property,   then   to   Landlord's   Collateral, and (ii) core improvements,  mechanical,  electrical,  plumbing and  other  systems necessary  to  the  operation  of  the  Building,   and  property  more generic   and  usable  by  a  Subsequent  tenant,   first  to  Landlord's Property,  then to Landlord's Collateral.

Landlord shall identify such property for taxation and depreciation purposes  in accordance with the Internal Revenue Code  and rules  and regulations promulgated thereunder.

The   expense   of   any   accounting   or   other professional   firm   incurred   in   identifying and  allocating   such property   shall   be   paid   by  Landlord,   and  not   from   the  Tenant Improvement Fund.

Landlord   and   Tenant   shall   execute   a   written acknowledgement  of  the  allocation  and  ownership  of  the  property within ninety (90) days after the Term Commencement Date.   Tenant's failure to execute such acknowledgement shall not affect Landlord's allocation of the property hereunder,  nor constitute a default by Landlord or Tenant hereunder.   Furthermore,  such failure shall be deemed   Tenant's   approval   of   the   allocation   for   purposes   of perfecting   Landlord's   security   interest   under   the   Security Agreement and Fixture  Filing,  and for purposes of reliance by any mortgagee   or  beneficiary  secured  by   the   Real   Property  or   any assignee of Landlord.

Landlord   and   Tenant   agree   that   Landlord's collateral   and  Tenant's  Property  landlord and Tenant agree that Landlord's Collateral and Tenant's Property is  and  shall  remain  fixtures, except   for   trade   fixtures   and  equipment (as   determined   by   the Parties  or  under applicable principles  of California  law),  which shall  be  personal  property.

4. 8  Concurrently herewith Tenant  shall  execute  that certain Security Agreement and Fixture Piling between Landlord and Tenant whereby Tenant will grant to Landlord a security interest in Landlord's Collateral to secure performance of Tenant's obligations under this Lease,  in the form attached hereto as Exhibit "E".

4.9  In   addition   to   the   amounts   set   forth   above, Landlord shall contribute to the Tenant Improvement Fund, to defray Tenant's  improvement Contribution,  any of Landlord's One Million Three Hundred Fifteen Thousand Dollars ($1,315,000.00)  "soft" cost budget   not   required   for   development   and  construction   of   the Premises,  in the aggregate  and without regard to amounts budgeted and  spent pursuant  to  individual line items.   Within fifteen (15) days from Tenant's request,  Landlord shall provide to Tenant a full accounting   of   such   "soft"   costs   with   supporting   information, invoices,  and material as  may be reasonably required by Tenant to verify Landlord's  expenses  for  "soft" costs.   Tenant acknowledges receipt of Landlord's "soft" cost budget showing the categories and estimated amounts  of expenses to be paid from such budget.

4.10 The   Landlord   named   herein (Chevron/Nexus Partnership (Lot 13)) guarantees lien-free completion of Landlord's Work and Tenant's  improvement Work pursuant to the provisions of Lease  and  the Work  Letter,  regardless  of  any termination of funding by the construction lender or other financial hardship, and regardless   of   any   assignment   of   its   interest   herein,   unless prevented  from doing so by Tenant's  failure to contribute Tenant's Improvement  Contribution.

5.Rent.

5. 1  Tenant agrees to pay Landlord as Basic Annual Rent for the Premises the sum set forth in Section 2.1.2, subject to the rental  adjustments  provided  in  Article 6   and  Article  8.  Basic Annual  Rent  shall  be  paid  in  the  equal monthly  installments  set forth in Section 2.1.3,  subject to the rental adjustments provided in Article 6 and Article 8  hereof,  each in advance on the first day of each and every calendar month during the term of this Lease.   In addition,  Tenant agrees  to pay to Landlord,  on or before  the Term Commencement  Date,  Basic Annual Rent (but  not Operating Expenses) for the period from the date the Term Commencement Date would have occurred but for Tenant-Caused Delays (pursuant to Article 6 of the Work Letter)  to  the actual Term Commencement Date.

5.2 In addition to Basic Annual Rent, Tenant agrees to pay  to  Landlord  as  additional  rent ("Additional  Rent"),   at  the times  hereinafter  specified in this  Lease,  Operating Expenses  as provided in Article 7, and all other amounts  that Tenant assumes or agrees to pay under the provisions of this Lease,  including without limitation any and all other sums that may become due by reason of any default  of  Tenant or  failure on Tenant's  part to comply with the agreements,  terms, covenants and conditions of this Lease to be performed by Tenant.

5.3  Basic   Annual   Rent   and   Additional   Rent   shall together be denominated "Rent."   Except as expressly set  forth in this Lease,  Rent shall be paid to Landlord, without notice, demand, abatement, suspension, deduction, setoff, counterclaim, or defense, in  lawful money of the United States of America,  at the office of Landlord as set forth in Section 2.1.7 or to such other person or at  such other place as Landlord may from time to time designate in writing.

5. 4  In  the  event  the  term of this  Lease  commences  or ends  on  a day other than the  first day of a calendar month,  then the  Rent  for  such  fraction of a month shall be prorated  for  such period on the basis of a thirty (30)  day month and shall be paid at the   then  current  rate   for  such  fractional  month  prior  to  the commencement of  the partial month.

5.5  This  is  an  absolutely net  lease  to  Landlord.   It is  the  intent  of  the parties  that  the  Basic  Annual  Rent  payable under this Lease shall be an absolutely net return to Landlord and that   Tenant  shall  pay  all  costs  and  expenses  relating  to  the Premises  unless  otherwise expressly provided in this  Lease.   Any amount or obligation herein relating to the Premises which is  not expressly declared to be that of Landlord shall be deemed to be an obligation of Tenant to be performed by Tenant at Tenant's expense. This  Lease shall not terminate,  nor shall Tenant have any right to terminate  this  Lease,  except as  expressly provided herein.

6.Rental Adjustments.

6.1 The Basic Annual Rent then in effect (as  increased by previous  adjustments  under this Article 6)  shall  be  increased each  year  in proportion  to  rises  in  the  Consumer  Price  Index as provided  within  this  Article 6. The   first  such  increase  shall become  effective  commencing with  that monthly rental  installment which  is firstdue on or after the first (1st)  anniversary of  the Term   Commencement   Date   and   subsequent increases   shall   become effective on the  same day of each calendar year thereafter  for so long  as  this Lease  continues  in effect.

6.2The   Basic   Annual   Rent   shall   be   increased   as follows:

(a) The "Base Month" for purposes of each Rent adjustment shall  be that month which is  fifteen (15)  months  prior to   the   month   in   which   the   Rent   adjustment occurs,   and   the"Comparison Month"  shall  be  that month which  is  three (3)  months prior  to  the month  in which  the  Rent adjustment occurs.

(b) As   used   in   this   subsection,   the   term "Consumer Price  Index" means the U.  S.  City Average Consumer Price Index (1982-84 a 100)  as published by the United States Department of  Labor,  Bureau. of Labor Statistics.   If the 1982-84  base  of  the Consumer Price  Index is hereafter changed,  then the new base will be converted to the 1982-84 base and the base as so converted shall be  used. In  the   event   that  the  Bureau  ceases  to  publish  the Consumer Price Index once every month,  than the successor or most nearly  comparable  index  thereto  selected  by Landlord  subject  to Tenant's  reasonable approval shall  be used.

(c)In the event that the Consumer Price Index for the Comparison Month (c) In the event that the Consumer Price Index for the Comparison month exceeds the Consumer Price Index for the Base  Month,   the  Basic  Annual  Rant  then  payable (as increased  by previous  adjustments  under this Article 6)  shall be multiplied by a  fraction,   the  numerator  of  which  is the  Consumer  Price   Index figure  for  the  Comparison Month, and the denominator of which is the Consumer Price Index figure for the Base Month.   Such amount as calculated shall be the Basic Annual Rent to be paid until the next datafor   adjustment   hereunder.  Any   of   the   foregoing notwithstanding,   in   no   event   shall   the   Basic  Annual   Rent   as previously adjusted increase less than three percent (3%)  nor more than seven percent (7%)  each year.

(d) Prior   to   each   anniversary  of   the   Term Commencement Date,  or as  soon as  reasonably practical thereafter, Landlord will calculate and give Tenant notice of any increase in Basic  Annual. Rent under  this  Article 6.  Delivery of  such  notice after  the   effective  date  of   any  such  increase  shall  not  waive Landlord's right to collect such increase,  and Tenant shall pay to Landlord,  upon  receipt  of such notice,  any such increase due  from the  last  anniversary of  the Term Commencement Date.

6.3 Notwithstanding the foregoing, increases in Basic Annual  Rent pursuant  to  the  foregoing Sections6.1  and 6.2 which would  otherwise be applicable commencing with that monthly rental installment which  is  due on or after the tenth (10th)  anniversary of the Term Commencement Date shall not apply for all or a part of the  balance  of  the  initial  term  of  this  Lease  on  the  following terms  and conditions:

(a) During   the   thirty(30) day   period following  the  tenth (10th)   anniversary  of  the  Term Commencement Date,   Tenant  may  elect  to  obtain  at  its  expense  and  deliver  to Landlord an independent Appraisal of the  fair market rental value of  the   Premises  as  of  the  tenth (10th)   anniversary  of  the  Term Commencement Date.

(b) Following   its receipt of Tenant's appraisal,  Landlord may elect to obtain at  its expense and deliver to Tenant a second independent appraisal of the fair market rental value  of  the  Premises  as  of  the  tenth (10th)  anniversary  of  the Term Commencement Date.   If Landlord elects not to obtain a second appraisal,  or if Landlord's appraisal is no more than five percent (5%)  greater than Tenant's  appraisal,  Tenant's appraisal  shall be conclusive.   If Landlord's appraisal is more than five percent (51) greater  than Tenant's  appraisal,  the  two appraisers  shall  appoint a third  appraiser to  appraise the  fair market rental value of the Premises   as   of   the   tenth (10th)   anniversary   of   the   Term Commencement Date,  and the fair market rental value of the Premises shall  be  the arithmetic  average  of  the two appraisals  closest  in their  determination  of  fair  market  rental  value.   Landlord  and Tenant  shall bear equally the expense of the third appraiser.

(c)If the Basic Annual Rent as adjusted under the foregoing Sections 6.1 and 6.2  on the first day of the calendar month   following   the   tenth(10th) anniversary   of   the   Term Commencement Data would be less than five percent (5%) greater than the  fair  market  rental  value  of  the  Premises,  rental  adjustments shall   continue (retroactive   to   that  monthly  rental   installment which  is  due on or after the tenth (10th)  anniversary rental installment which is due on or after the tenth (10^th) anniversary of  the Term Commencement Date)  for the balance of the term of the Lease as set forth  in Sections  6. 1  and  6. 2.

(d) If  the  Basic  Annual Rent  as  adjusted on the  first  day  of  the  calendar  month  following  the  tenth (10th) anniversar7 of  the Lease Commencement Date would be  five percent (5%) or  more  greater  than  the  fair  market  rental  value  of  the Premises,   then  the  Basic  Annual  Rent  shall  not  he  adjusted  but shall  remain the same as adjusted after the ninth (9th)  anniversary of  the  Term Commencement Date until such time as the  Basic Annual Rent  as   adjusted  after  the  ninth (9th)  anniversary  of  the  Term Commencement Date is determined  to be less than five percent (5%) greater  than the  fair market  rental value of the Premises,  using the  following procedure:

(i) During   the   thirty (30) day  period following the eleventh  (11th)  anniversary of the Term Commencement Date,  and following each anniversary of the Term Commencement Date thereafter, Landlord may elect to obtain at its expense and deliver to Tenant an independent appraisal of the fair market rental value of   the   Premises   as   of   the   latest   anniversary   of   the   Term Commencement Date.

(ii) Following its  receipt  of  Landlord's appraisal,  Tenant may elect to obtain at its expense and deliver to Landlord  a  second independent appraisal of the fair market rental value   of   the   Premises   as   of   the   anniversary   of   the   Term Commencement Date selected by Landlord.   If Tenant  elects  not to obtain a second appraisal, or if Tenant's appraisal is no more five percent (5%)  less than Landlord's  appraisal, Landlord's  appraisal shall   be   conclusive. If  Tenant's   appraisal   is  more   than   five percent (51) less  than  Landlord's  appraisal,  the  two  appraisers shall appoint a third appraiser to appraise the fair market rental value   of   the   Premises   as   of   the   anniversary   of   the   Term Commencement Date selected by-Landlord,  and the fair market rental value  of  the Premises  shall be  the arithmetic  average of  the two appraisals  closest  in  their determination  of  fair market  rental value. Landlord  and Tenant  shall  share  equally  the cost  of  the third appraisal.

(ill) When   the   Basic   Annual   Rent   as adjusted on the first day of the calendar month following the ninth (9th)  anniversary of the Term Commencement Date becomes less than five percent (5%)  greater than the fair market rental value of the Premises   as   determined   as   of   any   anniversary   of   the   Term Commencement  Date  after  the  tenth (10th)   such  anniversary  under subsection (ii)   above,   then  the  annual  rental  adjustments  shall recommence effective the first day of the calendar month following the  anniversary of  the  Term Commencement Date for which the  fair market  rental  value  was  determined,  and  shall  continue  for  the balance  of the term of the Lease,  as set forth in Section 6. 1.

(e) All  appraisers appointed hereunder shall have   at   least   five (5) years'   experience   in  the   appraisal  of commercial/industrial real property in the San Diego area and shall be  members  of  professional  organizations  such  as  the  American Appraisal  Institute with a designation of MAI or equivalent.

(f) For  the  purpose  of  such  appraisal,  the term  "fair market rental value" shall mean the price that a ready and willing comparable  tenant would pay, as of the anniversary of the   Term   Commencement   Date   for  which  the   appraisal  has  been requested,  as Basic Annual Rent,  to a ready and willing comparable landlord,  of property (i)  comparable to the Premises in the Torrey Pines/UTC  areas  of  San Diego; (ii)   assuming  a  term  of  ten (10) years; (iii)  with  other  lease  terms similar to  those  applicable under  the  Lease  at  the  time  of the appraisals  including but  not limited to payment of Rent on an absolutely net basis to Landlord, future adjustments of Basic Annual Rent in the manner set forth and subject   to  the   restrictions  of  this  Article 6,   measurement  of Rentable   Area   as   set   forth   in  Article 8, no   concessions   or inducements other than as set forth in the Lease,  but taking into consideration  the  Right  of  First  Refusal  but  not  the  Option  to Purchase;  and (iv)  assuming  improvements,   fixtures  and equipment installed comparable  to Landlord's Work (i.e. Building Shell  and Land  Improvements)  with  no Tenant's  Improvement Work having been completed  but with a  tenant  improvement  allowance  equal  to  the Tenant  Improvement  Allowances  under this  Lease (as  adjusted  for inflation   by   increasing   the   Tenant   Improvement   Allowance   in proportion  to  any  increase  in  the Consumer  Price  Index  from the Term  Commencement  Date  to  the  date  of  the  appraisal),  if  such property were exposed for lease on the open market for a reasonable period  of  time  and  taking  into  account  all  of  the  purposes  for which such property may be used.

6.4 Any   increase   in   Basic  Annual  Rent   under   this Article 6 which is not determined until after the effective date of the  increase  shall  nevertheless  be  retroactive  to  the  effective date,  and Tenant  shall pay any such retroactive increase with the installment of Rent next due.   The parties hereto understand  that any  increase  in Basic Annual  Rent shall necessarily increase  the management  fee payable under Section7.1(ii)  and contributions to the   Reserve   Account   under   Section18.5, each   of   which   are calculated as a percentage of Basic Annual Rent.

7.Additional Rent and Expenses.

7.1 As  Additional Rent,  Tenant shall pay to Landlord on the  first day of each calendar month of the term of this Lease, as  Additional  Rent,(I)   reimbursement  and expenses of Landlord's performance   of   any   obligations   of   Tenant   under   this   Lease, including   but   not   limited   to   the   provisions  of  Section 7.2, Article 13 (Taxes   and  Assessments),   Article 16 (Utilities and Services), Article 18 (Repairs and Maintenance), Article 22 (Damage or  Destruction),   and  Section 24.3,  and (ii)   costs  of  management services  in an amount equal to one percent (1%)  of the Basic Annual Rent  due  from Tenant,  whether or not Landlord incurs  fees payable to  any  third party to provide  such services  and without regard to the  actual costs  incurred by Landlord  for such services.

7. 2  Tenant  shall pay directly to the provider of  the services   all  costs  of  any kind  incurred  in  connection  with  the operation, maintenance, repairs, replacements and management of the premises ("operating expenses"),  including,  by way of examples and not as a limitation upon the generality of the foregoing, (i)  costs of maintenance,  repairs and replacements to improvements,  fixtures and   personal   property  within   the   Premises   as   appropriate   to maintain   the   Premises   in   commercially   reasonable   condition  (allowing  wear  and  tear  consistent  with  commercially reasonable maintenance   and   repair   standards   applicable   to   comparable buildings), including   capital   and   structural   improvements, equipment  utilized  for operation and maintenance of the Premises, and all other improvements, fixtures and personal property paid for from  the  Tenant  Improvement  Fund; (ii)  costs  of  new Improvements and   fixtures   added   to   the  Premises; (iii)  costs  of   utilities furnished  to  the Premises; (iv)  sewer fees; (v)  costs  of cable TV when  applicable; (vi)  casts  of  trash  collection; (vii)  costs  of cleaning; (viii)  costs of maintenance,  repairs and replacements of heating,   ventilation,  air conditioning,  plumbing,  electrical  and other  systems; (ix)  costs  of  maintenance  of  landscape,  grounds, drives   and   parking   areas,   including   periodic   resurfacing; .(x)  assessments and other expenses payable pursuant to the Project Documents (described   in  Section 10.2); (xi)  costs   of   security Services and   devices; (xii)  costs of   building   supplies; (xiii)  insurance premiums and portions of insured losses deductible by   reason   of   insurance  policy  terms; (xiv)   costs   of   service contracts   and  services  of independent contractors retained  to  do work  of   a  nature   before  referenced; (xv)   costs  of  storage  and removal   of   Hazardous   Materials; (xvi)   costs   of   compensation (including employment taxes and fringe benefits) of all persons who perform regular and recurring duties connected with the day-to-day operation   and  maintenance  of   the   Premises,   its  equipment,   the adjacent   walks,   landscaped   areas,   drives,   and  parking   areas, including   without   limitation,   janitors,   floorwaxers,   window washers,   watchmen,   gardeners, sweepers,   and   handymen;   and (xvii)  costs   of   compliance   with   applicable   governmental   laws, ordinances,  regulations  and requirements.

7. 3Landlord  shall  not be liable,  or responsible for payment of, any expenses of maintaining, repairing or replacing the Premises or any part thereof.

7.4  Tenant   shall   not   be  responsible   for  Operating Expenses   attributable   to   the   time   period  prior   to   the   Term Commencement  Data,  except  that  Tenant  shall  pay  to  Landlord  any utility  bills  attributable  to  the  installation  and  "burn  in"  of Tenant's  equipment within thirty (30)  days after receipt of a bill and request for payment by Landlord.   The responsibility of Tenant for Operating Expenses attributable to the Premises shall continue to the  latest of (i)  the date of termination of the Lease, (ii)  the data Tenant has fully vacated the Premises, or (iii) if termination of  the  Lease  is due  to the  default  of Tenant,  the date of rental commencement  of  a  replacement  tenant (although  this   subsection (iii)   shall  not  increase  the   liability  of  Tenant  as  otherwise determined under Article24  of  this  Lease).

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

7.6 In   fulfilling   its   obligations   set   forth   in Section 7.2  and Article 18,  Tenant  shall maintain the  roof,  HVAC system,  elevator and other systems  in accordance with no less than the   minimum  standards   established  by  the  manufacturer  and  the minimum  standards necessary to maintain any warranties  in effect, and  Tenant  may  enter  into  such  maintenance  contracts as Tenant determines  is  reasonably necessary  in order to  do  so.   Landlord shall  have  the right,  upon reasonable  notice,  to inspect and copy any such maintenance contracts,  as well as records of maintenance conducted by Tenant or any such service provider.

7.7 Landlord  shall  have  the  right,  upon  reasonable notice,  to inspect and copy documents showing in reasonable detail the actual expenses paid by Tenant pursuant to Section 7.2, Article 13 (Taxes and Assessments), and Article 16 (Utilities and Services) of   this   Lease. Tenant   shall   maintain   such   documents   as   are reasonably necessary for such purpose for a period of not Less than three (3) years.

7.8 Upon   request of Tenant,  Landlord shall  have the right,   but   not   the   obligation,   to   fund   additional   tenant improvements  and   increase  the  Basic  Annual  Rent  on  a  mutually agreed  formula.

8.Rentable Area.

8.1 The Rentable Area of the Premises as set forth in Section 2.1.1  and as  referenced within the Work Letter and as may otherwise be referenced within this Lease,  is determined by making separate calculations of the Rentable Area of each floor within the Building  and totaling the Rentable Area of all  floors within the Building (excluding  any  parking  areas).   The  Rentable Area of  a  floor iscalculated by measuring to the outside finished surface of each  permanent outer  Building wall where  it  intersects  the  floor plus. The  full area calculated as set forth above is  included as Rentable Area of the Premises without deduction for (i)  columns or projections, (ii)  vertical penetrations  such as  stales,  elevator shafts,  flues, pipe shafts, vertical ducts, and the like, and their enclosing walls, (iii)  corridors,   equipment  rooms,   rest  rooms, entrance ways,  elevator lobbies,  and the like,  and their enclosing walls,  or (iv)  any other unusable areaof any nature.

8.2 The Rentable Area as set forth in Section 2.1.1 is an estimate of  the area which will upon completion of development of the Building constitute the Rentable Area of the Premises, which stall  be  conclusive upon the parties unless either party requests  a  certification  of  the  Rentable  Area  from  the  Project  Architect within  thirty (30)  days  following the Term Commencement Date.   If either party disputes  the certification of the Project Architect, upon  Substantial  Completion  of  the  Building  Shell,  the  Rentable Area shall be field measured and confirmed by a mutually agreeable architect or civil engineer, which measurement shall be conclusive and binding on Landlord and Tenant.   However, the Rentable Area as set  forth  in Section 2.1. 1  shall  be used  for all purposes  unless the   Rentable  Area  as  measured  by  the  Project  Architect  is  two percent (2%)  or  more  greater or  less  than  the  Rentable  Area set forth  in Section 2. 1. 1,  in which  event Basic Annual Rent,  monthly installments   of Basic   Annual   Rent,   and   the   Tenant   Improvement Allowance shall be adjusted upward or downward,  as the case may be, based on the actual Rentable Area of the Premises as so determined by the  Project Architect.

8.3Landlord and Tenant acknowledge that the Premises are part of the 21 Torrey Pines Science Center ("Science Center"), which  is  subject to the Planned Industrial Permit ("PID")  included within   the   Project   Documents. The   PID   limits   the   maximum permissible building area square  footage which can be constructed in   the   Science  Center,   and  Table 1  of  the  PID  allocates  this building area square footage among the lots included in the Science Center. Center.  This Lease provides   for  building  area  of 52,800  gross square  feet.   The current building area allocated to  the Premises by  the  PFD  exceeds 52,800  gross  square  feet. Chevron  Land  and Development Company,  one of the partners of Landlord and the owner of  other  lots  La  the  Science Canter,  reserves  the  right,  without the  consent of Tenant,  to process City of San Diego approval of a modification of  the  building area allocation for the Premises,  so that  it  is  reduced  to 52,800  gross  square  feet,  and to reallocate the  excess  square  footage to other lots owned by Chevron Land and Development  Company,  so  long  as   such  action  does   not  delay  or increase  the costs  of construction of the Premises.

9.Security Deposit

9.1 Within  thirty (30)  days  after execution of  this Lease, Tenant  shall  deposit with Landlord an irrevocable  standby letter of credit ("Letter of Credit")  in  favor of Landlord in the principal amount  of  One  Million Two Hundred Sixty Thousand Eight Hundred  Six principal amount of One Million Two Hundred Sixty Thousand Eight Hundred Sixty Four  Dollars ($1,260,864.00),  in  the  form attached hereto  as  Exhibit   "C",   to be  held by  Landlord  as  security  for (i)  the payment of  Tenant's  Improvement Contribution and (ii)  the payment of Rent by Tenant during the term or any extension term of this   Lease. If   Tenant   Defaults   in (i) the   payment   of   any installment of Tenant's  Improvement Contribution required by this Lease  or  the  Work  Letter,  or (ii)   the  payment  of  any Rent  under Section 24.4 (a)   of   this  Lease,   Landlord  may (but  shall  not  be required   to)   draw   upon   en  amount   from  the  Letter  of   Credit sufficient to cure  the default.

9.2  Landlord shall promptly reimburse Tenant for the expense of obtaining and maintaining the Letter of Credit  for the period prior to  the  Term Commencement Date,  but not  for any other period.   Landlord and Tenant waive the provisions of Section 1950.7 of  the  Civil  Code  to  the extent  it might  otherwise  apply to  the Latter of Credit;  to the extent said Section 1950.7 is nevertheless determined  to   apply,   Landlord   and   Tenant   agree   that   Tenant's Improvement Contribution and Rent shall be included within the term °rent"  as  used in said section.

9.3  The  Letter of Credit,  and any replacement Letter of Credit, shall be  issued by a financial institution rated "AA" or better  by  Standard  &  Poor's  with  an  office  in  San  Diego  County authorized  to  disburse   funds  noon  a  draw  request. Should the Standard  &  Poor's  rating  of  the  institution  fall  below  "AA",  or should the institution be placed in conservatorship or receivership by  the  Resolution  Trust  Company,   the  Federal  Deposit  Insurance Corporation,   or  any  other  state  of  federal  regulatory  agency, Tenant   shall   provide   a   replacement   Letter   of   Credit   from   a financial institution meeting the above-described standards and in the  form of  Exhibit  'IC",  and  in the  event Tenant  fails  to do  so, Landlord  may  draw  on  the  Latter  of  Credit  and use the  proceeds thereof as  a security deposit in accordance with the provisions of Section 9.8 below.

9.4  In  the  event  of  a  partial  draw on the Letter of Credit,  Tenant shall immediately replenish the Letter of Credit, or substitute  a  new  Letter  of  Credit,  to  the  full  amount  set  forth above.

9.5 The  Letter  of  Credit  shall provide (i)  that  the issuer of  the Letter of Credit shall pay to Landlord the amount in default   immediately  upon  presentation  in  San  Diego  County  of  a sight  draft  by  Landlord  accompanied  by  a  statement  signed  by an authorized  officer  of  Landlord  or  a  general  partner  of Landlord stating that a default has occurred under the Lease as a result of which Landlord is entitled to collect the amount specified in the site draft  in order to cure the default,  and (ii)  that the  issuer shall have no obligation to confirm that a default has occurred, or the amount which  Landlord is  entitled  to draw,  or  that notice of the default has  been given to Tenant.   Tenant waives any right to notify the issuer regarding any dispute between Landlord and Tenant with regard to  Landlord's right  to  draw on the Latter of Credit, waives  any right to otherwise delay,  impede, or enjoin any draw on the  Letter of  Credit,  and hereby releases  the  issuer,  as  a  third party  beneficiary of  this Lease,  from any  liability  for honoring the Letter of Credit on the conditions  set forth herein.

9.6 The  Letter of Credit,  and any replacement Letter of  Credit,   may be  for  a period of  not  less  than one (1)  year,  but shall be  self-renewing ("evergreen")   unless  the  issuer  provides notice otherwise to Landlord at least thirty (30) days prior to the expiration of  the  Letter of  Credit.   If  an  "evergreen"  letter of credit  is  not reasonably available,  prior to the expiration of the Letter  of Credit (or any  later  replacement  Letter  of Credit)  it shall be replaced by Tenant by delivering to Landlord a replacement Letter of Credit at least thirty (30)  days  prior to the expiration a  replacement Letter of Credit at least thirty (30)  days prior to the expiration of the then current Letter of Credit, Landlord shall have the right  to draw the total amount of the then current Letter of  Credit   and  hold  the  proceeds  thereof  as  a  security  deposit pursuant  to  the  provisions of Section  9.8. The  Letter of  Credit shall be successively renewed or replaced until that date which is ninety (90)  days  after the expiration of or replaced until that date which is ninety (90) days after the expiration of the term of this Lease.

9. 7The Letter of Credit and any replacement Letter of Credit shall be transferable by Landlord to a successor Landlord or mortgagee   or   beneficiary  of   a   deed   of   trust   encumbering   the Premises.

9.8 Upon  drawing  any  Letter  of Credit,  Landlord may (but  shall  not  be  required to)  use,  apply or retain,  at any time and  from  time  to  time,  all or any portion of  the proceeds of  the Letter   of   Credit   for   the   payment   of   Tenant's   Improvement Contribution or any Rent then  in default,  as the case may be,  and to compensate Landlord for any other lose or damage which Landlord may  suffer  by  reason  of  any  such  default.  If  at  any  time  any portion of  said proceeds  is so used or applied, Tenant shall,  upon demand  therefor,  deposit  cash  or  a replacement Letter of Credit with  Landlord in an  amount  sufficient to  restore the security to its original amount of One Million Two Hundred Sixty Thousand Eight Hundred Sixty Four Dollars ($1,260,864.00)  and Tenant's failure to do  so  shall  be  a material  reach of  this Lease.  Landlord shall deposit  any portion of said proceeds  not so used or applied in an interest hewing account to be used, applied or retained under the terms  of  this Article 9,  with interest added to principal.

9.9  If at any time Landlord has drawn on the Letter of Credit  but  has  not yet used the proceeds to cure the default,  and Tenant  has  cured the default and restored the Letter of Credit as set forth in Section 9.8above,  Landlord shall pay the proceeds to Tenant   less   compensation   for  any  other  loss  or  damage  which Landlord  suffered by reason of the default.   If Landlord fails to return  the  proceeds  within twenty (20)  days of Tenant curing the default and restoring the Letter of Credit, Tenant may, in addition to   any  other  remedies   it  may  have,   offset  the  amount  of  such proceeds  against Rent as  it becomes due.

9.10 In the event   of bankruptcy   or other debtor/creditor proceedings against Tenant, the Letter of Creditor the proceeds of the Letter of Credit shall be deemed to be applied first to the payment of Rent and other charges due Landlord for all periods  prior to the filing of such proceedings.

9.11 Landlord  may  deliver  the  Letter  of  Credit,  any replacement Letter of Credit, or any proceeds of a Letter of Credit to   any   purchaser   of   Landlord's   interest   in   the   Premises   and thereupon Landlord shall be discharged  from any further liability with   respect  thereto. This   provision  shall  also  apply  to  any subsequent  transfers.

9.12  At such time as Tenant has achieved an investment grade rating of  "EIBIP' or better from Standard & Poor's,  and is not in  default  of  any provision of  this Lease  to be performed by it, then  the  Letter of  Credit,  any replacement Letter of Credit,  the proceeds  of a  Letter of Credit,  or any balance  thereof,  shall be reduced  to  the  sum of  Three Hundred Fifteen Thousand Two Hundred Sixteen Dollars ($315,216.00)

10.  Use.

10.1  Tenant   may  use   the   Premises   for  any  of   those purposes,   and  only  those  purposes,   allowed  by(i)  the  City  of San  Diego Scientific Research Zone Ordinance in effect from time to time and  as applicable to the Premises, (ii)  any other applicable laws,  regulations, ordinances,  requirements, permits and approvals applicable to the Premises, and (iii) all covenants, conditions and restrictions  in  the  Project  Documents (defined  in  the  following Section 10.2)  or otherwise recorded against the Real Property, and shall not use the Premises, or permit or suffer the Premises to be used,  for  any other purpose without the prior written consent of Landlord. Landlord  acknowledges  that  Tenant's  activities  will include   scientific   research   and   development   pertaining   to pharmaceuticals (including   radio-active   materials   and   other regulated substances) with ancillary manufacturing capabilities and a vivarium.   Tenant may change the use of the Premises from time to time as long as such changed use is authorized by this Section 10-1 or   may   otherwise   be   legally  permissible   with  the  consent  of Landlord,  which consent  shall  not be unreasonably withheld.

10.2 Tenant  shall conduct  its  business  operations  and Use  the  Premises  in compliance with all 'federal, state,  and local laws,  regulations, ordinances, requirements, permits and approvals applicable  to  the  Premises,  and  the  Project  Documents  described below.   Tenant shall not use or occupy the Premises in violation of any law or regulation, the Project Documents, or the certificate of occupancy issued  for the Building,  and shall,  upon five (5)  days' written  notice  from Landlord,  discontinue any use of the Premises which is  declared by any governmental authority having jurisdiction to  be  a violation of law,  the certificate of occupancy,  or any of the Project Documents.   To the extent any use allowed by this Lease conflicts with uses  allowed by the Project Documents,  the Project Documents shall govern.

Subject to the provisions of Section 18.6 of this Lease,  Tenant shall  comply with any direction of any governmental authority having jurisdiction which shall,  by reason of the nature of Tenant's use or occupancy of the Premises, impose  any duty upon Tenant or Landlord with respect to the Premises or with respect to the   use   or   occupation   thereof,   including   any   duty   to   make structural   or   capital   improvements,   alterations,   repairs   and replacements to the  Premises.

The  'Project Documents" include the following documents, as they may be amended  from time to time:

(a) "Landlord's Plans", as described in the Work Letter;

(b) "Tenant's Improvement Plans", as described in the Work Letter;

(c)  Hazardous Material Documents,  as such are defined in Section 39.5;

(d) Transportation Demand Management  Program for  Torrey Pines  Science  Center,  Prepared by The  North City TX& Network,  dated January 24, 1990;

(e) Torrey   Pines   Science   Center   Signage Guidelines   &   Criteria,   Prepared   by  Graphic   Solutions,   dated November 17, 1989;

(f)Declaration of Covenants,  Conditions and Restrictions for Torrey Pines Science Center (Unit 2), prepared by Chevron Land and Development Company;

(g) Planned   Industrial   Development   Permit No.86-0884   and   Planning  Director   Resolution   No. 7658,   dated September 26- 1988,  as  amended  to  incorporate  the  conditions  of approval of Coastal Development Permit No. 6-88-504,  and including a  copy of  the City of  San Diego regulations for the SR Zone;

(h) Coastal  Development Permit No. 6-88-504, approved   February 5, 1991, and   all   conditions   of   approval thereunder;

(i) Declaration of Restriction and Maintenance Agreement  Prepared   by   Chevron   Land   and   Development   Company, recorded February 15, 1990 ("Maintenance Agreement");

(j) Articles  of  Incorporation  and  Bylaws  of Torrey Pines Science Center Association for Unit 2;

(k) Provisions   of   the   SR   Zone   or   other applicable zoning as such may be adopted or amended by the City of San Diego  from time to time;

(l) CLTApreliminary title report issued by First American Title  Insurance Company dated as of April 8, 1994, and  identified as  Order  No. 108906-11,  reflecting  the status of title  to  the Real Property,  together with a plat of all easements and copies of all underlying documents referred to therein;

(m) A  reciprocal   easement   agreement   to   be executed  by  Landlord  and  Chevron  Land  and  Development  Company providing for an access  road across the rear of the Real Property and  the   adjacent  property  legally  described  as  Lot 14   of   Map No. 12845;

(n) Final Map No. 12845;

(o) Preliminary   Geotechnical   Investigation

prepared by Leighton Associates dated December  19, 1991;

 (p) As-Graded Geotechnical Report prepared by Leighton Associates  dated December  121991;

 (q)Phase   I   Environmental   Site   Assessment prepared  by Harding Lawson Associates dated October 19, 1988;

(r) Phase II   Environmental   Site   Assessment prepared  by Harding Lawson Associates dated April 17, 1989;

(s) Updated   Phase   I   Environmental   Site Assessment by  Harding  Lawson Associates  dated April 29, 1994; and

(t) Documents  evidencing  the  release  of  the Real  Property from licenses described in Section 10.3  below.

Tenant  acknowledges  that  Landlord  has  provided copies   of  all  of  the  Project  Documents  to  Tenant  prior  to  the execution of the Lease, other than items (a)  and (b), which will be prepared   pursuant   to   the   provisions   of   the work   Letter,   and item(c),  which is  to be prepared by Tenant.

10.3 Tenant understands and acknowledges that property located within two thousand feet of the Premises,  and of which the real  property  underlying  the  Premises  was  originally a part,  is used  for commercial engineering and manufacturing in the  field of nuclear power, including the  use,  operation and/or production of  high temperature gas-cooled reactors radioisotope  and radiopharmaceutical substances, fusion, and   research   and development  activities  related  thereto.  Tenant understands  that the real property underlying the Premises has been investigated and evaluated  by the  United States  Nuclear Regulatory Agency ("NRC") and   released   from   any   further   NRC   licensing   or   oversight responsibility. Tenant   understands   that  low-level  radioactive wastes  may  be  present  on  the  property  underlying  the  Premises. Tenant   represents   and   warrants   that   it   has   made   its   own determination   that   the   physical  condition  of   the  property  as described herein does  not interfere with Tenant's  intended use of the Premises, and is not relying on any representation or warranty, express, or implied, of Landlord or Landlord's Agents (asdefined in Section 20.1 below)  in that regard.

10.4 Tenant shall not do or permit to be done anything which  will  invalidate  or  increase the cost of  any fire,  extended coverage  or  any  other  insurance  policy covering the  Premises,  or which will make such insurance coverage unavailable on commercially reasonable  terms  and conditions,  and shall comply with all rules, orders,   regulations   and   requirements   of   the   insurers   of   the Premises.

10.5 Landlord warrants that Landlord's Work shall be in  compliance with the Americans with Disabilities Act of 1990 ("ADA") at the  time possession is tendered to Tenant.   Tenant shall comply with   the   ADA,   and   the   regulations   promulgated   thereunder,   as amended  from time  to time.   All responsibility for compliance with the  ADA  relating  to  the  Premises  and  the  activities  conducted by Tenant within the Premises shall be exclusively that of Tenant and not  of Landlord,   including any duty to make  structural or capital improvements,   alterations,   repairs   and   replacements   to   the Premises.   Any alterations to the Premises made by Tenant  for the purpose   of   complying  with   the  ADA  or  which  otherwise   require compliance with the ADA shall be done in accordance with Article 17 of   this   Lease;   provided,   that   Landlord's   consent   to   such alterations  shall  not constitute either Landlord's assumption,  in whole  or  in part,  of  Tenant's  responsibility for compliance with the  ADA,  or  representation or confirmation by Landlord that such alterations comply with the provisions of the ADA.

Notwithstanding the foregoing, Tenant shall not be required   to   make   any   improvements,   alterations,   repairs   orreplacements to the Premises required by ADA during the last three (3) years  of   the  term  if  there  are  insufficient   funds   in  the Reserve  Account,   as   defined  in  Section 18.5,  for  such  purpose, although  this  Lease  shall  nevertheless  remain  in  full  force  and effect and Tenant shall not on account  thereof be relieved of any obligation  to  pay Rent, and nothing herein shall  require Landlord to make any such improvement,  alterations,  repairs or replacements if  Tenant  fails  to  do  so. However,  in  the  event  improvements, alterations, repairs or replacements are required by ADA during the last  three(3) years  of  the  term,  and Tenant  elects  not  to  make them,  Tenant may terminate this Lease at  any time during the last one (1)  year of the term upon sixty (60)  days prior written notice to  Landlord,  unless  during  such  sixty (60) day  period  Landlord elects  to,  and  commences  to,  make  the  improvements,  alterations, repairs or replacements  required by ADA,  and thereafter diligently completes   the   same,   in  which  event  any  remaining  funds   in  the Reserve Account, or thereafter contributed to the Reserve Account, shall   be   applied   to   the   expense,   and   Tenant   shall   reimburse Landlord  for any portion of the expense in excess of the  funds  in the  Reserve Account  in the ratio of the balance of the term of the Lease over the useful life of the alteration.   Notwithstanding the foregoing,  even if such work is not undertaken by Landlord,  Tenant shall   not   have   the   right   to   terminate   this   Lease   if   the improvement,  alteration,  repair or replacement is required by ADA to  accommodate  a  specific disabled employee of Tenant.

Nothing   in   this   Lease   shall   be   construed   to require  either  Landlord  or  Tenant  to  make  structural  or  capital improvements,  alterations,  repairs or replacements to comply with ADAunless  and until required to do  so  by order of any government entity or court of  law exercising proper  jurisdiction with regard thereto,   subject  to  any  right  to  appeal  or otherwise  contest any such order.

10.6Tenant may  install  signage  visible  from Genesee Avenue   and  Interstate 5  on  each  of  the  four  elevations  of  the Building,  and a monument sign at the entrance of the Premises,  to the   extent   permitted   by,   and   in  conformity  with,   applicable provisions of  the Project Documents and the City of San Diego Sign Ordinance.  Tenant   acknowledges   it   is   familiar   with   the restrictions  of  the Project Documents  and the City of San Diego Sign   Ordinance,   and  is  not  relying  on  any  representations  or warranty of Landlord regarding the number,  size or location of any signage. No   other   sign,   advertisement,   or   notice   shall   be exhibited,  painted or affixed by Tenant on any part of the Premises which  is  visible  from outside  the  Building,  or  any part  of  the exterior of the Building or elsewhere in the Premises, without the prior  written  consent  of  Landlord,  which  consent  shall  not  be unreasonably withheld.   The  expense  of  design,  permits,  purchase and installation of any signs shall be the responsibility of Tenant and the cost thereof shall be borne by Tenant.   At the termination of the Lease,  all signs shall be the property of Tenant and may be removed from the Premises by Tenant,  subject to the provisions of Article 36.   In the event Tenant receives permission from the City of  San  Diego  under  the  Sign Ordinance  for  signage  which  is  not allowed   by   other   Project   Documents,   Landlord,   and   Landlord Project Documents, Landlord and Landlord's general   partner,   Chevron  Land   and   Development   Company,   shall reasonably cooperate with Tenant in an effort to amend such other Project Documents  to  allow such signage. 10.7 No equipment shall be placed at a location withinthe  Building other than a location designed to carry the load of the  equipment.  Equipment  weighing   in  excess  of   floor  loading capacity shall not be  placed in the Building.

10.8 Tenant shall  not use or allow the Premises  to be used for any unlawful purpose,  nor shall Tenant cause, maintain or permit  any nuisance or waste in,  on,  or about the Premises.

11.Brokers.

11.1 Landlord and Tenant represent and warrant one to the  other  that  there  have been  no  dealings  with any  real  estate broker  or  agent  in connection with the  negotiation of this  Lease other  than Iliff,  Thorn & Company,  the fee of which shall be paid by Landlord, and that to the bestof their knowledge, no other real estate  broker or agent is or might be entitled to a commission in connection with this Lease other than Iliff, Thorn & Company.   Each shall  indemnify,  defend,  protect, and hold harmless the other from any claim of any other broker as  a result of any act or agreement of  the  indemnitor.

11.2 Tenant represents  and warrants that no broker or agent has made any representation or warranty relied upon by Tenant in   Tenant's   decision   to  enter   into   this  Lease   other   than  as contained  in this  Lease.

11.3 The  employment of  brokers by Landlord is  for the purpose of solicitation of offers of lease from prospective tenants and   no   authority   is   granted   to   any   broker   to   furnish   any representation (written or oral)  or warranty from Landlord unless placed within this Lease.   Landlord in executing this Lease does so in reliance upon Tenant's representations and warranties contained within  Sections 11.1 and 11.2.

12. Holding Over.

12.1 If, with   Landlord's   consent,   Tenant   holds possession of all or any part of the Premises after the expiration or earlier termination of this Lease,  Tenant shall become a tenant from  month  to month upon the data of such expiration or  earlier termination,   and  in  such case Tenant  shall  continue  to  pay  in accordance  with Article 5  the  Basic  Annual  Rent  as  adjusted  from the Term Commencement Date in accordance with Article 6,  together with  Operating  Expenses  in  accordance  with Article 7  and  other Additional  Rent  as  may be payable  by Tenant,  and  such month-to-month  tenancy shall be  subject to every other term,  covenant and condition contained herein.

12.2  if  Tenant  remains   in  possession  of   all  or  any portion of the Premises after the expiration or earlier termination of the term hereof without the express written consent of Landlord, Tenant  shall become a tenant at sufferance upon the terms of this Lease  except  that  monthly  rental  shall  be  equal  to  one  hundred twenty   five  percent (1251) of the   Basic  Annual  Rent   in  effect during  the  last twelve (12)  months  of  the Lease  term.

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

12.4 The foregoing provisions of this Article 12 are in addition  to  and do not affect Landlord's  right to re-entry or any other  rights  of  Landlord  under  Article 24  or  elsewhere  in  this Lease  or  as  otherwise provided by law.

13. Taxes  and Assessments.

13.1 Tenant shall pay and discharge as they become due, promptly  and  before  delinquency,   all  taxes,   assessment,   rates, charges,  license fees, municipal liens, levies, excises or imposts, whether general or special, or ordinary or extraordinary, of every name,   nature,   and   kind  whatsoever,   including  all  governmental charges  of whatsoever name,  nature,  or kind, which may be levied, assessed,  charged,  or  imposed,  or may become a lien or charge on the   Premises,   or  any  part  thereof,  or  any  improvements  now  or hereafter thereon, or on Landlord by reason of its ownership of the Premises or any part thereof,  during the entire term hereof,  saving and   excepting  only  those  taxes   hereinafter  in  this  Article 13 specifically excepted.

13.2 Specifically and without  in any way limiting the generality of the  foregoing,  Tenant shall pay any and all special assessments or levies or charges made by any municipal or political subdivision for local  improvements, and shall pay the same in cash as they shall  fall due and before they shall become delinquent and as   required  by   the   act   and  proceedings   under  which  any  such assessments  or   levies  or  charges  are  made  by  any  municipal  or  political subdivision.   If the right is given to pay either in one sum or in installments,  Tenant may elect either mode of payment and its   election  shall   be  binding  on  Landlord. If   by  making  an election to pay in  installments, any of the installments shall be payable  after the  termination of this Lease or any extended term thereof,  the  unpaid installments shall be prorated as of the data of  termination,  and amounts payable after said date shall be paid by  Landlord. All   other  taxes  and  charges  payable  under  this Article 13  shall be prorated as of and payable at the commencement and  expiration  of   the  term  of  this  Lease,  as  the  case  may  be. Landlord  shall  not  during  the  term of  this  Lease  undertake  any action  to  place  any special assessments,  levies or charges on the Premises  without  first  obtaining  the  prior written  approval  of Tenant,   other  than  those  due  to  new  construction,  those  payable under  any of  the  Project Documents,  and those  imposed by the City of San Diego or other government entity over which Landlord has no control. If  Landlord does undertake such action without Tenant's approval,   Landlord,   and   not   Tenant,   shall   pay   any   special assessments,  levies  or charges sought by such action.

13.3  Landlord   shall   make   commercially   reasonable efforts  to maintain  the  assessed value of the Premises as  low as reasonably practical  for real  estate  tax purposes.   Tenant  shall not be required to pay any portion of real estate taxes which would not  be  owing but  for  a Change in Ownership (as  defined in Section 60  et  seq.  of  the  California  Revenue  and  Taxation Code)  of  the Premises (except   for  a  conveyance  of  Tenant's   interest  in  the Lease)  except to  the  extent the assessed value of the Premises (as of the date of the Change in Ownership,  and subsequently as of any later   assessment   date)   is   no  more   than   the   greater   of   the following:

(i) The  present  value  of   the  Real  Property ($1,901,000),   plus   the   cost  of  Landlord's   Work   and  Tenant's Improvement Work, plus the cost of any subsequent improvements made by-Landlord or Tenant, but excluding the cost of any trade fixtures or other property belonging to Tenant which is  taxed as  personal property;  or

(ii) The purchase price paid for the Premises to Landlord by the  first arms length purchaser of the Premises, plus the   cost   of   Landlord's   Collateral   and  Tenant's   Property,   but excluding   the   cost   of   any   trade   fixtures   or   other   property belonging to Tenant which is  taxed as personal property as   each  amount   is   increased  in   proportion  to increases  in  the  Consumer Price  Index described in Section 6.2(b) hereof  from the  date of Substantial Completion (if  subsection (i) above  is  applicable)  or the date of sale (if subsection (ii)  above is  applicable)  to  the date of  any subsequent Change in Ownership.

Nothing in this Section 13.3 reduces Tenant's obligation to  pay  real  estate   taxes  attributable  to  increases  in  assessed value  independent of  increases  in assessed value resulting from a Change  in Ownership,   including  any  normal  increases  in assessed value  following a Change in Ownership.

13.4  Anything   in   this   Article  13   to   the   contrary notwithstanding,  Tenant  shall  not be  required  to pay any estate, gift,  inheritance, succession,  franchise, income, or excess profits taxes   that   may   be   payable   by   Landlord   or   Landlord's   legal representative,  successors,  or assigns.

13.5  Any  and  all  rebates  on account of  taxes,  rates, levies,   charges  or  assessments  required  to  be  paid  and paid  by Tenant under the provisions of this Lease shall belong to Tenant, and Landlord will,  on the request of Tenant,  execute any receipts, assignments,  or other acquittances that may be necessary in order to secure  the  recovery of the rebates,  and will pay over to Tenant any rebates  that may be received by Landlord.

13.6  Within  ninety (90)  days  following the conclusion of  each calendar year during the  term of  this  Lease,  and at such more   frequent   times   as  Landlord  may  reasonably  request,   Tenant shall obtain and deliver to Landlord receipts or duplicate receipts or copies  thereof evidencing payment of all taxes,  assessments and other items required hereunder to be paid by Tenant,  together with an accounting  showing in reasonable detail the taxes,  assessments and other  items  paid.

13.7 Tenant  shall   pay  not   less   than  ten (10) days before delinquency taxes levied against any improvements, fixtures, equipment  and personal property of Tenant or Landlord in or about the Premises,  including any and all personal property installed as part  of  Landlord's  Work  or  Tenant's  Improvement Work,  including Landlord's Property,  Landlord's Collateral,  and Tenant's Property.

13.8 If  Tenant shall  in good  faith desire to contest the  validity  or  amount  of  any  tax,   assessment,   levy,   or  other governmental  charge  herein  agreed  to  be  paid  by  Tenant,  Tenant shall  be permitted to do so,  and to defer the payment of said tax or charge,  the validity or amount of which Tenant is so contesting, until   final  determination of  the  contest,  by  giving to  Landlord written  notice  thereof prior  to  the  commencement of  any contest, which shall be at least fifteen (15) days prior to delinquency,  and by protecting  Landlord on demand by a  good and sufficient surety bond   against   any   tax,   levy,   assessment,   rate  or  governmental charge,   and   from  any  costs,   penalties,   interest,   liability,  or damage arising out of a contest. Landlord shall  not be required to  join  in  any proceeding or contest brought by Tenant unless the provisions  of  any  law  require  that  the  proceeding or contest  be brought  by  or  in  the  name  of  Landlord.   In  that  case,  Landlord shall  join in the contest or permit it to be brought in Landlord's name   so   long  as   Landlord  is   not  required  to  bear  any  costs. Tenant,  on  final  determination of  the contest,  shall  immediately pay or  discharge  any decision or judgment rendered,  together with all   costs,   charges,   interest  and  penalties   incidental   to  the decision or  judgment.

13.9 To  the  extent  Tenant  fails  to  make  any payment required   by  this  Article 13   and  Landlord  does   so  on  Tenant's behalf,   Tenant   shall  reimburse  Landlord  for  the  cost  thereof pursuant  to the provisions of Sections 7.1 and 24.3 of this  Lease.

14.Condition of _Premises.

14.1 Tenant acknowledges that neither Landlord nor any agent of Landlord has Tenant acknowledges that neither Landlord nor and agent of Landlord has made any representation or warranty, express or  implied,  with respect to the condition of the Premises,  or to Landlord's Work or Tenant's  Improvement Work,  except as set forth herein,   or  with  respect  to  their  suitability  for  the  conduct  of Tenant's  business.

14.2  Upon   Substantial   Completion   of   the   Premises, Tenant   shall  accept  the  Premises,  including  Landlord's  Work and Tenant's   Improvement  Work,   in  the  condition  in  which  they  then exist,  and shall waive any right or claim Tenant may have against Landlord  for any cause  directly or indirectly arising out of  the condition  or  delay  in  delivery  of  possession  of   the  Premises, appurtenances thereto,  the  improvements  thereon and the equipment thereof,  except for (i)  responsibility for damages  in the event of completion   delays   to   the   extent   of   Section 4. 3 hereof, (ii)  responsibility for allocation of property pursuant to Section 4. 7, (iii)  the warranties  made by Landlord under Section  14.4 to The extent   thereof, (iv)responsibility   for   covenants   and representations   made   by   Landlord   in   Section 39.8, (v)  the obligation  to  deliver the Premises  lien-free pursuant  to  Section 35.4, and (vi)   the  completion  of  punch-list  items  pursuant  to Section 6.3 of the Work Letter.   Tenant shall thereafter indemnify, defend,   protect  and  hold  Landlord  harmless   from  liability,   as provided in Article 20 of the Lease.   In the event any pilot plant manufacturing facility is not then complete, such acceptance of the pilot  plant,  and waiver  with  regard  thereto,  shall  apply  at  the date  it  is  completed.

14.3 Tenant's   taking  possession  of  the  Premises  and acceptance  of  the  Premises  shall  not  constitute  a waiver of  any claims   based   upon   warranty   or   defect   In   regard   to   design, materials,   or  construction  of   the  Land  Improvements,   Building Shell, and   Tenant's Improvement   Work   against   the   design professional,   contractor,   materialman,   manufacturer,   or   other responsible   party (other   than   Landlord,   whose   liability   is described in Section 14.4 below), nor for failure of any such party (other than Landlord)  to  comply with all applicable building code Requirements (including   but   not   limited   to   seismic   Zone 4 regulations),   laws, rules,   orders,   ordinances,   directions, regulations,   permits, approvals, and   requirements   of   all governmental  agencies,   offices,  departments,  bureaus  and  boards having  jurisdiction,  nor  for  failure  to  comply  with  the  rules, orders, directions, regulations, and requirements of any applicable  fire  rating bureau.   Landlord hereby assigns to Tenant, and Tenant shall  have  the benefit  of,  on  a  non-exclusive basis,  any and all warranties with respect to the design, materials and construction Of  the Premises which are assignable to Tenant,  together with all other   rights   and   claims   it   may   have   against   any   design professional,   contractor,   materialman,   manufacturer,   or   other responsible party,  or from applicable insurance policies.   Landlord and Tenant agree to cooperate with regard to the enforcement of all such  warranties,  rights  and claims.   All  such warranties,  rights and claims shall revert to Landlord exclusively upon the expiration or  earlier  termination  of  this  Lease.   Tenant  shall  comply with whatever maintenance and similar standards are required to maintain any applicable warranties  in affect.

14.4 Landlord (including  the  Landlord  herein  named, Nexus/Chevron Partnership (Lot 13),  even if Landlord's  interest in the Lease  is assigned) warrants to Tenant that Landlord's Work and Tenant's Improvement work will be, on Substantial Completion, built in a good and workmanlike manner and in substantial compliance with Landlord's Plans  and Tenant's Improvement Plans and all applicable building  code  requirements (including but  not  limited  to  seismic Zone 4  regulations),  laws,  rules,  orders,  ordinances,  directions, regulations,   permits, approvals,   and   requirements   of   all governmental  agencies,  offices,  departments,  bureaus  and  boards having   jurisdiction,   and  with   the   rules,   orders,   directions, regulations, and requirements of any applicable fire rating bureau. However,  nothing herein shall be construed to make Landlord liable  for  any  defects   in  or  arising  from  Tenant's  Improvement  Plans, which  are  the  responsibility  of  Tenant.   The  warranty  given  by Landlord  in  this  Section 14.4 shall  terminate one (1) year  after the  recording of  the notice of completion of the Premises,  except for   any   breach   claimed   by  Tenant,   as   long  as (a)   Tenant   has notified Landlord of  such claim of breach (identifying the  breach in   reasonable  detail)   within  such  one (1) year period  and (b) Tenant  files  a  lawsuit  or  arbitration  based  upon  such  claim  of breach  and gives  written  notice  thereof  to Landlord within three (3)  months after the expiration of such one year period.   Landlord and   Tenant   shall   cooperate   with   regard   to   the   repair   and replacement of any improvements for which they are responsible from recoveries  from any applicable warranty or insurance policy.

15.Parking Facilities.

15.1 Tenant  acknowledges   that  interior  and  exterior areas  used for Tenant's  equipment,  Hazardous Material  enclosures, trash  enclosures,   mechanical  systems,  and  the  like will  reduce available  parking.

15.2  Tenant   shall   not  place  any  equipment,   storage containers or any other property on the surface parking area except in accordance with Landlord's Plans or Tenant's  Improvement Plans or as  otherwise approved by Landlord, which approval  shall not be unreasonably withheld,  or allowed by the Project Documents.

16.Utilities  and Services.

16.1 Tenant  shall pay directly to the provider,  prior to delinquency,  for all water, gas, electricity,  telephone,  sewer, and other utilities  which may be furnished to the Premises during the term of this Lease,  together with any taxes thereon.   The cost of   installing   the   house  water  utility  meter  shall  be  paid  by Landlord (as part of the cost of the Building Shell),  and the cost of  installing the  house electrical  and other utility meters  shall be paid  from the Tenant  Improvement Fund.

16.2  Landlord  shall not be  liable  for,  nor shall any eviction of Tenant result  from,  any failure of any such utility or service,  provided such failure is not due to the gross  negligence or willful misconduct of Landlord, and in the event of such failure Tenant shall not be entitled to any abatement or reduction of Rent, nor be relieved from the operation of any covenant or agreement of this  Lease,  and Tenant waives any right to terminate this Lease on account  thereof.

17-Alteration*.

17.1 Tenant  shall  make  no  alterations,   additions  or Improvements (hereinafter in this section, "improvements")  in or to the Premises, other than interior non-structural improvements which do not involve modifications to plumbing, electrical or mechanical installations,   without  Landlord's  prior  written  consent,   which shall   not   be   unreasonably  withheld. Tenant   shall   deliver   to Landlord  final  plans  and specifications and working drawings  for the  improvements  to Landlord,  and Landlord shall have fifteen (15) days  thereafter to grant or withhold its consent.   If Landlord does not  notify Tenant  of  its  decision within  the  fifteen (15)  days, Landlord shall be deemed to have given its  approval.

17.2  If   a   permit   is   required   to   construct   the improvements,   Tenant   shall   deliver   a   completed,   signed-off inspection card to  Landlord within ten (10)  days of  completion of the  improvements,  and shall promptly thereafter obtain and record a  notice  of completion and deliver a copy thereof to Landlord.

17.3 The  improvements   shall  be  constructed  only  by  licensed contractors approved) y Landlord, which approval shall not be  unreasonably withheld.   Any such contractor must have in force a general liability insurance policy of not less than $2,000,000 or such higher limits as Landlord may reasonably require, which policy of  insurance shall name Landlord as an additional insured.   Tenant shall   provide   Landlord  with   a  copy  of   the  contract   with  the contractor prior to  the commencement of construction.

17.4 Tenant  agrees  that  any work  by Tenant  shall be accomplished   in  such  a  manner  as  to  permit  any  fire  sprinkler system and fire water supply lines to remain fully operable at all times  except when minimally necessary for building reconfiguration work.

17.5 Tenant covenants and agrees that all work done by Tenant shall be performed in full compliance with all laws,  rules, orders,   ordinances,  directions,  regulations,  permits,  approvals, and   requirements   of   all   governmental   agencies,   offices, departments,  bureaus and boards  having  jurisdiction,  and in  full compliance  with  the  rules,  orders,  directions,  regulations,  and requirements  of  any applicable  fire rating bureau.   Tenant  shall provide  Landlord with  "as-built"  plans  showing  any change  in the Premises  within thirty (30)  days  after completion.

17.6 Before  commencing any work  (other  than  interior non-structural alterations,  additions or improvements which do not involve   modifications   to   plumbing,   electrical   or   mechanical installations),  Tenant shall give Landlord at least five (5)  days' prior written notice of the proposed commencement of such work and, for   any   such  work  which  exceeds  Twenty  Five  Thousand  Dollars ($25,000.00)  in cost,  if required by Landlord,  secure  at Tenant's own cost and expenses a completion and lien indemnity bond approved by Landlord,  which approval will not be unreasonably withheld.

18.Repairs and Maintenance.

18.1Tenant  shall,  throughout the term of  this Lease, at   its   own   cost   and   expense (subject   to   recovery   under   any warranties assigned to Tenant under Section 14.3),  and without any cost  or  expense  to Landlord,  keep and maintain in  good,  sanitary and neat order,  condition, and repair,  the Premises and every part thereof (subject  to  wear  and  tear  consistent  with  commercially reasonable   maintenance   and   repair   standards   applicable   to  comparable   buildings), including structural and capital improvements,  all  improvements,  fixtures,  equipment and personal -property built or installed with the Tenant improvement Fund,  and all appurtenances thereto, including but not limited to sidewalks, parking   areas,   curbs,   roads,   driveways,   lighting   standards, landscaping,  sewers, water, gas and electrical distribution systems and   facilities,   drainage   facilities,   and   all signs,  both illuminated  and  non-illuminated that  are  now or hereafter on the Premises.   Without  in any way limiting the foregoing, Tenant shall maintain the lines designating the parking spaces in good condition and  paint the same  as  often as--may be  necessary,  so that they are easily  discernable  at  all  times;  resurface  the  parking  areas as necessary  to  maintain  it  in  good  condition;  paint  any  exterior portions  of  the  Building  as  necessary  to  maintain  them  in good condition;  maintain  the  roof  in  good  condition;  and  to  take all reasonable  precautions  to  insure  that  the  drainage  facilities of the  roof are not clogged and are in good operable condition at all times.

18.2  Tenant shall at all times during the term of this Lease,   and  at   Tenant's   expense,   maintain  the  exterior  of  the Building,  the parking areas,  landscaping and all other portions of the Premises visible from the surrounding streets in a commercially reasonable   condition,   and   shall   maintain   sightly   screens, barricades or enclosures  around any waste or storage areas.

18.3 Tenant hereby waives Civil Code Sections 1941 and 1942  relating to  a  landlords  duty to maintain the  Premises in a tenantable condition,  and the under said sections or under any law, statute or ordinance  now or hereafter in effect to make repairs at Landlord's expense.

18.4  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 Premises, or in or to improvements,  fixtures, equipment and personal property therein.   If repairs or replacements become necessary which by the terms  of  this  Lease  are  the  responsibility of  Tenant  and  Tenant fails   to  make  the  repairs  or  replacements,   Landlord  may  do  so pursuant to the provisions  of Section 24.3 of this  Lease.

18.5 Tenant shall each month, on the first day of each calendar   month   of   the   term   of   this   Lease,   deposit   into   a segregated,  interest-bearing  bank  account  in  a  federally insured bank  or  savings  institution  an amount  equal  to  one  and one half percent (1-1/2%)   of   Basic  Annual.  Rent  due  for  that  month,  to provide for future replacements to improvements and fixtures within the Demised Premises (the  "Reserve Account").   The Reserve Account shall  remain  the  property  of  Tenant,  but  disbursements  from  the Reserve  Account   shall  be  made  only  by  joint  check  executed  by Landlord and Tenant upon the mutual consent of Landlord and Tenant, which consent shall not be unreasonably withheld.   Landlord shall, within  ten (10)   days  after  receipt  of  a  written  request,  either sign  any such check or convey in writing to Tenant  any objections to  signing the  check,   and  shall  thereafter  diligently work with Tenant  to resolve any differences with regard to the disbursement. The  Reserve Account  shall be used to help defray Tenant's  expense of repairing or replacing capital improvements, such as the cost of replacing the  roof,  resurfacing the parking areas,  and replacing major   components   of   the   electrical,   mechanical   and   plumbing systems,  and in no event shall be used to help defray the repair or replacement  of   a  capital  improvement  if  the  cost  of  repair  or replacement   is   less   than  Seven  Thousand   Five  Hundred  Dollars ($7,500.00)  Tenant  shall  account  to  Landlord  on  at  least  an annual   basis   for   interest   earned   thereon   and   expenditures therefrom.   The Reserve Account shall serve as additional security for the Lease,  and all provisions of Article 3  of  the Lease  shall apply thereto as  if the Reserve Account was proceeds of the Letter of  Credit. Any  amount  in  the  Reserve  Account  remaining  at  the expiration of  the  Lease shall  remain the property of Tenant.

18.6  Notwithstanding  anything  in  this  Lease  to  the contrary,  Tenant  shall  not be  required  to make  any structural or capital improvements, alterations, repairs and replacements to the Premises  during the  last three (3) years of  the  term if there are insufficient   funds   in   the  Reserve   Account   for  such  purpose, although  this  Lease  shall  nevertheless  remain  in  full  force  and effect  and Tenant shall not on account thereof be relieved of any obligation to  pay Rent,  and nothing herein shall require Landlord to   make   any   structural   or  capital   improvements,   alterations, repairs or replacements if Tenant fails to do so.   However,  in the event any structural or capital improvements,  alterations, repairs and  replacements  are  required during the  last three (3)  years  of the  term  and Tenant  elects  not to make them,  Tenant may terminate this  Lease  at  any  time during  the  last  one (1) year  of  the  term upon   sixty (60) days  prior  written   notice  to  Landlord,   unless during such sixty (60) day period Landlord elects to, and commences to,   make   the   required   improvements,   alterations,   repairs   or replacements,   and  thereafter  diligently  completes  the  same,   in which   event   any   remaining   funds   in   the   Reserve   Account,   or thereafter contributed to the Reserve Account,  shall be applied to the expense,  and Tenant shall reimburse Landlord for any portion of the  expense  in  excess of  the  funds  in  the  Reserve Account  in the ratio of the balance of the term of the Lease over the useful life of the  alteration.

19.Liens,

19. 1 Tenant   shall   keep  the   Premises  and  every  part thereof   free   from   any   liens   arising   out   of   work   performed, materials   furnished  or  obligations  incurred  by  Tenant. Tenant further covenants and agrees that any mechanic's lien filed against the Premises  for work claimed to have been done for,  or materials claimed  to  have  been  furnished to,  Tenant,  will be  discharged by Tenant,  by  bond  or  otherwise,  within  thirty (30) days  after  the filing thereof (or within ten (10)  days after the filing thereof if requested by Landlord as necessary to facilitate a pending sale or refinancing),  at the cost and expense of Tenant.

19. 2 Should  Tenant  fail  to discharge any lien of  the nature   described   in   Section 19.1,  Landlord  may  at   Landlord's election   pay   such   claim or post  a  bond  or  otherwise  provide security  to  eliminate  the  lien  as  a  claim  against title and  the cost  thereof  shall  be  immediately due  from Tenant  as  Additional Rent.

19.3 In  the  event  Tenant  shall  lease  or  finance  the acquisition  of  office  equipment,  furnishings,  or other personal property utilized by Tenant in the operation of Tenant's business, Tenant   warrants   that   any   Uniform   Commercial   Code   financing statement  executed  by  Tenant  will  upon  its  face  or  by  exhibit thereto  indicate that such financing statement is applicable only to   personal   property  of  Tenant  specifically  described  in  the financing  statement,   and  that  such  property  is  subject  to  the provisions of Section 30 regarding the removal of property on the expiration or earlier termination of this Lease.   In no event shall the address of the Building be furnished on the financing statement without qualifying language as to applicability of the lien only to personal property of Tenant described in the financing statement. Should any holder of a security agreement executed by Tenant record or   place   of   record   a   financing   statement   which   appears   to constitute a  lien against any interest of Landlord,  Tenant shall within. ten (10)  days after the  filing of such financing statement cause (i)  copies  of  the security agreement or other documents to which the financing statement pertains to be furnished to Landlord to  facilitate  Landlord's being in a position to show such lien is riot applicable to any interest of Landlord,  and (ii)  the  holder of the security interest to amend documents of record so as to clarify that such lien is not applicable to any interest of Landlord in the Premises.Nothing  herein  shall  be  deemed  to  imply  any  security interest in favor of Landlord in Tenant's Property, or that Tenant may not grant security  interests in Tenant's Property to others.

20.Indemnification and  Exculpation.

20.1Tenant   agrees   to   indemnify   Landlord,   and   its partners   and   affiliates,   and   their   respective   shareholders, directors, officers, agents, contractors and employees (collectively,   "Landlord's  Agents"),   against,   and  to   protect, defend,  and save them harmless from, all demands, claims, causes of action,   liabilities,   losses   and  judgments,   and  all   reasonable expenses incurred in investigating or resisting the same  (including reasonable attorneys'  fees),  for death of or injury to  person or damage  to property arising out of (i)   any occurrence in, upon or about  the  Premises  during the  term of this Lease, (ii)  Tenant's use,   occupancy,   repairs,  maintenance,   and  improvements  of the Premises  and  all  improvements, fixtures, equipment and personal property  thereon,  and  (iii)   any  act  or  omission  of  Tenant,   its shareholders,   directors,  officers,  agents,  employees,   servants, •contractors,  invitees  and subtenants.   Tenant's obligation under this   Section20.1shall   survive   the   expiration   or   earlier termination of  the  term of this Lease.

20.2 Landlord agrees to  indemnify Tenant and Tenant's shareholders, directors, officers, agents, and   employees (collectively  "Tenant's  Agents")  against  and  save  them  harmless from  all  demands,  claims,  causes  of action and judgments,  and all reasonable expenses  incurred in investigating or resisting the same (including reasonable attorneys'  fees),  for death of, or injury to, any  person  or   damage   to   property  arising   from  or  out  of  any occurrence in,  upon,  or about the premises during the term of this Lease  if  caused  by  the  willful misconduct or gross  negligence of Landlord   or  Landlord's   directors,   officers,   agents,   employees, servants,  contractors,  invitees  and subtenants,  unless caused in part  by  the  willful  misconduct  or gross  negligence of Tenant or Tenant's  Agents. Landlord's  obligations  under  this Section 20.2 shall survive the expiration or earlier termination of the term of this  Lease.

20.3 Notwithstanding any provision of Sections 20.1 and 20.2  to  the  contrary,  Landlord  shall not  be  liable  to Tenant and Tenant   assumes   all   risk   of   damage   to   any   fixtures,   goods, inventory, merchandise, equipment, records, research, experiments, animals and other living organisms, computer hardware and software, leasehold  improvements,  and other personal property of any nature whatsoever (including  any personal property  installed as part of Tenant's  Improvement  Work),  and Landlord shall not be  liable for injury   to   Tenant's   business   or   any   loss   of   income   therefrom relative to such damage,  unless caused by Landlord's or Landlord's Agents'  willful misconduct or gross negligence.

20.4 The   indemnity  obligations  of  both  Landlord  and Tenant  under this  Section 20  shall be  satisfied  to  the extent of proceeds of applicable insurance maintained by Tenant to the extent thereof,   and  thereafter  to  proceeds  of  any  applicable  insurance maintained by  Landlord;  Landlord and Tenant  shall be  required to satisfy any such obligation only to the extent it is not satisfied by proceeds  of  applicable  insurance as set  forth above.

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

21.Insurance-  Waiver ofSubrogation.

21.1 Commencing prior to Tenant's first entry onto the 'Premises  for purposes  of installing any improvements,  fixtures or personal  property,  but  no  later than the Term Commencement Date, and continuing at  all  times  during the  term of this  Lease,  Tenant shall  maintain,  at  Tenant's  expense,  commercial  general liability insurance,  on  an  occurrence  basis,  insuring Tenant  and Tenant's agents,  employees  and  independent  contractors  against  all  bodily injury,   property  damage,   personal  injury  and other  covered loss arising out of  the use,  occupancy,  improvement and maintenance of the  Premises  and  the  business operated by  Tenant,  or  any  other occupant,  on  the  Premises.   Such insurance  shall  have a minimum combined single limit of liability per occurrence of not less than $5,000,000,00 and a general aggregate limit of  $5,000,000.00.  Such insurance  shall: (i) name   Landlord,   and   Landlord's   lenders   if required  by such  lenders,  and any management company  retained to manage   the   Premises   if   requested  by  Landlord,   as   additional insureds; (Li)  include   a   broad   form   contractual   liability endorsement   insuring   Tenant's   indemnity   obligations   under Section 20.1; (iii)  include   a   products   liability   coverage endorsement, a boiler and machinery liability endorsement,  and a products  completed operations  coverage endorsement; (iv)  provide that  it is primary coverage and noncontributing with any insurance maintained by Landlord or Landlord's lenders, which shall be excess insurance  with  respect  only  to  losses  arising  out  of  Tenant's negligence;   and (v)  provide   for   severability   of   interests   or include a cress-liability endorsement, such that an act or omission of an insured shall not reduce or avoid coverage of other insureds.

21.2 At all times during the term of this Lease, Tenant shall   maintain,   at   Tenant's   expense,   "all   risk"   insurance, including,  but  not limited to,  coverage against loss or damage by fire,   flood,   vandalism,   and   malicious   mischief   covering   the Building (exclusive   of  excavations,   foundations  and  footings), Tenant's  Improvements (whether owned  by Landlord  or  Tenant),  and all  other  improvements  and  fixtures  that  may  be  constructed  or installed  on  the  Premises,   in  an  amount  equal  to  one  hundred  percent (100%) of  the   full  replacement  value  thereof. If  any boilers or other pressure vessels or systems are installed on the Premises,  Tenant  shall maintain,  at Tenant's  expense,  boiler  and machinery  insurance   in  an  amount  equal  to  one  hundred  percent  (1001)  of the  full replacement value thereof.   At all times during the   course   of   any   major  demolition  or  construction  permitted hereunder, or any restoration pursuant to Articles 22 or 23, Tenant shall  maintain,   at  Tenant's  expense,  "all  risk"  builder's  risk insurance,  including, but not limited to, coverage against loss of damage by fire,  flood,  vandalism and malicious mischief,  covering improvements  in  place  and all  material  and equipment  at  the  job site  furnished  under contract,  in an amount equal  to one  hundred percent (100%) of   the   full   replacement   value   thereof. Theinsurance   described   in   this   Section 21.2   shall: (i)  insure Landlord,  and  Landlord's  lenders  if required by such lenders,  as their  interests  may  appear; (ii)  contain  a Lender's  Loss  Payable Form (Form 438  BFU or equivalent)  in  favor of Landlord's  lenders and name Landlord, or Landlord's lender if required by such lender, as  the  loss  payee; (iii)  provide  for severability of  interests or include a cross-liability endorsement, such that an act or omission of an insured shall not reduce or avoid coverage of other insureds; (iv)   include  a  building  ordinance  endorsement,  an  agreed  amount endorsement  and an inflation endorsement;  and (v)  provide  that it is   primary   coverage   and   noncontributing   with   any   insurance maintained by Landlord or Landlord's lenders, which shall be excess insurance.   The  full  replacement value of  the  Building,  Tenant's Improvements and other improvements and fixtures insured thereunder shall be determined by the company issuing the insurance policy and shall be redetermined by said company within  six (6)  months  after completion  of   any  material  alterations  or  improvements  to   the Premises   and  otherwise  at  intervals  of  not  more  than  three (3) years.   Tenant shall promptly increase the amount of the  insurance carried   pursuant   to   this   Section 21.2 to   the   amount   so redetermined. The   proceeds  of  the  insurance  described  in  this Section shall be used for the repair,  replacement and restoration of  the  Premises  and  Tenant's  Improvements  and other  improvements and fixtures insured thereunder, as further provided in Article 22; provided,  however,   if  this  Lease  is  terminated  after  damage  or destruction,   the   insurance   policy   or   policies,   all   rights thereunder and all insurance proceeds shall be assigned to Landlord and.  Tenant  in  an  equitable manner  taking  into  consideration  the unamortized portion of each party's contribution toward the cost of the Tenant's Improvements with respect to which such proceeds have been paid.

21.3 At all times during the term of this Lease, Tenant shall   maintain,   at   Tenant's   expense,   business   interruption insurance   in   order   to   insure  that   the   Basic  Annual   Rent   and Operating Expenses provided for hereunder will be paid for a period of  up to  two (2) years  after  any casualty  insured  against  by all risk  policy of  insurance  described  in Section 21.2 above  or  any restriction of access to the Premises as a result of such casualty.

21.4 At all times during the term of this Lease, Tenant shall  maintain,  at  Tenant's  expense,   "all risk°  insurance  against all  other  personal  property,  including  trade  fixtures,  equipment and merchandise,  of  Tenant or any subtenant of Tenant that may be occupying the Premises,  or any portion thereof,  from time to time, in an amount equal  to the  full replacement value thereof.

21.5 At all times during the term of this Lease, Tenant shall maintain workers'  compensation insurance in accordance with California law and employers'  liability insurance with a  limit of not   less   than $2,000,000   per   employee   and $2,000,000   per occurrence.

21.6  All  of  the  policies  of  insurance  referred  to  in this  Article 21   shall  be  written  by  companies  authorized  to  do business   in California   and   rated   A+VII   or  better   in   Best's Insurance Guide.   Each insurer referred to in this Article 21 shall agree,  by endorsement on the  applicable  policy or by  independent instrument  furnished to Landlord,  that it will give Landlord,  and Landlord's  lenders  if required by such lenders,  at least  ten (10) days'  prior written notice by registered mail before the applicable policy  shall  be  cancelled  for  non-payment of  premium,  and thirty (30)  days'   prior  written  notice  by  registered  mail  before  the applicable policy shall be cancelled or altered in coverage, scope, amount  or  other material  term  for any other reason (although  any failure of an insurer to give notice as provided herein shall not be  a breach of  this  Lease by Tenant).   Tenant shall pay all of the premiums for such insurance and all deductible amounts provided for thereunder.  No policy  shall  provide  for a deductible  amount  in excess   of $5,000, unless   approved   in   advance   in   writing   by Landlord,   which   approval   shall   not   be   unreasonably   withheld. Tenant   shall  deliver  to  Landlord,   and  to  Landlord's  lenders  if required   by   such   lenders,   copies   of   the   insurance   policies, certified by the insurer, or certificates evidencing such insurance policies,  issued by the  insurer,  together with evidence of payment of   the   required   premiums,   prior   to   the   required   date for commencement of such coverage.   At least thirty (30)  days prior to expiration of  any such  policy,  Tenant shall deliver  to Landlord, and Landlord's  lenders  if required by such lenders,  a certificate evidencing   renewal,   or   a  certified  copy  of e   new   policy   or certificate evidencing the same,  together with evidence of payment of  the  required premiums.   If Tenant fails to provide to Landlord any   such   policy   or   certificate   by   the   required   date   for commencement  of  coverage,  or  within  fifteen (15) days  prior  to expiration  of  any  policy,  or  to  pay  the  premiums  therefor  when required, Landlord shall have the right, but not the obligation, to procure said insurance and pay the premium therefor.   Any premiums paid  by  Landlord  shall  be  repaid by Tenant  to  Landlord with  the next  due  installment of  rent,  and  failure to  repay the same shall have  the  same  consequences  as  failure  to pay any  installment  of Rent.

21.7 If   the   insurance   required   pursuant   to   this Article 21  is materially less  in amount or type of insurance than the  insurance typically carried by owners or tenants of comparable "biotech"   properties   located  in  the  UTC/Torrey  Pines/Sorrento Valley  area  of  San  Diego,   California,   which  are   similar  to   and operated  for similar purposes asthe Premises, Landlord may elect to  require  Tenant  to  increase  the  amount of  coverage.   Landlord shall  notify Tenant  in writing of the specific increase required, and Tenant shall have thirty (30)  days after receipt of Landlord's notice  to  effect  the  increase.   Any adjustment pursuant  to  this Section 21.7 may be  made  not more  often  than once  every  five (S) years  unless otherwise agreed by Landlord and Tenant.

21.8 Tenant  may  provide  the  property  insurance  only required  under  this  Article 21  pursuant  to  a  so-called  blanket policy  or  policies   of  property  insurance  maintained  by  Tenant; provided, however,  that the amount and type of coverage afforded to the  Landlord shall  not be reduced or adversely affected from that which  would exist under a separate policy or policies meeting all of  the requirements of this Lease by reason of the use of a blanket policy   of   property   insurance,   and  provided   further   that   the requirements of  this  Article 21  are otherwise  satisfied.

21.9  Landlord and Tenant each hereby waive any and all rights   of  recovery  against  the  other  or  against  the  officers, directors, partners,  employees,  agents, and representatives of the other,   on  account  of   loss  or  damage (including  any  claims   for bodily  injury  to  persons  and/or damage to property)  occasioned to such waiving party or its property or the property of others under its control,  to the extent that such loss or damage is caused by or results  from risks insured against under any insurance policy which insures  such  waiving  party  at  the  time  of  such  loss  or  damage, which  waiver  shall   continue  in  effect  as   long as the  parties' respective  insurers  permit  such waiver under the  terms  of  their respective   insurance   policies   or   otherwise   in  writing. Any termination   of   such   waiver   shall   be   by   written   notice   as hereinafter set  forth.   Prior  to  obtaining policies of  insurance required or permitted tinder this Lease, Landlord and Tenant shall give  notice  to  the  insurers  that  the  foregoing mutual  waiver is contained in this  Lease,  and each party shall use its best efforts to  cause  such  insurer  to  approve  such  waiver  in  writing  and  to cause  each  insurance  policy  obtained  by  it  to  provide  that  the insurer waives all right of recovery by way of subrogation against the  other  party. If   such  written  approval  of  such  waiver  of subrogation  cannot  be  obtained  from any insurer or is  obtainable only upon payment  of  an additional premium which the party seeking to  obtain   the   policy  reasonably  determines   to  be  commercially unreasonable,  the party seeking to obtain such policy shall notify the  other   thereof,   and  the   latter  shall  have  twenty (20) days thereafter   to   either; (i)   identify other   insurance  companies reasonably satisfactory to  the other party that will provide the written approval  and waiver of  subrogation;  or (ii)  agree  to  pay such  additional  premium. If  neither (i)  nor (ii)  are  done,  the mutual waiver set  forth above shall not be operative, and the party seeking to obtain the policy shall be relieved of the obligation to obtain  the  insurer's  written  approval  and  waiver  of  subrogation with respect  to  such policy during such time as such policy is not obtainable  or  is  obtainable  only  upon  payment  of  a  commercially unreasonable   additional   premium  as   described   above. If   such policies shall  at any subsequent time be obtainable or obtainable upon   payment   of   a   commercially  reasonable  additional   premium, neither  party  shall  be  subsequently  liable  for  failure  to  obtain such insurance until  a reasonable time after notification thereof by the  other party.   If  the release of either Landlord or Tenant, as set forth  in  the   first  sentence  of  this  Section 21.9,  shall contravene  any  law  with  respect  to  exculpatory  agreements,  the liability of the party in question shall be deemed not released but shall  be secondary to the other's  insurer.

22.Damage  or Destruction.

22.1 Tenant   shall   give   written   notice   to   Landlord -immediately upon  any damages to or destruction of the Premises if the loss sustained exceeds Ten Thousand Dollars ($10,000). In the event   of  damage  to  or  destruction  of  all  or  any portion  of  the Premises  or  the  improvements  and  fixtures  thereon (collectively, *improvements")   arising   from  a   risk  covered  by the   insurance described  in  Section 21.2,  Tenant shall within  a  reasonable  time commence and proceed diligently to repair,  reconstruct and restore (collectively, ,restore")  such  improvements  to  substantially the same condition as  they were in-immediately prior to  the casualty, whether  or  not  the  insurance proceeds  are sufficient to cover the actual cost of restoration, provided that in no event shall Tenant be   required  to   pay  from  its  own  funds  more  than  it  would  be required   to   pay   under   Section 22.2 for   uninsured   damage   or destruction.   Except as expressly set forth below, this Lease shall continue  In  full  force and effect,  notwithstanding such damage or destruction.

22.2  In  the event  of  any damage  to or destruction of all or any portion of the improvements arising from a risk which is not  covered  by  the   insurance  described  in  Section 21.2,  Tenant shall.  within  a  reasonable time commence and proceed diligently to restore  the  improvements  to  substantially  the same condition as theywere in immediately prior to the casualty, in which case this Lease  shall continue in full force and effect; provided,  however, that if the cost of restoration is reasonably anticipated to exceed a certain percentage calculated below ("Restoration Percentage") of the  total  replacement  value  of  the  improvements  located  on  the Premises   immediately prior  to  the  casualty,  Tenant  may elect  to terminate  this  Lease by delivering to Landlord written notice of its   election   to   terminate  within  thirty (30) days   after   the Restoration Percentage  is determined.   The Restoration Percentage shall  be  fifty percent  (50%) for  the  first  ten  (10)  years  of  the term,  and thereafter shall be that percentage which is equal to the product  of  fifty percent (50%) times  a  fraction the  numerator of which  is  the  number of  full calendar months remaining in the  term after the date upon which the damage or destruction occurs, and the denominator  of  which  is  one  hundred  and  twenty (120). If   for example there are sixty (60)  full calendar months remaining on the date  of  destruction,  the Restoration  Percentage would be  twenty-five  percent  (251) [50%  x  60/120  e  25%). If Tenant's  termination notice   is   not  received  by  Landlord  within  such 30-day  period, Tenant shall be deemed to have elected not to terminate the Lease. If  Tenant  elects  to  terminate  the  Lease,  Landlord shall  have  the right   to  elect,   by  delivering  written  notice  to  Tenant  within thirty (30)  days  after  receipt  of  Tenant's  election,  to  pay  the amount by  which  the  cost  of  restoration  exceeds  the  Restoration Percentage   of   the  total  replacement  value  of  the  improvements located on the Premises immediately prior to the casualty,  in which event   Tenant's   termination  notice  shall  be  void,   Tenant  shall restore  the   improvements  and  this  Lease  shall  continue  in  full force   and   effect. If   Landlord   does   not   elect   to   pay   such restoration costs within such 30-day period, Tenant shall surrender possession  of   the   Premises  within  ninety (90) days   after   the earlier of Tenant's receipt of Landlord's election or expiration of the 30-day   period   for  making  such  election,   this  Lease   shall terminate  as of the date possession of the Premises is surrendered to Landlord, and the parties shall be released from all obligations arising under this Lease after such termination date.   The cost of restoration to be paid by Tenant,  and any such costs to be paid by Landlord  if  it  exercises  the  election described above,  shall  be promptly deposited with the Insurance Trustee described in Section 22.5.

In satisfying  its obligations under this  Section 22.2, Tenant shall  not be required to restore Landlord's  Property and Landlord's Collateral with improvements identical. to Landlord's Property and Landlord's Collateral which were damaged or destroyed; rather,   with  the  consent  of  Landlord,  which  consent will  not be unreasonably withheld, Tenant may restore the damage or destruction with  improvements reasonably equivalent to Landlord's Property and Landlord's  Collateral.   Furthermore,  in no event  shall Tenant be required to restore Landlord's Collateral in an amount in excess of the   replacement  cost  of  the  improvements  damaged  or  destroyed multiplied by a  fraction,  the numerator of which is the remaining years   in  the  term,   and  the  denominator of which  is  twenty (20) Finally,  Tenant shall not be required to restore Tenant's Property or  its  trade  fixtures  or equipment.   Nothing in this subsection, however,   shall   be   construed   to   relieve   Tenant   of   any   other obligations under this Lease, including the obligation to pay Rent.

Notwithstanding  the  forgoing,  in  no  event  shall Tenant   be   required   to   restore   any   capital   or   structural improvements to the Premises during the last three (3)  years of the term  if  there  are  insufficient  funds  in the  Reserve Account  for such purpose, although this Lease shall nevertheless remain in full force   and   effect   and  Tenant   shall   not  on  account   thereof  be relieved  of  any obligation to pay Rent,  and nothing herein shall require   Landlord   to   make   any   such   capital   or   structural Improvements   if Tenant falls  to  do  so. However,   in  the  event Tenant   elects   not   to  make  any  required capital   or   structural improvements,  Tenant may terminate  this  Lease at any time during the   last  one (1) year  of   the  term   upon   sixty (50)days   prior written   notice   to  Landlord,   unless  during  such  sixty (60)day period  Landlord  elects  to,  and  commences  to,  make  the  required restorations,   and  thereafter  diligently  completes  the  same,  in which   event   any   remaining   funds   in   the   Reserve   Account,   or thereafter contributed to the Reserve Account,  shall be applied to the expense, and Tenant shall reimburse Landlord for any portion of the  expense in excess  of  the  funds  in the  Reserve Account  in the ratio of the balance of the term of the Lease over the useful life of  the  alteration.

22.3 In   the   event   of   damage,   destruction   and/or restoration  as  herein  provided,   there  shall  be  no  abatement of Rent,   and  Tenant  shall  not  be  entitled  to  any  compensation  or damages occasioned by any such damage, destruction or restoration.

22.4 Notwithstanding anything to the contrary contained in   this   Article,   should  Tenant  be   delayed  or  prevented   from completing the restoration of the improvements after the occurrence of   such  damage  or  destruction  by  reason  of  acts  of  God,  war, government restrictions,  inability to procure the necessary labor or materials,  strikes, or other causes beyond the control of Tenant (but   excluding   economic   conditions   or   financial   inability  to perform),  the  time  for Tenant to commence or complete restoration shall be extended  for  the time reasonably required as  a result of such  event.

22.5 If insured casualty occurs and the total amount of loss  does  not exceed Ten Thousand Dollars  ($10,000),  Tenant  shall make  the  loss  adjustment with the  insurance  company insuring the loss,  and  the  proceeds  shall be paid directly to Tenant  for the sole  purpose  of  completing  the  restoration  required pursuant  to this Article 22; If the  total amount of loss exceeds Ten Thousand Dollars (S10,000),  Tenant shall make the loss adjustment with the insurance   company,   which   adjustment   shall   be  subject   to   the approval   of   Landlord,   and   the   proceeds   shall   be   immediately deposited with an institutional lender or other entity ("Insurance Trustee")   designated  by  Landlord  and  approved  by  Tenant,  which approval  shall  not  be  unreasonably withheld,  who  shall  agree  to hold   said  proceeds  in  trust  and  to  disburse  said  proceeds  in accordance   with   the   provisions   of   this   Section. If   the improvements  are  damaged or destroyed as  a  result of a risk not covered  by  insurance  as  described  in  Section 22.2, Tenant,  and Landlord  if a contribution from Landlord is  required as  set  forth above,  shall  deposit with the  Insurance Trustee their respective contributions  towards  the cost  of  restoration.   Restoration work shall   not   be   commenced   until   funds   sufficient   to   cover   the estimated   cost   of   restoration   have   been   deposited   with   the Insurance  Trustee.   The  Insurance Trustee  shall disburse  amounts deposited with it  to pay the cost of restoration,  in installments as   construction   progresses,   upon  presentation   of   certificates executed by the architect or engineer retained by Tenant verifying the  amount  due,  on  terms  and conditions approved by Landlord and Landlord's  lender  prior to  commencement of work.   A  ten percent (10%) retainage   shall   be   reserved   from   payments   due   to   the contractor,   which   retainage   shall  be  paid  upon  completion  of restoration,  payment  of  all  costs,  expiration of  all  applicable liens,  and delivery of evidence that the Premises are free from all mechanics'  and materialmen's liens and lienable claims.   Landlord, and Landlord's lenders  if required by such lenders,  shall have the right. to approve requests for reimbursement prior to payment, which approval  shall not  be unreasonably withheld.   Landlord shall have the right to engage an architect or engineer to review and approve requests for disbursement, and reasonable expenses incurred by such party  shall  be  paid  by  the  Insurance  Trustee  out  of  the  funds deposited with the  Insurance Trustee.   If, at any time during the course of restoration,  the funds held by the Insurance Trustee are not sufficient to pay the actual costs of restoration, Tenant shall 'deposit  the  amount  of  the  deficiency  with  the  Insurance  Trustee within twenty (20)  days after receipt of a written request from the Insurance Trustee.   After restoration has been completed and final payment  has  been made  to Tenant's  contractor,  within fifteen (15) days after demand by either party, the Insurance Trustee shall pay undisbursed  funds  remaining  thereafter  to  Landlord or Landlord's lenders to the extent required by any such lender, to the extent of Landlord's contribution to the fund, and the balance,  it any,  shall be  paid  to  Tenant.   All actual costs and charges of the  Insurance Trustee   shall  be  paid  by  Landlord  to  the  extent  of  Landlord's contribution  to  the  fund,  and  thereafter  by Tenant. Each  party shall   promptly   execute   all   documents   and   perform   all   acts reasonably   required   by   the   Insurance  Trustee   to   perform  its obligations  under this Section.

22.6 If   restoration   is   required   pursuant   to   this Article,   Tenant,  at  its  expense,  shall  prepare  final  plans  and specifications and working drawings for the work in compliance with all  applicable  laws. The  plans   and  specifications  and  working drawings   shall  be  subject  to  the  approval  of  Landlord,   which approval  shall  not  be  unreasonably withheld,  within  thirty (30) days  after  receipt  and the approval of Landlord's  lenders,  which approval  shall  not  be unreasonably withheld,  if required by such lenders.   Tenant shall submit the plans and specifications as soon as  reasonably practicable,  but in no event later than one hundred twenty (120)  days  after the casualty.   Tenant shall commence the restoration within thirty (30) days after issuance of all necessary permits  and  approvals  and  shall continue  the work diligently  to completion thereafter.   The provisions. of Article 17 shall apply to any restoration work under this Article as if the restoration was an  alteration,  addition or improvement thereunder.

22.7 Tenant   waives   the   provisions   of   Civil   Code Section 1932(2)  and 1933(4)  or  any similar statute now existing or hereafter  adopted  governing destruction of the Premises,  so  that the   parties*  rights  and  obligations  in  the  event  of  damage  or destruction shall be governed by the provisions of this  Lease.

23Eminent Domain.

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

23.2  In the  event of a partial taking of  the Premises for   any  public  or  quasi-public  purpose  by any lawful  power  or authority by exercise ofright of appropriation,  condemnation, or eminent domain,  or sold to prevent such taking,  then Landlord may elect   to   terminate  this  Lease  if  such  taking  is  of  a  material nature  such  as  to  make  it  uneconomical  to  continue  use  of  the unappropriated   portions   for  the   purposes  for  which  they  were intended,   and  Tenant  may  elect  to  terminate  this  Lease  if  such taking  is  of material detriment to,  and substantially  interferes with,  Tenant's use and occupancy of the Premises, including but not limited   to   materially  affecting  Tenant's  parking  or  Tenant's ingress   and  egress  from  the  Premises,  unless  Landlord  provides reasonable alternatives thereto.   In no event shall this Lease be terminated  when  such  a  partial  taking  does  not  have  a  material adverse  effect  upon Landlord  or  Tenant or both.   Termination by either  party pursuant to this-Section shall be effective as of the date  possession is  required to be surrendered to said authority.

23.3  If upon any taking of the nature described in this Article 23   this   Lease  continues   in  effect,   then  Tenant  shall promptly proceed to restore the remaining portion of the Premises, and all  improvements and fixtures located thereon, to substantially their  same  condition prior to  such partial taking.   Basic Annual Rent  shall  be  abated proportionately on the basis  of  the  rental value   of   the  Premises,   including  improvements  and  fixtures,  as restored  after  such  taking compared  to  the rental  value  of  the Premises prior to such taking.

If  the  cost  of  restoration  does  not  exceed Tea Thousand Dollars ($10,000),  any award for the taking shall be paid directly   to   Tenant   for   the   sole   purpose   of   completing   the restoration required pursuant to this Article 23. If  the cost of restoration exceeds Ten Thousand Dollars ($10,000),  the award shall be   immediately  deposited  with  an  institutional  lender  or  other entity ("Condemnation Trustee") designated by Landlord and approved by Tenant,  which approval shall not he unreasonably withheld, who shall  agree  to  hold  said proceeds  in  trust  and  to  disburse  said proceeds  in  accordance with the provisions  of  this  Section.   The Condemnation  Trustee  shall disburse  amounts deposited with  it  to pay   the   cost   of   restoration,   in   installments  as   construction progresses,   upon   presentation  of  certificates  executed  by  the architect or engineer retained by Tenant verifying the amount due, on terms  and conditions approved by Landlord and Landlord's lenders prior to commencement of work.   A ten percent (10%)  retainage shall be  reserved  from payments  due  to  the  contractor,  which  retainage shall be paid upon completion of restoration, payment of all costs, expiration of  all applicable  liens,  and delivery of evidence that the  Premises  are  free from all mechanics'  and materialmen's  liens and lienable claims.   Landlord, and Landlord's lenders if required by   such   lenders,   shall  have  the  right  to  approve  requests  for reimbursement   prior   to   payment,   which   approval   shall   not  be unreasonably withheld.   Landlord shall have the right to engage an architect   or   engineer   to   review   and   approve   requests   for disbursement,  and reasonable expenses incurred by such party shall be paid by the Condemnation Trustee out of the funds deposited with the  Condemnation  Trustee.   All  actual  costs  and  charges  of  the Condemnation  Trustee  shall  be  paid  out  of  the  funds  deposited. Each  party  shall  promptly  execute  all  documents  and perform all acts reasonably required by the Condemnation Trustee to perform its obligations  under this Section.

If   restoration  is  required  pursuant  to  this  Article, Tenant,  using proceeds of the award,  shall prepare final plans and specifications and working drawings for the work in compliance with all   applicable  laws. The  plans  and  specifications  and working drawings shall be subject to the approval of Landlord within thirty (30)  days  after receipt, which approval shall not be unreasonably withheld.   Tenant shall submit the plans and specifications as soon as  reasonably practicable,  but in no event later than one hundred twenty (120)  days  after  the  taking,  unless  due  to  delays  beyond Tenant's  control. Subject   to   unavoidable  delays,  Tenant  shall commence the restoration within thirty (30) days after issuance of all  necessary permits  and  approvals  and shall continue  the  work diligently to completion thereafter.   The provisions of Article 17 shall  apply to any restoration work under this Article  as  if the restoration   was   an  alteration,   addition  or  improvement   under Article 17.

23.4 If upon any taking of the nature described in this Article 23  this Lease does not continue in effect, or in the event final   payment has  been  made  to  Tenant's  contractor  under  the preceding   Section23.3and   the   Condemnation   Trustee   holds additional funds from the award, any award shall be distributed to Landlord and Tenant pro rata according to their interests taken.

2.4.Defaults  and Remedies.

24.1 Late  payment  by  Tenant  to  Landlord of  Rent  and other  sums due will cause Landlord to incur costs not contemplated by   this   Lease,   the  exact   amount  of  which  will  be   extremely difficult and impracticable to ascertain.   Such costs include,  but are   not  limited  to,  processing  and  accounting  charges  and  late charges   which  may  be  imposed  on  Landlord  by  the  terms  of  any mortgage or trust deed covering the Premises.   Therefore,  if any installment  of  Rent  due  from  Tenant  is  not  received by Landlord within ten (10) days of the date such payment is due, Tenant shall pay  to  Landlord  an  additional  sum  of  five  percent (SI)   of   the overdue  rent as  a  late  charge.   The parties agree that  this  late charge represents a fair and reasonable estimate of the costs that Landlord  will  incur  by  reason  of  late  payment  by  Tenant. In addition to the late charge,  Rent not paid within thirty (30) days of  the  data  such  payment  is  due  shall  bear  interest  from  thirty (30)  days after the date due until paid at the  lesser of (i)   ten Percent (10%)  per annum or (ii)  the maximum rate permitted by law.

24.2 No payment by Tenant or receipt by Landlord of a lesser  amount  than  the  rent  payment  herein  stipulated  shall  be deemed  to  be  other  than  on  account  of  the  rent,   nor  shall  any endorsement  or  statement  on  any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or pursue any Other  remedy provided.   If at any time a dispute shall arise as to any amount or sum of money to be paid by Tenant to Landlord, Tenant shall   have  the  right  to  make  payment  'sunder  protest'  and  such payment  shall  not  be  regarded  as  a  voluntary payment,  and there shall  survive the right on the part of Tenant to institute suit for recovery of the payment paid under protest.

24.3 If  Tenant  fails  to  pay  any  sum  of  money(other than  Basic  Annual  Rent)  required to  be paid by it  hereunder,  or shall  fail  to  perform any other act on its part to be performed hereunder,  Landlord may, without waiving or releasing Tenant from any obligations of Tenant, but shall not be obligated to, make such payment or perform such act; provided,  that such failure by Tenant continued   for  ten (10) days  after  written  notice  from  Landlord demanding  performance by Tenant was delivered to Tenant,  or that such   failure  by  Tenant  unreasonably  interfered with  the  use or efficient  operation  of  the  Premises,   or  resulted  or  could  have resulted in a violation of law or the cancellation of an insurance policy  maintained  by Landlord.   All  sums  so paid or incurred  by Landlord,  together with interest thereon,  from the date such sums were  paid  or  incurred,  at  the  annual  rate  equal  to  ten  percent (10%) per  annum  or  highest  rate  permitted  by  law,  whichever is less, shall  be payable to Landlord on demand as Additional Rent.

24.4 The occurrence of any one or more of the following events  shall constitute a "Default" hereunder by Tenant:

(a)The failure by Tenant to make any payment of  Rent,  as  and when due,  where such failure shall continue for a period of  five (5)  days after written notice thereof from Landlord to  Tenant. Such notice  shall be  in  lieu of,  and not  in  addition to,   any notice required under California Code of Civil  Procedure Section 1161;

(b) The   failure   by   Tenant   to   observe   or perform any obligation other than described in Section 24.4 (a)  to be  performed  by Tenant,  where  such  failure shall  continue  for a period   of   thirty (30) days   after   written  notice   thereof   from Landlord   to   Tenant;   provided,   however,   that  if  the  nature  of Tenants   default  is  such  that  more  than  thirty (30) days   are reasonably required to cure the default, then Tenant shall not be deemed to be  in default if Tenant shall commence such cure within said thirty (30) day period and thereafter diligently prosecute the same  to  completion.   Such notice shall be  in lieu of,  and  not inaddition  to,   any  notice  required under California  Code  of  Civil Procedure Section 1161;

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

(d) A   receiver,   trustee   or   custodian   is appointed to, or does, take title, possession or control of all, or substantially all,  of Tenants assets;

(e) An  order  for  relief  is  entered  against Tenant pursuant to a voluntary or involuntary proceeding commenced under  any chapter of the Bankruptcy Code;

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

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

(h) Tenant defaults under any other agreement existing or hereafter made with Landlord or any successor Landlord under  this Lease.

Notices given under this Section shall specify the alleged default and shall demand that Tenant perform the provisions of  this  Lease or pay the Rent  that is  in arrears,  as the case may be,  within the applicable period of time, or quit the Premises.   No such  notice shall be deemed a  forfeiture or a termination of this Lease  unless  Landlord elects  otherwise in such notice,  and in no event shall a forfeiture or termination occur without such written notice.

24.5 In the  event  of  a  Default by Tenant,  and at any time  thereafter,  and without limiting Landlord in the exercise of any  right  or  remedy  which  Landlord may have,  Landlord  shall  be entitled to terminate Tenant's  right to possession of the Premises by  any  lawful means,  in which case this Lease shall  terminate and Tenant  shall  immediately surrender possession of  the Premises  to Landlord.   In such event Landlord shall have the immediate right to re-enter and remove all persons and property, and such property may be  removed  and  stored  in  a  public  warehouse  or elsewhere  at the cost  of,   and  for  the  account  of  Tenant,  all  without  service  of notice  and  without  being  deemed  guilty of  trespass,  or becoming liable  for any loss or damage which may be occasioned thereby.   In the  event  that  Landlord  shall  elect  to  so  terminate  this  Lease, then Landlord shall be entitled to recover from Tenant all damages incurred by Landlord by reason of Tenant's default,  including:

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

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

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

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

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

As used in Subsections  (a), (b)  and  (c), the "time of award" shall mean the date upon which the judgment in any action brought  by  Landlord  against  Tenant  by reason of  such default  is entered or such earlier date as the court may determined. As used in Subsections (a)  and (b),  the  "worth at as the court may determined.   As used in Subsections (a) and (b), the "worth at the time of award" shall be   computed   by   allowing   interest   at   the   rate   specified   in Section 24.1. As used  La Subsection (c)  above,  the  "worth at the time  of award"  shall  be  computed  by taking the  present  value  of such amount using the discount rate of the Federal Reserve Bank of San  Francisco  at  the  time of award plus one percentage point.

24.6  In  the  event  of  a Default by Tenant,  and at  any time   thereafter,'  with   or  without  terminating  this   Lease,   and without  limiting  Landlord  in  the  exercise of  any right  or remedy which Landlord may have, Landlord shall have the immediate right tore-enter and remove all persons and property, and such property may be  removed  and  stored  in  a  public warehouse or elsewhere  at  the cost  of,   and  for  the  account  of  Tenant,  all  without  service  of notice  and  without  being  deemed  guilty of  trespass,  or  becoming liable  for  any loss  or damage which may be occasioned thereby.   No such  re-entry  shall  be  considered or construed  to  be  a  forcible entry by Landlord.   If Landlord does  not elect to terminate  this Lease  as  provided  in Section 24.5, then Landlord may,  from time to time,  recover all Rent as  it becomes due under this Lease.   At any time thereafter,  Landlord may elect to terminate this Lease and to recover  damages  to which Landlord is  entitled.

24.7 Notwithstanding anything herein to the contrary, Landlord's  reentry to perform acts of maintenance or preservation of,  or  in connection with efforts  to  relet,  the  Premises,  or  any portion thereof,  or the appointment of a receiver upon Landlord's initiative  to  protect Landlord's  interest under this  Lease,  shall not  terminate  Tenant's  right to possession of the Premises or any portion  thereof  and,  until  Landlord does  elect  to  terminate  this Lease,   this  Lease  shall  continue  in  full  force  and  Landlord  may pursue  all  its  remedies hereunder,  including, without limitation, the  right to  recover  from Tenant as  they become due hereunder all Rent  and  other  charges  required  to  be  paid  by  Tenant  under  the terms  of  this  Lease.

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

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

Second,   to  the  payment  of  reasonable  costs and expenses of reletting the Premises, including reasonable attorneys' fees  incurred  by Landlord in connection with  the retaking of the Premises  and such reletting;

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

Fourth,  to  the  payment  of  future  Rent  and other damages  payable by Tenant under this Lease.

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

24.10 Termination  of  this  Lease  or  Tenant's  right  to possession by Landlord shall not relieve Tenant from any liability to Landlord which has theretofore accrued or shall arise based upon events which occurred prior to the last to occur of(i)  the date of Lease   termination   or (ii)   the   data   possession  of  Premises  is surrendered.

24.11  Landlord shall not be in default unless Landlord fails   to   perform   obligations   required   of   Landlord   within  a reasonable time,  but in no event later than thirty (30)  days  after written notice by Tenant specifying wherein Landlord has  failed to perform such obligation;  provided,  however,  that if the nature of Landlord's obligation is  such that more than thirty (30)  days are required for performance,  then Landlord shall not be in default if Landlord commences  performance within such thirty (30)  day period and  thereafter diligently prosecutes the same to completion.

24. 12  In   the   event   of   any   default   on   the   part   of Landlord,  Tenant will give notice by registered or certified mail to  any beneficiary of  a deed of  trust  or mortgagee of  a mortgage covering  the  Premises whose address  shall have been furnished and shall   offer   such   beneficiary   and/or   mortgagee   a   reasonable opportunity   to   cure   the   default,   including   time   to   obtain possession of the Premises by power of sale or a judicial action if such  should prove necessary to effect a cure.

25.Assignment or  Subletting

25.1 Except as hereinafter provided, Tenant shall not,either  voluntarily  or  by operation  of  law,  sell,  hypothecate or transfer this Lease, or sublet the Premises or any part thereof, or permit  or  suffer the  Premises or  any part  thereof to be used or occupied as work space,  storage space,  concession or otherwise by anyone other than Tenant or Tenant's employees, without the prior written consent of Landlord in each instance, which consent shall not be  unreasonably withheld or delayed.

25.2  If  Tenant  desires   to  assign  this  Lease   to  any entity   into   which   Tenant   is   merged,   with   which   Tenant   is consolidated,  or  which acquires  all  or substantially  all  of  the assets   of   Tenant,   provided   that   the  assignee  first  executes, acknowledges  and  delivers  to  Landlord  an  agreement  whereby  the assignee  agrees to be bound by all of the covenants and agreements in   this   Lease   and  that  the  assignee  shall  have  a  net  worth (determined   in   accordance   with   generally  accepted   accounting principles consistently applied)  immediately after such assignment which  is  at  least  equal  to  the  net  worth (as  so  determined)  of Tenant   immediately  prior  to  the  assignment,  then  Landlord  upon receipt of proof of  foregoing, will consent to the assignment.

25.3 In  the event Tenant desires to assign,  sublease, hypothecate or otherwise transfer this Lease or sublet the Premises to  an  assignee  other than one  set  forth in Section 25.2,  then  at least  forty-five (45)  days,  but  not  more  than  ninety (90) days, prior to the data when Tenant desires the assignment or sublease to be effective (the "Assignment Date"),  Tenant shall give Landlord a notice (the  "Assignment Notice")  which shall  set  forth  the  name, address   and   business   of   the   proposed  assignee  or   sublessee, information (including   references   and   financial   statements) concerning  the  reputation  and  financial  ability of  the  proposed assignee   or   sublessee,   the  Assignment  Date,   any  ownership  or commercial relationship between Tenant and the proposed assignee or sublessee,  and the consideration and all other material  terms  and conditions  of  the  proposed  assignment  or  sublease,  all  in  such detail  as  Landlord shall  reasonably require.

25.4 Landlord in making its determination as to whether •consent  should be given to a proposed assignment or sublease,  may give consideration to the reputation of a proposed successor,  the financial  strength of such successor (notwithstanding the assignor remaining liable for Tenant's performance), and any use which such successor proposes  to make of the Premises.   If Landlord fails to deliver written notice of its determination to Tenant within thirty (30) days   following  receipt  of   the  Assignment  Notice  and  the information required under Section 25.3, Landlord shall be deemed to have approved the request.   to no event shall. Landlord be deemed to  be  unreasonable  for  declining  to  consent  to  a  transfer  to a successor   of  poor  reputation,   lacking  financial  qualification, seeking  change  in  use,  or intending a use which may increase the risk of contamination by Hazardous Material.   As a condition to any assignment  or  sublease  to which Landlord  has  given consent,  any such assignee or sublessee must execute, acknowledge and deliver to Landlord an agreement whereby the assignee or sublessee agrees to be  bound by all of the covenants and agreements in this Lease.

25.5 Any sale, assignment, hypothecation or transfer of this Lease or subletting of Premises that is not in compliance with the  provisions of this Article 25 shall be void and shall,  at the option of  Landlord,  terminate this Lease.

25.6 The   consent   by   Landlord   to   an   assignment  or subletting shall  not  relieve Tenant or any assignee of this Lease or sublessee of the Premises from obtaining the consent of Landlord to  any  further assignment or subletting or as  releasing Tenant or any   assignee   or   sublessee   of   Tenant   from   full   and   primary liability.

25.7 If  Tenant  shall  sublet the  Premises  or any part thereof   Tenant   hereby   immediately  and   irrevocably  assigns   to Landlord,   as  security  for Tenant's  obligations  under this Lease, all  rent  from any subletting of all or a part of the Premises and Landlord   as   assignee  and  as  attorney-in-fact  for  Tenant,  or  a receiver   for   Tenant   appointed  on  Landlord's   application,   may collect  such  rent  and apply it  toward Tenant's obligations  under this  Lease;  except that, until the occurrence of an act of default by Tenant,  Tenant shall have the right to collect such rent.

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

25.9 If   Tenant   assigns   this   Lease   or  sublets   the Premises  or  any  portion  thereof,  once  Tenant  has  recovered  any leasing   commissions,   costs  of   tenant  improvements,   and  other expenses  of  the  assignment or subletting,  then one-half (1/2)  of any consideration paid by the assignee or sublessee which exceeds Rent  under  this  Lease (or  for  the  portion of  the  Premises  being sublet) shall be  due,  owing and payable  from Tenant  to Landlord when paid or owing by the assignee or sublessee.

25.10 Any sublease of the Premises shall be subject and subordinate  to  the  provisions  of  this  Lease,   shall  not  extend beyond the term of this Lease, and shall provide that the sublessee shall  attorn to Landlord,  at Landlord's sole option,  in the event of  the  termination  of  this  Lease.   Landlord and any lender shall upon Tenant's request provide any subtenant of the entirety of the Premises  with  a  recognition and  nondisturbance  agreement  in the form  set  forth  in  Article 35   hereof  on  the  condition  that  the sublessee  agrees  to attorn to Landlord on exactly the same terms and conditions as  this Lease

26. Attorney's Fees.

26.1 If either party becomes party to any action or proceeding  concerning  this  Lease  or  the  Premises,  or  any  part thereof,  by reason of any act or omission of the other party or its authorized representatives, and not by any act or omission of the party   that   becomes   a  party  to  that  litigation  or  any  act  or omission of  its authorized representatives, the party that causes the   other  party  to  become  involved  in  the  litigation  shall  be liable to that party for reasonable attorneys' fees, expert witness fees,  and court costs incurred by it in the litigation.

26.2 If  either party commences an action or proceeding against  the other party arising out of or in connection with this Lease,  the prevailing party shall be entitled to have and recover from  the  other  party reasonable attorneys'  fees,  expert witness fees  and costs of suit.

27.Bankruptcy.

27.1 In   the   event   a   debtor   or   trustee   under   the Bankruptcy  Code,  or other person with similar rights,  duties and powers under any other law, proposes to cure any default under this Lease or to assume or assign this Lease, and is obliged to provide adequate  assurance  to Landlord that (i)  a default will  be  cured, (ii)  Landlord will be compensated for its damages arising from any breach of  this Lease, or (iii)  future performance under this Lease will occur,  then adequate assurance shall include any or all of the following,  as determined by the Bankruptcy Court:

(a) Those   acts  specified  in  the  Bankruptcy Code   or   other  law  as   included  within  the  meaning  of  adequate assurance;

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

(c) The credit worthiness and desirability, as a   tenant,   of   the   person  assuming  this  Lease  or   receiving  an assignment of  this  Lease,  at least equal  to  Landlord's  customary and   usual   credit   worthiness   requirements   and   desirability standards in effect at the time of the assumption or assignment, as determined by the  Bankruptcy Court;  and

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

28.Definition of Landlord.

28.1 The term "Landlord"  as used in this Lease, so far as covenants or obligations on the part of Landlord are concerned, shall   be   limited   to   mean  and   include   only  Landlord  or  the successor-in-interest of Landlord under this Lease at the time in question.   In the event of any transfer,  assignment or conveyance of Landlord's title or leasehold, the Landlord herein named (and in case of  any subsequent  transfers or conveyances,  the  then grantor and  any prior grantors)  shall be automatically freed and relieved from and after the data of such transfer, assignment or conveyance of   all   liability   for   the   performance   of   any   covenants   or obligations contained in this Lease thereafter to be performed by Landlord  and,  without  further agreement,  the  transferee  of  such title  or  leasehold  shall be deemed to have  assumed and agreed to observe and perform any and all obligations of Landlord hereunder, during its  ownership  of the Premises.   Landlord may transfer its interest   in  the  Premises  or  this  Lease  without  the  consent  of Tenant and such transfer or subsequent transfer shall not be deemed a violation on the part of Landlord or the then grantor of any of the  terms or conditions  of this Lease.

28.2 Notwithstanding the foregoing, the term "Landlord" shall  include the Landlord herein named (Chevron/Nexus Partnership (Lot 13))  with  regard  to (i)  responsibility  for  construction of Landlord's Work and Tenant's Improvement Work pursuant to Sections 4.1 and 4.2 hereof,(ii)  responsibility for damages in the event of completion   delays to   the   extent   of   Section 4.3 hereof, (iii)  responsibility for allocation of property pursuant to Section 4.7 hereof, (iv) the warranties made by Landlord under Section 14.4 to   the   extent   thereof,(v)   responsibility   for   covenants   and representations made by Landlord in Section 39.8 hereof, (vi) the obligation to deliver the Premises  lien-free pursuant to Section 35.4,  and (vii)   the  completion  of  punch-list  items  pursuant  to Section 6.3 of  the Work Letter.

29.Estoppel  Certificate.

29.1 Each  party  shall,   within  fifteen (15) days   of written  notice   from   the  other  party,   execute,   acknowledge  and deliver   to   the   other  party  a  statement   in  writing  on  a   form reasonably requested by a proposed lender,  purchaser,  assignee or subtenant (i)  certifying that this Lease is unmodified and in full   and   effect  (or force and effect (or, if  modified,   stating  the  nature  of  such modification  and certifying that this Lease as so modified is in full  force and effect)  and the dates to which the rental and other charges are paid in advance,  if any, (ii)  acknowledging that there are  not,   to  each  party's  knowledge,  any uncured defaults  on  the part  of  Landlord or Tenant hereunder (or specifying such defaults if   any  are   claimed)   and (iii) setting   forth   such   further information with respect to  this Lease or the Premises  as may be reasonably  requested  thereon.   Any  such statement may be  relied upon by any prospective lender, purchaser, assignee or subtenant of all  or  any portion of  the Premises.

30.Removal  of Property-

30.1 Except as  provided below,  Tenant's  Property,  and all other  fixtures  and personal property owned by Tenant,  shall be and remain the property of Tenant,  and may be removed by Tenant at the  expiration of the  of the term of this Lease,  or at such earlier time as  Tenant  is not in default hereunder.

30.2 Except  as  provided  below,  Landlord's  Collateral shall  be  and remain the property of Tenant, and may be removed by Tenant   at  the  expiration of  the  term of  this  Lease,  or  at  such earlier  time as Tenant is not in default hereunder, subject to the provisions  of  the  Security Agreement  and Fixture Filing  between Landlord  and Tenant executed concurrently herewith.

30.3 Landlord's Property,  and all fixtures (other than trade  fixtures)  and personal property not owned by Tenant,  and all other   Improvements,   additions,   alterations,   and   decorations attached to or built into the Premises, including (without limiting the   generality  of   the   foregoing)   all  wallcoverings,   built-in cabinet work and paneling, shall, unless Landlord elects otherwise, become  the  property  of  Landlord  upon  the  expiration  or  earlier termination of this Lease, and shall remain upon and be surrendered with  the  Premises as a part thereof.

30.4 Notwithstanding  Sections 30.1 and 30.2  hereof, Tenant   may  not  remove  any  property,   including  any  portion  of Landlord's  Collateral or Tenant's Property,  if such removal would cause  material damage to the Premises,  unless such damages can be and  is  repaired by Tenant.   Furthermore,  Tenant shall repair any damage   to   the  Premises  caused  by  Tenant's  removal  of  any  such property,  and shall,  prior to the expiration or earlier termination of  this  Lease,  restore  and  return  the  Premises  to  the condition they  were  in  when  first occupied by Tenant,  reasonable wear  and tear  excepted.   At a minimum,  regardless of the ownership of such improvements,  Tenant shall leave in place and repair any damage to the   interior  floors,  walls and  ceilings  of  the  Premises. The provisions  of Article 17 shall apply to any restoration work under this  Article as if the restoration was an alteration,  addition or improvement  thereunder.   Should Tenant require any period beyond the expiration or earlier termination of the Lease to complete such restoration,  Tenant restoration, Tenant hall be a tenant at sufferance subject to the provisions of  Section 12.2  hereof.

30.5  If   Tenant   shall   fail   to   remove   any   personal property which  it is entitled to remove under this Article 30  from the  Premises prior to termination of this Lease,  then Landlord may dispose  of  the  property under the  provisions  of  Section 1980  at seq.   of   the   California  Civil  Code,   as   such  provisions may   be modified   from   time   to   time,   or   under   any   other   applicable provisions  of California law.

31.Limitation of Landlord's _Liability.

31.1 If  Landlord isin default of this Lease, and as a consequence, Tenant recovers a money judgment against Landlord, the judgment   shall  be   satisfied  only  out  of  the  proceeds  of sale received  on execution of the judgment and levy against the right, title,  and interest of Landlord in the Premises,  and out of rent or other income from the Premises receivable by Landlord or out of the consideration   received   by   Landlord   from   the   sale   or   other disposition  of  all  or  any  part  of  Landlord's  right,  title,  and interest  in  the  Premises.

31.2  Neither  Landlord  nor  Landlord's  Agents  shall  be personally liable for any deficiency except to the extent liability is  based  upon willful and intentional misconduct.   If Landlord is a  partnership  or joint venture,  the partners  of such partnership shall not be personally liable and no partner of Landlord shall be sued  or  named  as   a  party  in  any  suit  or  action,  or  service  of process be made against any partner of Landlord,  except as may be necessary   to   secure   jurisdiction  of   the  partnership  or   joint venture   or   to   the   extent  liability  is   caused  by  willful   and intentional   misconduct.  If   Landlord   is   a   corporation,   the shareholders, directors, officers, employees, and/or agents of such corporation  shall   not  be  personally  liable  and  no  shareholder, director,  officer,  employee, or agent of Landlord shall be sued or named as a party in any  suit or action,  or service of process  be made against any shareholder, director, officer, employee, or agent of Landlord,  except as may be necessary to secure jurisdiction of the  corporation.  No partner,  shareholder,  director, employee,  or agent of Landlord shall be required to answer or otherwise plead to any  service  of  process  and no  judgment will  be  taken  or writ  of execution   levied   against   any  partner,   shareholder,   director, employee,  or agent of  Landlord.

31.3 each   of   the  covenants   and  agreements   of   this Article 31 shall be applicable to any covenant or agreement either expressly  contained  in  this  Lease  or  imposed  by  statute  or  by common  law.

31.4 Notwithstanding the foregoing, the Landlord herein named (Chevron/Nexus Partnership  (Lot 13))  shall remain liable for (i)  responsibility for construction of Landlord's Work and Tenant's Improvement   Work   pursuant   to   Sections 4. 1 and 4.2 hereof, (ii)  damages  in  the  event  of completion delays  to  the  extent  of Section 4.3 hereof, (iii)  responsibility for allocation of property pursuant   to   Section 4.7 hereof , (iv)   the   warranties   made   by Landlord under Section 14.4 to the extent thereof, (v)  responsibility   for   covenants   and   representations made   by Landlord in Section 39.8 hereof, (vi)  the obligation to deliver the Premises   lien-free   pursuant   to   Section 35.4, and (vii)   the completion of punch-list items pursuant to Section 6.3 of the Work Letter.

31.5 Notwithstanding any other provision of this Lease, and  notwithstanding  any  limitation on liability set  forth above, Landlord,  and any general partners of Landlord, shall be personally liable   for  any  wrongful  draw  on  the  Letter  of  Credit  or  the wrongful  use of funds drawn from the Letter of Credit.   to addition to   any  other  remedies   that  Tenant  may  have  with  respect  to  a wrongful  draw on the Letter of Credit or a wrongful  use of  funds drawn   under  the   Letter  of  Credit,   Tenant  may  offset  any  such amounts  against its  obligations under this Lease.

32.Control by Landlord.

32.1 Landlord reserves  full control over  the Premises to  the  extent not  inconsistent with Tenant's  quiet enjoyment  and use of Premises.   This reservation includes rights granted pursuant to  the  Project  Documents  and  the right to maintain or establish ownership  of  the  Building  or  portions  thereof  separate  from  fee title  to  the land upon which it rests.

32.2 Tenant shall, should Landlord so request, promptly join  with  Landlord   in  execution  of   such  documents   as   may  be appropriate   to   assist   Landlord   to   implement   any   such   action provided Tenant need not execute any document which is of a nature wherein liability is created in Tenant or if by reason of the terms of such document Tenant will be deprived of the quiet enjoyment and use of  the Premises as  granted by this Lease.

33.Quiet Enjoyment.

33.1 So long  as   Tenant   is  not  in  default,   Landlord covenants  that Landlord or anyone acting through or under Landlord will   not  disturb  Tenant's  occupancy  of  the  Premises  except  as permitted  by the provisions of this Lease.

34.Quitclaim Deed.

34.1 Tenant  shall  execute  and deliver  to  Landlord  on the   expiration   or   termination   of   this   Lease,   immediately   on Landlord's  request,   a  quitclaim  deed  to  the  Premises  or  other document   in   recordable   form   suitable   to   evidence   of   record termination of this Lease and the right of first refusal  and option contained herein.

35.Subordination and  Attornment.

35.1 Unless   the -Mortgagee   or   beneficiary   elects otherwise  at  any  time prior  to  or  following a default by Tenant, this  Lease  shall  be subject to and subordinate to the  lien of any mortgage  or  deed of  trust  now or  hereafter in  force  against  the Premises  or  any  portion  thereof,   and  to  all  advances  made  or hereafter   to   be   made   upon   the   security  thereof   without   the necessity of the execution and delivery of any further instruments on  the  part  of  Tenant  to  effectuate  such subordination,  provided that   the   lienholder,   beneficiary,   or  mortgagee   has   previously executed and delivered to Tenant a Non-Disturbance, Attornment, and Subordination Agreement ( "Non-Disturbance Agreements) in recordable form,  in substantially the form of Exhibit 'D", or such other form as the lienholder, beneficiary, or mortgagee may reasonably request and is  approved by Tenant, which approval will not be unreasonably withheld,  setting  forth  that  so  long as Tenant  is  not  in default hereunder, Landlord's and Tenant's rights and obligations hereunder shall  remain  in  force  and  Tenant's  right to  possession  shall  be upheld.  The   terms   of   the   Non-Disturbance   Agreement   are incorporated herein by this reference and any and all performance tendered   to   the   Bank  thereunder  by  Tenant,   including  but   not limited  to  any draws by Bank under the Letter of Credit,  shall  be treated  for all purposes under this Lease as if Tenant had tendered such  performance  directly  to  Landlord.   Any amounts  received  by Sank  ender  the  Non-Disturbance  Agreement  or  from  the  Letter  of Credit  shall  be deemed to have been received by Landlord.

35.2  Notwithstanding   the   foregoing,   Tenant   shall execute   and   deliver   upon   demand   such   further   instrument   or instruments evidencing such subordination of this Lease to the lien of   any   such  mortgage  or  deed  of  trust  as  may  be   required  by Landlord,  provided that the lienholder,  beneficiary,  or mortgagee has  previously executed and delivered to Tenant a Non-Disturbance Agreement  in recordable  form.   However,  if  any such mortgagee or beneficiary so elects at any time prior to or following a default by  Tenant,  this  Lease  shall  be  deemed prior in lien  to  any such mortgage   or deed  of  trust  regardless  of  date  and  Tenant  will execute   a   statement   in   writing   to   such   effect   at   Landlord's request .

35.3 In   the   event   any   proceedings   are   brought   for foreclosure,  or in the event of the exercise of the power of sale under  any mortgage  or deed of trust made by the Landlord covering the Premises,  the Tenant shall at the election of the purchaser at such  foreclosure  or  sale  attorn  to  the  purchaser  upon  any  such foreclosure  or sale  and recognize  such purchaser as  the  Landlord Under   this   Lease   in   accordance   with   the   terms   of   the   NonDisturbance Agreement.

35.4 Landlord  shall  obtain and deliver  to  Tenant,  no later  than thirty (30)  days  after  the date on which this Lease  is executed,  a Non-Disturbance Agreement  in recordable  form from and signed by Bank of America or other construction lender ("Existing Lienholder°).   Landlord represents that there are no encumbrances on   the   Premises,   nor   will   there be   any  encumbrances   on   the Premises,   with   interests   which  will   be   superior   to   Tenant's leasehold,  on the date a memorandum of the Lease is duly recorded in   the  Official  Records  of  San  Diego  County,  other  than  those interests   disclosed  In  the  preliminary  report  described  in  the Project  Documents or amendments  thereto delivered to Tenant prior to  the   execution  of  this  Lease. Tenant  may,   at  Tenant's  sole expense,   concurrently  with  the  recording  of  the  memorandum of Lease,  and as a condition to the effectiveness of the Lease, order and obtain a title insurance policy from an title insurance company of   Tenant's   choice,   ensuring  Tenant's  leasehold  estate  in  the Premises  subject  only to  the  exceptions set  forth above and such other  exceptions  as  cannot  ripen  into  a  fee  interest  or  do not materially interfere with Tenant's quiet enjoyment of the Premises and to such deeds of trust, mortgages, ground leasesor other liens or encumbrances whose beneficiaries have executed and delivered to Tenant  recordable Non-Disturbance Agreements.

Notwithstanding the foregoing, Landlord shall use commercially  reasonable  efforts  to  insure  that  the  Premises  are free of material and mechanics'  liens at Substantial Completion of the Premises, or as soon as is reasonably practical thereafter.   At the request of Tenant, Landlord shall provide such documentation as may be  reasonably requested by a title company for the purpose of allowing the leasehold policy to be issued without listing any such liens   as   exceptions,   so   long   as   Landlord   incurs   no   expense therefore. In  any  event,  however,  Landlord  shall  insure  such  a policy  without  exceptions  for  such  liens  may be  issued  no  later than six (6)  months  from Substantial Completion.

36.Surrender.

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

36.2  The voluntary or other surrender of this Lease by Tenant   shall   not  work  a  merger,   unless  Landlord  consents,   and shall,  at the option of Landlord, operate as an assignment to it of any or all  subleases  or subtenancies.

37.  Waiver and Modification.

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

38.Waiver  of  Jury Trial  and Counterclaims.

38.1 The parties  hereto shall and they hereby do waive trial by jury in any action, proceeding or counterclaim brought by either  of  the  parties   hereto  against  the  other  on  any  matters whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant,  Tenant's use or occupancy of  the  Premises,   and/or  any  claim  of  injury or  damage. In  the event Landlord commences any proceedings for nonpayment of rent, or any other sums or amounts due hereunder,  Tenant will not interpose any  counterclaim  of  whatever  nature  or  description  in  any such proceedings; provided, however, that nothing contained herein shall be deemed or construed as a waiver of the Tenant's right to assert such claims  in any separate action or actions brought by Tenant, or in the  same  action brought by Landlord if such claim is deemed to be  a  compulsory  counterclaim  or  is  ordered  to  be  joined  by  the court.

38.2 In the event that any reference and/or arbitration is  required under Section 21 of the Non-Disturbance Agreement, any related claims or issues arising out of this Lease shall be joined in  such action and a  decision  in that proceeding shall be binding upon the parties to this Lease.

39.Hazardous Material.

39.1 Tenant,  at  its  sole  cost,  shall  comply with allfederal,   state   and   local   laws,   statutes,   ordinances,   codes, regulations  and orders  relating  to  the  receiving,  handling,  use, storage,   accumulation,   transportation,   generation,   spillage, migration,  discharge,  release  and  disposal  of Hazardous  Material (as  hereinafter defined  in  Section  39. 12  hereof)  in or  about the Premises.   Tenant shall not cause or permit any Hazardous Material to   be   brought  upon,   kept  or  used  in  or  about  the  Premises  by Tenant,  its agents, employees, contractors, invitees or subtenants, in  a  manner  or  for  a  purpose  prohibited by any federal,  state or local agency or authority.   The accumulation of Hazardous Material shall  be  in  approved  containers  and removed  from the  Premises  by duly  licensed carriers.

39.2 Tenant  shall   immediately  provide  Landlord  withtelephonic  notice,  which  shall  promptly  be  confirmed  by  writtennotice,  of any and all spillage, discharge, release and disposal ofHazardous Material onto or within the Premises, including the soils and subsurface waters thereof, which by law must be reported to any federal,   state   or   local   agency,   and  any  injuries   or  damages resulting directly or indirectly therefrom.   Further,  Tenant shall deliver to Landlord each and every notice or order, when said order or  notice  identifies  a violation which may have the potential to adversely impact the Premises, received from any federal, state or local agency concerning Hazardous Material and the possession,  use and/or   accumulation  thereof  promptly  upon  receipt  of  each  such notice  or  order  by  Tenant.  Landlord  shall  have  the  right,   upon reasonable  notice,   to  inspect  and copy  each  and every  notice or order  received  from any federal, state or  local agency concerning Hazardous   Material  and the possession,  use  and/or  accumulation thereof.

39.3 Tenant   shall   be   responsible   for   and   shallindemnify,   protect,   defend   and   hold   harmless   Landlord   and Landlord's  Agents  from any and all  liability,  damages,  injuries, causes   of   action,   claims,   judgments,   costs,   penalties,   fines,losses,  and expenses  which arise during or after the term of this Lease   and  which  result  from  Tenant's   or  from Tenant's  Agents, assignees,  subtenants,  employees,  agents,  contractors,  licensees, or   invitees)   receiving,   handling,   use,   storage,   accumulation, transportation, generation, spillage, migration, discharge, release or disposal of Hazardous Material  in,  upon or about the Premises, including   without   limitation (i)diminution   in   value   of   the Premises, (ii)  damages  for the  loss  or restriction  on use  of any portion or  amenity of the Premises, (iii)  damages arising from any adverse  impact on marketing of space in the Building,(iv)  damages and the costs of remedial work to other property in the vicinity of the  Premises  owned  by Landlord or  an affiliate  of  Landlord,  and (v)  consultant  fees,  expert  fees,  and attorneys'  fees.   Landlord shall  be  responsible for and shall  indemnify,  protect,  defend and hold  harmless  Tenant  on  the  same  basis  as  above  for  any  claims which  result  from Landlord's or from Landlord's Agents receiving, handling,  use,  storage,  accumulation,  transportation,  generation, spillage,  migration,  discharge,  release  or  disposal  of  Hazardous Material  in,  upon or about the Premises.

39.4 The   indemnification  of  Landlord  and  Landlord's Agents  by Tenant pursuant to the preceding Section 39.3  includes, without  limiting the generality of Section 39.3,  reasonable  costs incurred in connection with any investigation of site conditions orany cleanup,  remedial,  removal or restoration work required by any federal,   state   or   local   governmental   agency   or   political subdivision  because  of  Hazardous  Material  present   in  the  soil, subsoil,   ground  water,   or   elsewhere  on,   under   or   about   the Premises,  or on,  under or about any other property in the vicinity of  the  Premises  owned  by  Landlord  or  an  affiliate  of  Landlord. Without  limiting  the  foregoing,  if  the presence of any Hazardous Material  on the Premises caused or permitted byTenant results in any   contamination   of   the   Premises,   or   underlying   soil   or groundwater,  Tenant  shall  promptly  take  all  actions  at  its  sole expense  as  are  necessary to return the Premises  to  the  condition existing prior to the introduction of any such Hazardous Material, provided  that  Landlord's  approval  of  such  action  shall  first  be obtained,  which approval shall not be unreasonably withheld so long as  such  actions  would not potentially have  any material  adverse long-term or short-term effect on the Premises,  except that Tenant shall  not  be  required to obtain Landlord's  prior  approval  of  any action  of  an  emergency nature  reasonably  required  or  any  action mandated   by   a   governmental   authority,   but   Tenant   shall   give Landlord prompt notice thereof.

39.5 Landlord acknowledges that it is not the intent of this Article 39  to  prohibit Tenant from operating its business as described   in  Article 10   or   to   unreasonably  interfere  with  the operation of Tenant's  business. Tenant  may operate  its  business according  to  the  custom  of  the  industry  so long  as  the  use  or presence  of Hazardous Material is strictly and properly monitored according   to   all   applicable   governmental   requirements. As   a material  inducement  to Landlord  to  allow Tenant  to use  Hazardous Material  is connection with its business, Tenant agrees to deliver to Landlord prior to the Term Commencement Date a list identifying each   type   of  Hazardous  Material   to  be  present  in  or  upon  the Premises  and  setting  forth any and  all governmental approvals or permits   required   in  connection  with  the  presence  of  Hazardous Material on the Premises ("Hazardous Material Summary")  and a copy of the Hazardous Material business plan prepared pursuant to Health and Safety Code Section 25500  et  seq.   At Landlord's  request,  and at  reasonable  times,  Tenant  shall make available  to Landlord the latest available Hazardous Materials Summary and true and correct copies  of the  following documents (hereinafter referred to  as the "Hazardous Material Documents") relating to the handling, storage, disposal  and  emission of  Hazardous  Material:  permits;  approvals; reports and correspondence; storage and management plans; notice of violations  of  any laws;  plans  relating to the installation of any storage  tanks  to  be  installed  in or under  the Premises (provided said  installation of tanks  shall be permitted only after Landlord has  given  Tenant  its written consent to do  so,  which consent may not be unreasonably withheld);  and all closure plans or any other documents   required   by   any   and   all   federal,   state   and   local governmental   agencies   and   authorities   for   any   storage   tanks installed in,  on or about the Premises for the closure of any such. tanks.   Tenant shall not be required,  however, to provide Landlord with that portion of any document which contains  information of  a proprietary cetera  and which,  in and of itself, does not contain a reference   to   any   Hazardous   Material   which   are   not   otherwise identified   to   Landlord  in  such  documentation,   unless   any  such Hazardous   Material   Document   names   Landlord   as   an   "owner"   or "operator"   of   the   facility   in  which  Tenant  is   conducting  its business. at   is   not  the   intent  of  this  subsection  to  provide Landlord  with  information which could be detrimental to Tenant's business   should   such   information  become  possessed  by  Tenant's competitors. Landlord  shall  treat  all  information  furnished  by Tenant  to  Landlord  pursuant to  this  Section 39.5 as  confidential and  shall  not  disclose  such  information to  any person or  entity without Tenant's prior written consent, which consent shall not be unreasonably withheld or delayed,  except as  required by law.

39.6  Notwithstandingother   provisions of this Article 39,  it  shall be  a default  under this Lease,  and Landlord shall have the right to terminate the Lease and/or pursue its other remedies  under Article 24,   in  the  event that (i)  Tenant's  use  of  the   Premises   for   the   generation,   storage,   use,   treatment   or disposal  of  Hazardous  Material  is  in  a  manner  or  for  a  purpose prohibited  by applicable  law unless Tenant is diligently pursuing compliance  with  such  law, (ii)   Tenant  has  been  required  by  any  governmental authority to  take remedial action  in connection with Hazardous material contaminating the Premises if the contamination resulted from Tenant's action or use of the Premises, unless Tenant is   diligently   pursuing   compliance   with   such   requirement,   or (iii)  Tenant  is   subject  to  an  enforcement  order  issued  by  any governmental  authority  in  connection  with  the  use,  disposal  or storage of a Hazardous Material on the Premises,  unless Tenant is diligently seeking compliance with such enforcement order.

39.7  Notwithstanding the provisions of Article 25(i)  any anticipated use of the Premises by a proposed assignee or subtenant  involves  the  generation  or  storage, use, treatment or disposal  of  Hazardous  Material  in  any  manner  or. for  a  purpose prohibited by  any  applicable  law, (ii)   the  proposed assignee or sublessee has  been required by any governmental authority to take remedial action in connection with Hazardous Material contaminating a property if  the  contamination resulted from such party's action or  use  of  the  property  in question  and has  failed  to  take such action,  or (ill)  the  proposed assignee or sublessee is subject to an   enforcement   order   issued  by  any  governmental   authority  in connection with the use,  disposal or storage of Hazardous Material of a type such proposed assignee or sublessee intends to use in the Premises,  it shall not be unreasonable for Landlord to withhold its consent to an assignment or subletting to such proposed assignee or sublessee.

39.8 Landlord   represents   that,   to   the   best  of   its knowledge,   as  of  the  data  of  this  Lease,  there  is  no  Hazardous Material   on   the   Premises,   except   as   disclosed   in   the   site assessment reports  described in Section 10.2 as  items (q), (r)  and (s) of  the Project  Documents,  and except as  set forth in Section 10.3. Landlord shall at its expense provide Tenant with a further update of the Phase IEnvironmental Site Assessment, and any update of the Phase II Environmental Site Assessment recommended therein, as  of  the  Term Commencement  Date.   Should an update disclose the presence of Hazardous Material which was not disclosed in the site assessments  already received by Tenant,  Landlord shall remedy the problems  to  Tenant's  reasonable  satisfaction,  and  shall  cause  a further update of the Phase I Environmental Site Assessment to be issued   in   substantial   conformity   with   the   site   assessments previously   provided  to  Tenant. The   Phase   I   and   Phase   II Environmental   Site   Assessments   and   all   updates   thereto   are hereinafter  referred  to  as  the  "Base  Line  Report,"  and  shall be deemed  conclusive  as  to  the  condition  of  the  Premises,  unless, within ninety (90)  days of receipt, Tenant causes an inspection of its own to be conducted, which inspection discloses the presence of 'Hazardous Material materially different from that disclosed in the Base  Line Report.

39.9  At  any  time  prior  to  the  expiration  or  earlier termination of the term of the Lease, Landlord shall have the right to   enter   upon   the   Premises   at   all   reasonable   times   and   at reasonable   intervals   in   order   to   conduct   appropriate   tests regarding the presence, use and storage of Hazardous Material, and to  inspect Tenant's records with regard thereto.   Tenant will pay the   reasonable  costs  of  any  such  test  which  demonstrates  that contamination in excess of permissible levels has occurred and such contamination was caused by use of the Premises during the term of the Lease.   Tenant shall correct any deficiencies identified in any such   tests   in   accordance   with   its   obligations   under   this Article 39.

39.10 Tenant   shall   at   its   own   expense   cause   an environmental  site assessment of the Premises  to be conducted and e  report   thereof  delivered  to  Landlord  upon  the  expiration  or earlier termination of the Lease, such report to be as complete and broad  in scope as the Base Line Report as is necessary to identify any   impact   on  the  Premises  Tenant's  operations  might  have  had (hereinafter  referred  to  as  the  "Exit  Report"). Tenant   shall correct  any deficiencies  identified in such report  in  accordance with its obligations under this Article 39 prior to the expiration or  earlier  termination  of  this  Lease.   This  Article 39   is  the exclusive  provision  in this  Lease  regarding clean-up,  repairs  or maintenance   arising   from   receiving,   handling,   use,   storage, accumulation,   transportation,   generation,   spillage,   migration, discharge,  release  or disposal of Hazardous Material  in,  upon or about  the  Premises,  and the provisions of Article  18 (Repairs  and Maintenance)  shall  not apply thereto.

39.11 Tenant's obligations under this Article  39  shall survive  the  termination  of  the  Lease.   Should  Tenant  employ  any period of  time after the expiration or earlier termination of this Lease,  notwithstanding the requirements of Section 39. 10 above,  to complete   the   removal   from  the   Premises  of   anysuch   Hazardous Material,   Tenant  shall  be  a  tenant  at sufferance  subject  to  the provisions of Section 12.2 hereof, except that monthly rental shall not  be  increased  to  one hundred twenty five percent (125k)  of  the Basic  Annual  Rent in effect during the last twelve (12)  months  of the  Lease term until ninety (90)  days  after the expiration of  the term.

39.12 As   used  herein,   the  term  "Hazardous  Material" means  any hazardous  or toxic substance, material or waste which is or becomes regulated by any local governmental authority,  the State of California or the United States Government.   The term "Hazardous Material"-  includes,  without limitation,  any material or substance which  is(i)  defined as a  "hazardous waste,"  "extremely hazardous waste"  or "restricted hazardous waste" under Sections 25515, 25117 or 25122.7,  or listed pursuant to Section 25140,  of the California-Health and Safety Cade,  Division  20,  Chapter  6.5 (Hazardous  Waste Control   Law), (ii) defined   as   a   'hazardous   substance"   under Section 25316 of the California Health and Safety Code,  Division 2, Chapter 6.8 (Carpenter-Presly-Tanner Hazardous  Substance Account Act),(iii) defined as a "hazardous material," hazardous substance" or  "hazardous  waste"  under Section 25501 of the California Health and Safety Code,  Division 20,  Chapter 6.5 (Hazardous Substances), (v)   petroleum, (vi)   asbestos, (vii)   listed  under  Article 9   and defined as hazardous  or extremely hazardous pursuant to Article 11 of  Title 22  of  the  California  Administrative  Code,  Division 4, Chapter 20, (viii)  designated as a  "hazardous  substance" pursuant to   Section 311  of   the  Federal  Water  Pollution  Control  Act (33 U.S.C. Section 1317), (ix)  defined as  a "hazardous waste" pursuant to  Section 1004  of the  Federal Resource Conservation  and Recovery Act, 42  U.S.C.  Section6901, et.  seq. (42 U.S.C. Section 6903), or (x)  defined as  a  "hazardous  substance"  pursuant to Section 101 of the Comprehensive Environmental Response Compensation and Liability Act, 42  U.S.C.  Section 9601  et.  seq. (42 U.S.C. Section 9601).

40. Right Of  First  Refusal  to  Purchase  Premises.Tenant shall   have  the  right  of   first  refusal  to  purchase  the  Premises ("Right of First Refusal") upon the following terms and conditions:

40.1  If at any time during the initial or any extended term   of   this   Lease   Landlord  determines  to  sell   the  Premises, Landlord   shall  give   written  notice  to  Tenant ("Right   of   First Refusal  Notice")   of  the  economic  terms  and  conditions  on,  which Landlord would be willing to sell the Premises.   If Tenant, within thirty  (30)  days after receipt of Landlord's Right of First Refusal Notice,  agrees in writing to purchase the Premises on the terms and conditions stated in the notice, Landlord shall sell and convey the Premises  to Tenant on the economic terms  and conditions stated in the notice.

40.2 If  Tenant  does  not  agree  in writing to  purchase the  Premises  within  thirty (30) days  after  receipt  of Landlord's Right  of  First Refusal Notice,  or if Landlord and Tenant have not entered  into a purchase and sale agreement within thirty (30)  days thereafter,  Landlord  shall  have  the  right  to  sell  and convey the Premises  to a third party on economic terms and conditions no more favorable  than  the  economic  terms   and  conditions  stated  in  the Right  of First Refusal Notice,  except that the purchase price may be two  and  one  half  percent (2.5%)  less  than  that  stated  in  the Right  of  First  Refusal  Notice,  and,  upon any such sale,  the Right of  First  Refusal  shall  terminate.   If Landlord does  not  sell  and convey the Premises within one hundred eighty (180)  days  after the Right  of  First  Refusal  Notice,  any  sale  transaction  thereafter shall be deemed a new determination by Landlord to sell and convey the  Premises  and  the  provisions  of  this  Section  shall  again be applicable.

40.3 If Tenant purchases  the Premises pursuant to the Right  of  First  Refusal,   this  Lease  shall  terminate  on  the  date 'title   vests   in  Tenant,   and  Landlord  shall  remit  to  Tenant  the Letter   of   Credit and   all   prepaid   and   unearned   Rent. Notwithstanding  the  foregoing,   if  Tenant,  at  its  option,  should determine to take title to the Premises in the name of an affiliate of  Tenant,  this  Lease  shall  not terminate on the date  title vests any  such affiliate  of Tenant unless Tenant and such affiliate agree  otherwise

40.4 The   Right   of   First   Refusal   herein   granted  to Tenant  is  not assignable separate and apart from this  Lease.

40.5 Tenant  shall  not have  the  right  to exercise  the Right of First Refusal, notwithstanding anything set forth above to the contrary:

(a)During the  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;

b)During  the  period of  time  commencing on the day after a monetary obligation to Landlord is due from Tenant and unpaid without any necessity for notice thereof to Tenant and continuing until the obligation is paid;

c)At anytime  after an event of default as described   in   Article24   of   this   Lease (without   necessity   of Landlord to give  notice of such default to Tenant);  or

d)After the expiration or earlier termination of this Lease.

The  period  of  time  within  which  the  Right  of  First Refusal  may  be  exercised  shall  not  be  extended  or  enlarged  by reason  of  the  Tenant's  inability to  exercise  the  Right of  First Refusal  because of  the  foregoing provisions.   At  the  election of Landlord,   all   rights   of   Tenant   under  the  provisions   of   this Article 40  shall  terminate  and be  of  no  further  force  or  effect even after Tenant's  due  and timely exercise of the Right of  First Refusal,   if,   after  such  exercise,  but  prior  to  the  transfer  of title,(1) Tenant fails to pay to Landlord a monetary obligation of Tenant for a  period  of  thirty (30) days   after  such  obligation becomes   due (without   necessity  of   Landlord  to   give   notice   to Tenant), (2) Tenant   fails  to  commence  to  cure  a  default  within thirty  (30)  days after the date Landlord gives notice to Tenant of such default,  or (3)  Landlord properly glees to Tenant three (3)  or more  notices  of a default whether or not such defaults  are cured.

40.6  Notwithstanding the foregoing, the Right of First Refusal   shall   not   be   applicable   to   the   proposed  sale  of   the Premises to Nippon Landic  (U.S.A. ),  Inc.("Nippon Landic"),  or any .assignee of  Nippon Landic,  unless for any reason Nippon Landic,  or any assignee of Nippon Landic,  does not purchase the Premises.   In such  event,   Landlord  shall  give  Tenant  a  Right  of First  Refusal Notice with the terms and conditions of the proposed sale to Nippon Landic. If  Tenant,  within  sixty (60)  days  after receipt of  such Right  of  First Refusal Notice,  agrees  in writing to purchase  the Premises on the terms  and conditions of the proposed sale to Nippon Landic, Landlord shall  sell  and convey the  Premises  to  Tenant on such  terms  and conditions.   However,  in such event,  any period of

time  set  forth in the terms ape) conditions of the proposed sale to Nippon Landic which would have expired prier to one hundred twenty (120)  days after receipt of the Right of First Refusal Notice shall be extended to the end of such one hundred twenty (120)  day period.

41.Option to Purchase Lot  14.

41.1 Concurrently  herewith  Tenant,   as  Optionee,  and Chevron Land and Development Company ("Chevron"), as Optionor, have executed  an  agreement  whereby Chevron has  granted  to  Tenant an option  to  purchase  Lot 14   of  Torrey  Pines  Science  Center  Unit No. 2,   subject   to   the   terms   and  conditions   contained   in  such agreement (the "Option Agreement").   The Option therein granted to Tenant  is  not assignable separate and apart  from this Lease.

41.2  The   Option  Agreement  limits  Tenant's  right  to exercise   the   Option   in   certain   circumstances   when   monetary obligations  due  under  the Lease remain unpaid,  when Landlord has delivered  a  notice  of  default,  and  when  an  Event  of  Default  as defined herein is existing.   Landlord shall,  as long as the Option Agreement  is   in  effect,   cooperate  with Chevron by  delivering  to Chevron  copies   of   all   notices  of  default  under  the  Lease  and Tenant's  cure  thereof  at  the  request of Chevron,  for purposes  of verifying whether the limitations on exercise of the Option apply.

41.3  Prior or subsequent to the exercise of the Option by   Tenant,   Tenant   shall   in   good   faith   allow   a   reasonable opportunity   for   the   Landlord   herein   named (Chevron/Nexus Partnership (Lot 13))and  Nippon  Landic (U.S.A. ),Inc. (if   it becomes a successor Landlord),  to acquire the Option Property,  in lieu  of  Tenant purchasing the Option Property,  for the purpose of constructing  improvements  on  the Option' Property  and  leasing  the Option Property to Tenant  for the expansion of Tenant's business, on  substantially the  same  terms  and conditions  of  this  Lease,  as such tares and conditions may be modified in the discretion of the parties   in  light  of   the  circumstances  then  existing,   although nothing in this Section 41.3 shall constitute a binding obligation of  Tenant.

41.4  The Option Agreement provides in part that Tenant may elect to expand  the Premises  by means of a lot line adjustment which   would   expand   the   size   of   the   Real   Property (Lot 13). Landlord agrees  to cooperate in any such expansion and to sign all documents   and   instruments   necessary   to   complete   a   lot   line adjustment,  as  Bong as  Landlord is not responsible for any cost or expense in connection therewith.   Thereafter, in the event Landlord does  not  construct  improvements  for Tenant's  benefit  pursuant  to Section 41.3,  Landlord agrees  that Tenant may at its  sole cost and expense   construct   building   improvements   on   the   expanded   Real Property in accordance with  the  terms and conditions  set  forth in Article 17 of this Lease,  and the improvements will be added to the Premises  under this  Lease.   Any increase in the square  footage of the  Building,  or the addition  of  a  new building,  constructed by Tenant pursuant to the terms of this Section 41.4 shall not result in an  increase in Basic Annual lent under this Lease,  although all other  terms  and conditions  of  this Lease shall apply thereto.

42.Miscellaneous.

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

42.2 Examination   of   Lease. Submission   of   this instrument   for   examination   or   signature   by   Tenant   does   not constitute  a  reservation  of  or  option  for  lease,   and  it  is  not effective  as a lease or otherwise until execution by and delivery to  both Landlord and Tenant.

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

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

42.5 Consents.   whenever consent or approval of either party  is  required,  that  party  shall  not unreasonably withhold or delay  such  consent  or  approval,  except  as  may be  expressly  set forth  to  the contrary.

42.6 Entire  Agreement. The  terms  of  this  Lease  are intended  by  the  parties  as  a  final  expression of  their agreement with  respect  to  the  terms  as  are  included herein,  and may not  be contradicted by evidence of any prior or contemporaneous agreement.

42.7  Severability.   Any provision of this Lease which shall  prove  to  be  invalid,  void,  or  illegal  in  no  way  affects, impairs or  invalidates any other provision hereof,  and such other provisions  shall remain in full  force and effect.

42.8  Recording.Within   ten (10) days   from   the execution of this Lease,  Landlord and Tenant shall  record a short form memorandum hereof,  which includes references  to  the right of first refusal and option contained herein,  with express  reference to  both  Lots 13  and 14 of Torrey Pines Science Center,  subject to the requirement to execute and deliver a quitclaim deed pursuant to the  provisions of Section 34.1  hereof.

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

42.10 Inurement..   Each of the covenants, conditions, and agreements herein contained shall inure to the benefit of and shall apply   to   and   be   binding   upon   the   parties   hereto   and   their respective  heirs,   legatees,  devisees,  executors,  administrators, successors,  assigns,  sublessees,  or any person who may come into possession  of  said  Premises  or  any  part  thereof  in  any  manner whatsoever.   Nothing  in this Section 42.10 contained shall  in any way alter the provisions  against assignment or subletting in this Lease provided.

42.11 Force Majeure.   If Landlord cannot perform any of its  obligations,  or is  delayed in such performance,  due to events beyond  Landlord's  control (other  than  financial  inability),  the time provided for performing such obligations shall be extended by  a  period  of  time  equal  to  the delay attributable to  such events. Events  beyond Landlords  control include,  but are not  limited to, acts   of  God(including  earthquake),  war,  civil  commotion,  labor disputes, strikes,  fire,  flood or other casualty, shortage of labor  or   material,   government   regulation  or  restriction   and  weather conditions.

42.12 Notices. Any   notice,   consent,   demand,   bill, statement,  or other communication required or permitted to be given hereunder must be in writing and may be given by personal delivery, by  facsimile  transmission,  or by mail,  and  if  given by personal delivery or  facsimile  transmission shall  be  deemed  given on the date  of  delivery  or  transmission,  and  it  given by mail  shall be deemed sufficiently given three (3)  days after time when deposited in  United  States  Mail   if  sent  by  registered  or  certified  mail, addressed to  Tenant  at  the  Premises,  or to Tenant or Landlord at the addresses shown in Section  2. 1.7 hereof. Either party may, by notice   to   the   other   given   pursuant   to   this   Section,   specify additional  or different  addresses  for notice purposes.

42.13 Authority to Execute Lease.   Landlord and Tenant each   acknowledge   that   it   has   all   necessary   right,   title   and authority  to  enter  into  and  perform  its  obligations  under  this Lease,  that  this  Lease  is  a  binding obligation of  such party and has   been  authorized  by  all  requisite  action  under  the  party's governing instruments, that the individuals executing this Lease on behalf of such party are duly authorized and designated to do so, and  that  no other signatories are required to bind such party.

(Signatures Appear on Following Page)

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

LANDLORD:

CHEVRON/NEIUS  PARTNERSHIP  (LOT 13) A California general  partnership

By Chevron Land and Development Company

A Delaware corporation

Its General Partner

By: [Illegible]

Title: Vice President

By Nexus Equity,  Inc.A California corporation Its General Partner

By: [Illegible]

Title: Vice President

TENANT:

LIGAND  PHARMACEUTICALS, INC. A Delaware corporation

By: [Illegible]

Title: Vice President

67

FIRST AMENDMENT TO LEASE

THAT   CERTAIN   LEASE ("Lease")   dated   July 6, 1994 between  CHEVRON/NEXUS  PARTNERSHIP (LOT13),   a  California  general partnership("Landlord"),   and   LIGAND.  PHARMACEUTICALS,   INC.,   a  Delaware corporation ("Tenant"),  is  hereby amended on the date set forth  below,  effective  the date of  the  Lease.

1.The  following  is  added to Section 40.6 of  the  Lease:

In  the  event  Nippon  Landic  proposes  to  assign  its  right  to purchase  the  Premises   to  an  entity  which  is  not  an  affiliate  of Nippon   Landic ("Non-Affiliate"),   Tenant   shall  be   given   written notice ("Non-Affiliate   Notice")   of   the   economic   terms   and conditions  of the proposed assignment and sale.   If Tenant,  within sixty (60)  days  after  receipt of the Non-Affiliate Notice,  agrees  in  writing  to  purchase  the  Premises  on  the  terms  and  conditions stated in the Non-Affiliate Notice,  Landlord shall  sell and convey the Premises  to Tenant on the economic terms and conditions stated in  the  Non-Affiliate  Notice (so long as  the  terms  and  conditions are  no  less  favorable  to Landlord  as  the  terms  and  conditions  of Landlord's   agreement   with   Nippon   Landic   made   concurrently herewith). If  Tenant  does  not  agree  in writing to  purchase  the Premises  within  such  sixty (60) day  period  Tenant  shall  have  no further right  to purchase  the Premises  if  the proposed sale is  to Nippon Landic or an assignee of Nippon Landic,  even if the assignee is  a  Non-Affiliate;  provided,  however,  any proposed assignment by Nippon  Landic  to  a Non-Affiliate which does  not occur within one hundred  eighty (180)   days  of  receipt  of  the  Non-Affiliate  Notice shall  again be  subject  to the  provisions of this paragraph.

2.The  following  is  added to Section 8. 1  of  the Lease:

Notwithstanding   the   foregoing,   the   garage/basement   and exterior  site  areas,   including  the  mechanical  systems,  warehouse areas,   parking,   trash  enclosures,  hazardous  material  storage  and such other area that support the operation of the Building shall be excluded  from  the  calculation  of  Rentable  Area  of  the  Premises. Such  excluded areas  include but  are not  limited to the  following:

(a)The  improved areas of the subterranean parking structure including,   but   not   limited   to,   the   warehouse   and   mechanical equipment  rooms,  and

(b)Those  enclosed areas  of  the  south and west faces  of the Building   totaling  approximately 1,467   square  feet   as   shown  on Exhibits  "A-1"  and  "A-2"  attached hereto  and  incorporated  herein, which  include (i)   the  approximately 206  square  feet  on  the  south face  of  the  second  floor  of the Building, which resulted from the elimination  of  an external  balcony,  and (ii)   stairs,  stair wells, vertical   shafts   and   access  areas  totaling  approximately 1,261 square  feet  at  the first  and second  floor levels on the west face of  the  Building.

The  Rentable Area of  the Building as  designed, excepting the aforementioned  exclusions,   is mutually agreed to be 53,740  square feet.

In  all  other  respects,  the  Lease  shall  remain in  full  force and  effect  as  originally written.

IN  WITNESS   WHEREOF,   the  parties  hereto  have executed  this First Amendment  to Lease  on  or about Dec. 15, 1994.

LANDLORD:

LANDLORD:

CHEVRON/NEIUS  PARTNERSHIP  (LOT 13) A California general  partnership

By Chevron Land and Development Company

A Delaware corporation

Its General Partner

By: [Illegible]

Title: Vice President

By Nexus Equity,  Inc.A California corporation Its General Partner

By: [Illegible]

Title: Vice President

TENANT:

LIGAND  PHARMACEUTICALS, INC. A Delaware corporation

By: [Illegible]

Title: Vice President

Exhibit A-1

[First Floor Floorplan]

[Second Floor Floorplan]

[Science Center 1A Floorplan]

[Science Center 1B Second Floor Floorplan]

SECOND AMENDMENT TO LEASE

THIS SECOND AMENDMENT TO LEASE (the "Second Amendment"), dated for identification purposes as of January 30, 1997, by and between NIPPON LANDIC (U.S.A.), INC., a Delaware corporation ("Landlord") and LIGAND PHARMACEUTICALS INC., a Delaware corporation ("Tenant") amends that certain lease dated July 6, 1994, by and between Tenant and Chevron/Nexus Partnership (Lot B), a California general partnership ("Original Landlord"), as amended by that certain First Amendment to Lease dated December 15, 1994 (as so amended, the "Original Lease").

Recitals

A. By that certain Option Agreement dated July 6, 1994, Tenant acquired an option to purchase Lot 14 of the Torrey Pines Science Center (the "Option Property") from Chevron Land and Development Company ("Chevron").

B. Under Section 41.3 of the Original Lease ("Section 41.3"), Tenant agreed to provide the Original Landlord (and Landlord as successor landlord) a reasonable opportunity to acquire the Option Property from Chevron, either prior or subsequent to the exercise of Tenant's rights under the Option Agreement, for the purposes and on the terms and conditions set forth therein.

C. The Original Landlord assigned its interest as Lessor under the Original Lease to Landlord pursuant. that certain Assignment and Assumption of Lease dated September 13, 1995.

D. By a letter dated August 30, 1996 from Landlord's agent, R. Darrell Gary of Nexus Properties, Inc., to Paul Maier of Tenant; Landlord declined to respond to Tenant's Request for Proposal, dated August 19, 1996, concerning the acquisition and development of the Option Property.

E. E. Tenant and Landlord have agreed to amend the Original Lease to provide that Section 41.3 shall no longer be of any force or effect.

Agreement

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Landlord and Tenant agree to amend the Original Lease as follows:

1.The parties acknowledge that Tenant has satisfied its obligations to Landlord under Section 413. Accordingly, Section 41.3 is hereby deleted in its entirety and shall have no further force or effect.

2.Landlord and Tenant acknowledge that the Original Lease, as hereby amended, remains in lull force and effect in accordance with its terms.

oc39172v2

3.This Second Amendment shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns.

IN WITNESS WHEREOF, the parties have executed this Second Amendment on the date set forth opposite their signatures below.

LANDLORD:

NIPPON LANDIC (U.S.A.), INC., a Delaware corporation

By: [Illegible]

Title:  General Manager/Vice President

Dated: February 25, 1997

TENANT:

LIGAND PHARMACEUT1CALS, INC.,

a Delaware corporation.

By: [Illegible]

Title:  Senior Vice President

Dated: February 12, 1997

2

EXHIBIT 8-1

FLOOR PLAN OF PREMISES

(See attached)

[Second  Floor Floorplan]

[First Floor Floorplan]

[Basement Floor plan]

EXHIBIT B-2 FURNITURE (See attached)

EXHIBIT B-3

SUBLANDLORD'S VIVARIUM EQUIPMENT

(See attached)

EXHIBIT C

CONSENT TO SUBLEASE

This CONSENT TO SUBLEASE (this "Consent") is entered into as of this ____ day of December, 2007, by and between BMR-10255 Science Center Drive LLC, a Delaware limited   liability   company ("Master   Lessor"),   "),   LIGAND   PHARMACEUTICALS INCORPORATED,  a  Delaware  corporation ("Sublessor"),  and  eBIOSCIENCE, INC.,  a California corporation ("Sublessee").

RECITALS

A.WHEREAS, Sublessor and Master Lessor are parties to that certain Lease dated July 6, 1994, by and between Sublessor and Master Lessor' predecessor, Chevron/Nexus Partnership (Lot 13), as amended by that certain First Amendment to Lease dated December 15, 1994, and by that certain Second Amendment to Lease dated January 30, 1997 (collectively, the "Master Lease").  Sublessor was referred to in the Master Lease as "Ligand Pharmaceuticals, Inc." The premises demised under the Master Lease (the "Premises") are located at 10255 Science Center Drive, San Diego, California 92121; and

B.WHEREAS, Sublessor has applied to Master Lessor for its consent to that certain Sublease Agreement dated December 6, 2007 (the "Sublease") between Sublessor and Sublessee, a copy of which is attached hereto as Exhibit "A", whereby Sublessor subleases its interest in the Premises to Sublessee.

AGREEMENT

NOW, THEREFORE, Master Lessor hereby consents to the Sublease, subject to and upon the following terms and conditions, to each of which Sublessor, Sublessee and Master Lessor expressly agree:

1.Nothing contained in this Consent shall either:

(a)operate as a consent to or approval by Master Lessor of any of the provisions of the Sublease or as a representation or warranty by Master Lessor, and Master Lessor shall not be bound or estopped in any way by the provisions of the Sublease; or

(b)be construed to modify, waive or affect any of the provisions, covenants or conditions of, or any rights or remedies of Master Lessor under, the Master Lease. In the case of any conflict between the provisions of this Consent and those of the Sublease, the provisions of this Consent shall prevail.

2.Sublessor and Sublessee expressly assume and agree that during the term of the Sublease, each shall perform and comply with each and every obligation of Sublessor under the Master Lease.

3.Neither the Sublease nor this Consent shall release or discharge Sublessor fromany liability under the Master Lease, and Sublessor shall remain liable and responsible for the full performance of all of the provisions, covenants and conditions set forth in the Master Lease. The acceptance of rent by Master Lessor from Sublessee or from any other person shall not be deemed a waiver by Master Lessor of any provisions of the Master Lease (provided that Sublessor shall receive a credit against its required performance under the Master Lease for any payments or performance thereunder rendered by Sublessee to Master Lessor).  Sublessor and Sublessee understand and represent that by entering into the Sublease, Master Lessor's rights, remedies and liabilities under the Master Lease have not in any way been modified.

4.Sublessor and Sublessee warrant that the attached Sublease represents the entire agreement between them.   Sublessee further warrants that there was no compensation or consideration paid to either party as a condition of this Consent or the Sublease other than as stated herein or therein.

5.The Sublease shall be subject and subordinate at all times to the Master Lease and all of its provisions, covenants and conditions. In ease of a conflict between the provisions of the Master Lease and the provisions of the Sublease, the provisions of the Master Lease shall prevail.

6.This Consent shall not constitute a consent to any subsequent subletting or assignment of the Master Lease, the Sublease or the Premises.   This Consent may not be assigned by Sublessor or Sublessee in whole or in part.

7.Sublessor and Sublessee shall protect, defend, indemnify, release, save and hold Master Lessor and each of Master Lessor's officers, directors, affiliates, employees, agents, consultants and lenders (each, an "Indemnified Party") harmless from and against any and all Losses (as defined below) imposed upon or incurred by or asserted against such Indemnified Party and directly or indirectly arising out of or in any way relating to Sublessor's or Sublessee's failure to perform or comply with any existing Master Lease obligations, and otherwise as set forth in the Master Lease. As used herein, the term "Losses" includes any and all claims, suits, liabilities, actions, proceedings, obligations, debts, damages, losses, costs, expenses, diminutions in value, fines, penalties, charges, fees, expenses, judgments, awards, amounts paid in settlement, punitive damages and foreseeable and unforeseeable consequential damages of whatever kind or nature (including, without limitation, attorneys' fees and other costs of defense).

8.In the event of any default of Sublessor under the Master Lease, Master Lessor may proceed directly against Sublessor, any guarantors, or anyone else liable under the Master Lease or the Sublease without first exhausting Master Lessor's remedies against any other person or entity liable therefor to Master Lessor.

9.In the event that Sublessor defaults in its obligations under the Master Lease, Master Lessor may, at its option and without being obligated to do so, require Sublessee to attorn to Master Lessor.  If Master Lessor elects to require Sublessee to so attorn, then Master Lessor shall undertake the obligations of Sublessor under the Sublease from the time of the exercise of Master Lessor's option under this Section until termination of the Sublease; provided, however, that Master Lessor shall not be liable for any prepaid rents or any security deposit paid by Sublessee, nor shall Master Lessor be liable for any other defaults of Sublessor under the Sublease.

10.If Master Lessor brings about legal action or proceedings to enforce the terms and/or conditions of the Master Lease or to declare its rights thereunder, Sublessor and Sublessee agree that any attorneys' fees, costs and expenses of such proceeding shall be paid by the losing party as determined by the appropriate court.

11.Master Lessor hereby represents and warrants to Sublessor and Sublessee that:

a.Attached hereto as Exhibit "B" is a true, correct and complete copy of the Master Lease and the amendments thereto.

b.The term of the Master Lease commenced August 21, 1995, and expires August 21, 2015.

c.The Master Lease is in full force and effect, and has not been further modified.

d.To Master Lessor's current actual knowledge, as of the date hereof, there are no uncured defaults under the Master Lease by Master Lessor or Sublessee.

e.Master Lessor has not given Sublessor any notice of default under the Master Lease, nor any notice that any material repair is required under the Master Lease, which notice(s), if any, have not been fully cured.

12.This Consent (a) shall be construed in accordance with the laws of the State of California without regard to its conflict of law principles, (b) contains the entire agreement of the parties hereto with respect to the subject matter hereof and (c) may not be changed or terminated orally or by any course of conduct.

13.Sublessor represents and warrants that it has dealt with no broker, agent or other person in connection with this transaction and that no broker, agent or other person brought about this transaction, other than Burnham Real Estate, Sublessor agrees to indemnify and hold Master Lessor and Sublessee harmless from and against any claims by this or any other broker, agent or other person claiming a commission or other form of compensation by virtue of having dealt with Sublessor with regard to the Sublease. The provisions of this Section shall survive the expiration or earlier termination of this Consent or the Master Lease.

14.If any terms or provisions of the Master Lease or this Consent, or the application thereof to any person or circumstance, shall to any extent be held to be invalid or unenforceable, then the remainder of the Master Lease, this Consent or the application of such term or provision to persons or circumstances other than those as to which they are held invalid or unenforceable shall not be affected thereby, and each term and provision of the Master Lease and this Consent shall be valid and enforceable to the fullest extent permitted by law. Master Lessor's rights and remedies provided for in the Master Lease, this Consent or by Law shall, to the extent permitted by law, be cumulative.

15.This Consent may be executed in several counterparts, each of which counterparts shall be deemed an original instrument and all of which together shall constitute a single Consent.

IN WITNESS  WHEREOF,  Sublessor and Sublessee have affixed their respective signatures hereto as evidence of understanding of and agreement to the above, and Master Lessor has affixed its signature hereto to convey its consent to the Sublease.

MASTER LESSOR:BMR 10255 SCIENCE CENTER DRIVE

LLC, a Delaware limited liability company

By:

Name: Title:

SUBLESSEE:eBIOSC1ENCE, INC., a California corporation

By:

Name: Title:

SUBLESSOR:LIGAND PHARMACEUTICALS

INCORPORATED, a Delaware corporation

By:

Name: Title:

Exhibit "A" to Consent [Copy of Sublease]

Exhibit "B" to Consent

[Copy of Master Lease]

EX-10.33

EXHIBIT 10.33

In this translation an attempt has been made to be as literal as possible without jeopardizing the overall continuity. Inevitably, differences may occur in translation, and if so, the original German text will govern.

VIENNA Standortmanagement GmbH Rotenturmstraße 17/3/17, A-1010 Wien

T: +43/ 1/ 532,36,03, F: +4311/532 9503-9

vsm@vienna.at

Firma

Bender Medsystems Diagnostics GmbH

Rennweg 95b

1030 Vienna

Vienna, Nov 28th 2003/AA

Reg.: Official announcement of usable spaces VBC

Ladies and Gentlemen,

In accordance with your Leasing Agreement for the Rental Premises in the Vienna Bio Center, an official announcement of usable spaces regarding your rental object will follow the conclusion of the structural work. The details of the space are now available, and hereinafter stated:

FloorUnit

            m2 acc. to LA          m2 officially

3. Ground Floor771.33 780.54

2. Floor232.78 235.27

GF (seminar room)15.9215.17

Basement415.58 414.86

Basement (PKW)10 (spaces)10 (spaces)

As agreed upon, the space listed above will replace the space mentioned in the Leasing Agreement, and will be used from now on as basis to calculate the Base Rent as well as the Service Fees.

We kindly ask you to take notice of this.

With kind regards,

VIENNA

Standortmanagement GmbH

(signature)

Dipl.-Ing. Alois Aigner

PRISMA

Ing. Egon HajekManaging Director

PRISMAStandort Managementsysteme GmbH

Competencecenter CCD, A-685o Dornbirn, E:egon.hajek@prisma-zentrum.atT: +43/55 72/531 35, F: +43/5572/531 35-21,

M: +43/664/2812966

^{A company of the PRISMA Group and ZIT Zentrum für Innovation und Technologie GmbH}

Stamp

Calculation: 004/03

Date: Jan.21st, 2003

Fee: Euro 10,379.42

Tax ID: 017/6634-06

Landlord

LEASING AGREEMENT

between

VBC Vienna Bio Center Errichtungs GmbH FN 203657 x, HG Vienna

1010 Vienna, Rathausplatz 2

(hereinafter called "VBC")

represent by

the managing director Dipl.-Ing. Aigner and Dr. Claus Hofer

in the future, as a result of a merger

Competence Investment AG

FN 186141 m,State Court Feldkirch 6850 Dornbirn, Stadtstrasse 33

(hereinafter called "CIAG")

represent by

the board directors DI Bernhard Ölz and Dr. Paul Sutterlüty

as the Landlord

and

Medsystems Diagnostics GmbHFN171.696w, HG Vienna

1030 Vienna, Rennweg 95B

(hereinafter called "Medsystems")

represent by

the managing director Dr. Michael Schaude

as the Tenant

Page 1 of 20

I. COMMENCEMENT CLAUSE

The Vienna Bio Center Errichtungs GmbH (the Landlord) owns the building EZ 4335, land register 01006 highway, District Court Innere Stadt Vienna. The contract parties have knowledge of the merger between VBC and Competence Investment AG, and that CIAG will be the registered tenant as a result of it.

On these premises, the Landlord will build a commercial park in the sense of § 1 Abs 5 of the Austrian Act on Tenancy Law 1981("MRG"), consisting of laboratory and office building, including garage without the utilization of public funds.

By the provision of this agreement, the Tenant leases the Rental Premises in the commercial park described in Art. II.

II. RENTAL PREMISES

II.1. The Landlord hereby leases the space in the building on the commercial property EZ 4335 land register 01006 highway marked in green on the enclosed site plan (Appendix A1 to A5) to the Tenant, and the Tenant hereby leases the same from the Landlord:

Premises (the Rental Premises):

Office and laboratory space4th Floor771.33 m2

Office and laboratory space3rd Floor232.78 m2

Seminar roomGround Floor15.92 m2

Basement2nd Basement level415.58 m2

10 Underground parking spacesunderground parking structure

TOTAL space1,435.61 m2

The floor plan (Appendix Al to A5) forms an integral part of this Leasing Agreement. The Tenant takes note of the fact that the details of the floor plan are subject to change. He agrees to acknowledge a modified floor plan in place of the floor plan Appendix Al to A5 and to recognize it as the integral part of this Leasing Agreement.

With respect to the seminar room, the tenant has knowledge of the fact that all tenants shall pay for it proportionate to their ratio of leased space (calculated from GF to 4F) and that all tenants have the right to reserve and use this space based on availability.  Reservations and usage exceeding the proportionate right of utilization (calculation period of 1 month) of the respective tenant is possible, however, only if no other tenant wishes to use the space. In the event of any conflict between the tenants, the tenant who does not exceed his proportionate right of utilization prevails.

II.2. The usable space of the Rental Premises was computed based on the documents available at the time of entering the Leasing Agreement. The Tenant shall approve any changes made to the usable space of the Rental Premises during the completion of the space as long as the usable space does not increase or decrease by more than 3%.

Partition walls, doorways, build-ins, and similar areas within the Rental Premises are part of the usable space.

The Base Rent shall be calculated based on the actually usable space after completion of the Rental Premises. The Landlord shall inform the Tenant in writing of the official usable space no later than March 31st, 2003.

Should the usable space increase by more than 3%, the Tenant shall pay only the Additional Cost, as stated in Art. V.2. of this agreement, for the portion exceeding the threshold of 103% of the Rental Premises.

Should the usable space decrease by more than 3%, the Tenant shall be entitled to rescind this agreement within 14 days after receiving the written notice from the Landlord regarding the official usable space. Rescinding this agreement, the Tenant forgoes all claims, especially claims for damages against the Landlord, unless the rescission can be attributed to the fact that the Landlord was acting in bad faith.

II.3.The equipment of the Rental Premises to be provided by the landlord is listed in Appendix B 1 (description of construction and equipment), B 2 (supplement to the list of construction and equipment) as well as B 3 (floor plan), whereby, when in doubt the contents of the floor plan prevail.

At the request of the tenant, changes shall be made to the layout of the 4^th floor and 3^rd floor, such as the redesign of the restrooms, the transfer of the packing room to the main entrance area, a regrouping of the offices etc., which require a modification of the floor plan. These changes shall be agreed upon mutually and recorded no later than 12.15.2002; otherwise the floor plan from 11.27.2002 prevails.

II.4. The Tenant agrees to any changes or deviations of the agreed project plans and documents which derive from licenses under the public law or are subject to legal provisions. If the conditions of the Rental Premises no longer satisfy the Tenant's intended use, or if the Landlord made these changes in bad faith, the Tenant shall not be bound to this agreement.

II.5.This Leasing Agreement solely covers the lease of interior space of the Rental Premises; the usage of any exterior areas is subject to the Landlord's written approval. Nevertheless, the Landlord shall designate easily visible space in the entrance areas (main entrance and delivery entrance) of the building as well as on all access paths in order to install company signs etc.

II.6. It is further noted, that the requirements stipulated in § 1 Par. 5 MRG (commercial park) are available, and that the building subject to this Lease Agreement will be newly constructed without the support of any public funds.

III TRANSFER; POSSESSION OF THE RENTAL PREMISES

III.1. Transfer of the Rental Premises

According to the description of construction and equipment (Appendix B1 to B3), the Landlord is obliged to transfer the Rental Premises in proper condition.

The Landlord shall transfer the Rental Premises no later than Jan 1^st, 2004. In case of a delayed transfer by the Landlord – but no later than Feb 28^th, 2004 – a fixed compensatory amount shall be agreed upon calculated at double the Net Base Rent of the delayed period (maximal 6 payments of the Net Base Rent). In case, the transfer was not made by 02.28.2004, the Tenant has the right to rescind the agreement without granting an extension. The transfer of the Rental Premises commences the responsibility of the Tenant to pay the Base Rent stipulated in Art. V.

III. 2. Possession of the Rental Premises

The Tenant shall take possession of the Rental Premises within eight days of written notice informing the Tenant of the readiness of the Rental Premises as stated in Appendix B1 to B3 without any delay, as long as the Rental Premises is in proper condition.

In case, that the Tenant unduly denies to take possession, the Tenant shall pay a contractual penalty in the amount of 6 payments of the Base Rent plus VAT.

III.3. Shortcomings

On the occasion of the transfer of the Rental Premises, a transfer protocol shall be prepared which shall entail all apparent shortcomings as well as claims. The Landlord is obliged to address all shortcomings listed in the transfer protocol in a timely manner. In case the Landlord fails to address these shortcomings in a timely manner and after receiving a written complaint, the Tenant is entitled to substitute performance in order to fix these shortcomings.

The Tenant shall notify the Landlord in writing about any hidden shortcomings or shortcomings appearing after the transfer. Noted shortcomings which do not interfere with the usage of the Rental Premises shall neither be the reason for a delay of the transfer of the Rental Premises nor for a delay of the possession date.

IV. TERM OF LEASE

IV.1. The tenancy commences on Jan 1st, 2004 and shall continue for an undetermined period thereafter. Each party has the right to terminate this agreement by giving a written 6-months notice mailed by certified mail at the end of a quarter. The timeliness of the termination shall be determined by the date of postmark. The Tenant waives his ordinary right of termination for a period of three years. At the end of the 36^th month of payable Base Rent, the Tenant has the right to terminate this agreement in compliance with the agreed termination period of six month.

IV.2. The Tenant shall use this Rental Premises as office and laboratory space for his commercial activity within the biotechnology and research industry.

IV.3. The use of this Rental Premises for any other purpose requires the Landlord's written approval.

IV.4. The Landlord has the right to terminate this agreement due to valid reasons (see Art. XV.).

IV.5. According to §§ 1117, 1118 ABGB (General Civil Code of Austria), the possibility of early termination of this agreement will be unaffected (see especially Art. XIV.).

V. BASE RENT

The Base Rent is concluded based on Net Base Rent, Additional Rent, proportionate rent of shared space, and VAT.

V.1. Net Base Rent

V.1.1. The Net Base Rent for the Rental Premises listed in Art. II.1. amounts to the following, payable monthly:

Office and Laboratory space4th Floor771.33m216.8/ m2€12,958.34

Office and Laboratory space3rd Floor232.78m216.5/ m2€3,840.87

Prop. Seminar roomGround floor15.92m218.8/ m2€299.29

Storage space in basement2nd Basement level415.58m25.9/ m2€2,451.92

10 covered parking spotsUnderground parking Structure105/space€1,050.00

TOTAL space1,435.61m2€20,600.42

In addition, it is agreed upon that the Tenant will be credited the amount of 3 installments of the monthly Net Base Rent five years after this agreement was entered (e.g. Jan 1^st, 2009) and shall pay only the Additional Rent according to Article V.2. of this agreement for the 3-months period after the commencement date.

V.1.2. The agreed Net Base Rent is adjusted on the basis of the consumer price index (VPI) 2000, as regularly stated by the Statistik Austria GmbH. The price index for the month in which this agreement was entered is used as the base of all calculations.

An adjustment of this index shall occur annually, for the first time on Jan 1^st, 2005. For the purpose of recalculating the amount of Base Rent for each year, the index of October of the previous year shall be compared with the index of October of the current year. For the first index adjustment, the agreed base index shall be compared with the index of October 2004.

If in the future, neither the VPI 2000 nor a succeeding index is stated, the agreed index will be replaced by the index which closest resembles the price index.

The secured value stipulated in the price index clause commences automatically on Jan 1^st of each year without the need for the Landlord's statement thereof. The non-enforcement of the index adjustment does not mean a waiver of the enforcement of price increases or of the increased payment amounts for that period. A waiver of the enforcement of index adjustments shall only be valid if done in writing.

V.2. Additional Rent

Included in the Additional Rent are all expenses and costs necessary to run and maintain the Rental Premises and common areas. Excluded are all costs which occur through the usage by the Tenant such as electricity, phone, cable TV, etc.

The Tenant shall bear all cost for electricity, phone, cable TV, internet, etc. and order these services with the respective suppliers under the Tenant's name. In case that the Landlord is facing these expenses, the Landlord shall not be under any obligation to pay on behalf of the Tenant. Should the Landlord pay these expenses on behalf of the Tenant, the Tenant shall reimburse the Landlord within 14 days of the written notice of payment (date of postmark) for the amount plus any handling fees etc.

V.2.1. Scope of Additional Rent

Included in the Additional Rent is

V.2.1.a a proportionate share (see Art. V.2.2.) of all of the Landlord's costs, charges and expenses of operation, listed in §§ 21 ff MRG (reference to §§ 21 ff MRG does not imply the full application of the MRG to this agreement) as well as all costs in association with managing and maintaining, repairing, replacing and insuring the building and common areas (excluding any damages to the structure of the building), or damages proven to be caused by other tenants (under consideration of the particularities of a laboratory), or other associated expenses such as insurance costs for structural and glass damages caused by storm or broken water pipes;

For Rental Premises which are used solely as office space and, in regards to its equipment, excludes any laboratory equipment, are subject to a different process in the calculation of Utility Costs for air condition and ventilation. In this case, the base index of the rented space shall be multiplied with 0.35 for ventilation and with 0.62 for air condition in order to calculate the proportionate share of Utility Cost. The Rental Premises mentioned in this agreement is not subject to this different calculation approach. However, the Tenant acknowledges that other rentals are subject to this approach;

V.2.1.b. a proportionate share of the cost and expenses of maintaining the common grounds;

V.2.1.c. a proportionate share of the cost and expenses (staff and materials) for cleaning, maintaining, operating, repairing, and securing the premises as well as snow clearance if needed of

- all amenities and utilities especially elevators, heaters, ventilation systems, water heaters, utility meters, recycling,

- common areas such as access paths, hallways and staircases, green areas and gardens, publicly accessible restrooms, staff areas and seminar rooms;

V.2.1.d. the appropriate cost (staff and materials) for readings and calculations associated with utility meters; cost for maintenance and repair of these meters shall be included according to Art. V.2. of this agreement.

In order to provide this service, the Landlord himself may hire, according to Art. V.2.1.c. and V.2.1.d., staff for this task or transfer the task to a specialized company.

Readings of the utility meters shall occur only when the Tenant or his representative is present.

V.2.1.e. the annual management fee in the amount of €2.70/m² of usable space of the building, whose value is secured just like the Net Base Rent.

V.2.1.f. the proportionate cost for heat and elevator of vacant space according to Art. V.2.2.b.

V.2.2. Distribution of Additional Rent

V.2.2.a. The calculation of the proportionate share of Additional Rent shall be based on the ratio between the usable space of the Rental Premises and the total cost of total leasable space of the building (usable space refers to the leased office and laboratory space, the proportionate seminar room, but not to any storage space in the basement or to the underground parking spaces which are subject to a fixed fee).

If in place, utility meters shall be used for the calculation and the usage of each cost included in the Additional Rent.

The Tenant is responsible for any waste accumulation and disposal exceeding the normal amount or type of waste of the entire building without affecting other tenants (see especially Art. X.).

V.2.2.b. Stipulation for vacant rental space:

In case that leasable space is vacant, it is agreed upon that:

- The Landlord bears all additional rent for vacant rental space – except the cost for heat and operation of the elevator.

- Half of the cost for heat and operation of the elevator that is applicable to the vacant space shall be borne by the Landlord; the other half shall be split between all other tenants according to their respective ratio between the usable space of their leased space and the total cost of total leased space of the building.

V.2.3. Fixed Additional Rent

The Landlord has the right to charge Fixed Additional Rent based on the annual expense statement of the previous year. Submission of this statement has to occur no later than June 30^th of the subsequent year.

If a credit results based on the annual expense statement in favor of the Tenant, the Landlord shall credit this amount to the Tenant's Fixed Additional Rent of the following year. If a deficit results, the Tenant shall pay the outstanding balance within one month of the presented statement.

The Landlord has the right to adjust the amount of this Fixed Additional Rent, principally based on the expense statements of the previous year, upward or downward in order to avoid any larger differential amounts. If the Leasing Agreement is terminated within the billing period, any Additional Rent arising after the termination of this agreement which actually occurred before the termination shall be part of the allocated cost. The Landlord shall prepare the billing statement accounting for this Additional Rent within a 6-months period after termination of tenancy.

At this time, the monthly Fixed Additional Rent for office and laboratory space amounts to €3.00/m² of leased space per month. For all years to come, the payable amount shall follow the previous calculation.

The Tenant shall pay a fixed monthly Operation Cost of €0.70/m² plus VAT for storage space, which includes any Management Fee.

The Tenant shall pay a fixed monthly Operation Cost of €7.50/space plus VAT for underground parking space.

According to Art. V.1.2. of this agreement, these amounts are value-secured.

Any fixed Operating Cost for storage space and parking spaces from the same period shall be deducted from the annual Operating Cost, solely the remaining Operating Cost shall be allocated to the tenants leasing office and laboratory space.

Possible charges for the amenities accessible by all tenants (e.g. publicly accessible restrooms or installations) are subject to a special agreement, unless otherwise stipulated in Art. V.3. of this agreement.

Copies of Additional Rent statements can be requested from property management within 1 Month after receipt of the annual statement and against payment of a handling fee.

V.3. Proportionate Rent for common rooms

The Tenant shall pay the proportionate share in the amount of €18.80/m² per month for the seminar room on the ground level. The cost for the seminar room is considered in Article V.1.1. The proportionate share shall be calculated based on the ratio between the usable space of the Rental Premises and the total cost of the building's leasable space (computed from ground floor to 4^th floor).

The proportionate cost for common space is subject to value-security according to Art. V.1.2. of this agreement.

The Tenant confirms his education of the provision in §§ 27 ("sanitary facilities in workplaces") and 28 ("social amenities in workplaces") of the Work Environment Act ("ASchG"), especially

- §27 Par. 8 ASchG: "The responsibility of provision of sanitary facilities and locker rooms for employees may be shared by several employers. In accordance with Par. 1 to 8, in this case, location, number, size, and equipment of wash rooms, toilettes, and locker rooms shall correspond to the total number of employees."

- §28 Par. 6 ASchG: "The responsibility of provision of staffrooms for employees may be shared by several employers. In accordance with Par. 1, 2, 4, and 5, in this case, location, number, size, and equipment of the staffrooms shall correspond to the total number of employees."

V.4. Value-added Tax

The Tenant shall make all current applicable legal Value-added Tax (VAT) payments computed for the amount of his Net Base Rent and Additional Rent.

V.5. Date of Payment

Net Base Rent and Additional Rent are payable in advance on the 5^th day of each month. Timeliness for the payment is determined by the date of payment receipt. The Tenant shall pay for the Landlord's incurred costs and expenses caused by the Tenant's default of payment, especially for cost (including expenses for written notices, pre-litigation, or trials) – whether this default resulted due to failure of postal channels or financial institute – which the Landlord endured lacking notification of the Tenant's payment default. The Tenant shall arrange payment transactions ensuring the Landlord's timely receipt of payment.

In case of late payment, the Tenant shall pay default charges in the amount of 5% above the reference rate regularly stated by the Austrian National Bank, but a minimum of 1% of the owed amount for each month commenced. The default charges shall be added to the owed amount; their combined total is subject to the calculation of further default charges. The Tenant shall not be held responsible for the delayed receipt of payment, if the Landlord was granted permission of direct debiting and the transfer of fund was neither revoked by the Tenant nor by the financial institute. If the Tenant is in default of payment, the Landlord has the right to request partial payments primarily to cover owed Net Base Rent installments, and to apply further payments to cover the owed amount of Additional Rent after the owed Net Base Rent has been paid off, unless the Tenant has transferred the money by ways of cash deposit, telebanking, or in form of a written notice with a special request for its application. Payments with debt-discharging effect may only be made to the financial institutions named by the Landlord. Payments shall not incur any cost to the Landlord.

V.6. Prohibition of set-off

Claims again the Landlord shall not set-off any monetary receivables stipulated by this Leasing Agreement, especially the Base Rent, security deposit or any other receivables resulting from the termination, execution or repercussion of this Leasing Agreement.

V.7. Laesio enormis (lesion beyond moiety)

The Tenant confirms the knowledge of the Rental Premises' real value and leases such space based on its particular suitability for the his usage for the agreed amount of Base Rent. The Tenant forgoes the rescission of this Leasing Agreement for reason of laesio enormis.

V.8. Appropriateness

To stipulate appropriateness of the Net Base Rent, it is noticed that

- after receiving knowledge of the approval to lease, the Tenant has reviewed the floor plans, especially those provided by architect and university professor M.A Boris Podrecca; the Tenant has inspected size, type and location of the Rental Premises or has hired an expert to do so; the suitability of the Rental Premises was scrutinized for the intended commercial activity of the Tenant.

- the Tenant accepts the agreed Base Rent, particularly in regards to the results and reviews of the review, which are disclosed to the Tenant.

VI. OPERATIONS

VI.1. Protection against competition for the Tenant's industry shall be precluded thereby.

VI.2. The Tenant shall use only his Rental Premises according to this Leasing Agreement and no other areas (with the exception of seminar rooms and waste rooms).

VII. SIGNS

Based on the Landlord's written approval, the Tenant may erect, install and maintain signs, lettering, etc. in the designated areas indicating his commercial activity. The Landlord may disapprove of the Tenant's signs only based on legitimate reasoning. The Landlord shall designate and pay for available space for the installment of the Tenant's signs on the outer side of the building, in all common entry areas as well as in the elevator.

VIII. MALFUNCTIONING OF COMMON AMENITIES

VIII.1. In case of malfunctioning of technical amenities due to act of nature beyond the Landlord's control, or legal provisions, or impossibility of performance in cases such as fuel shortage, blackouts, defects, etc. the Tenant does not have the right to claim performance. The Landlord is responsible to address these interferences in reasonable time.

In such case, the Tenant is not entitled to claim damages, impose rent reduction or retention, unless the Landlord fails in his duty to address these interferences in order to restore amenities' original state.

VIII.2. The Tenant is not entitled to derive legal claims against the Landlord due to occasional interferences of water supply, broken water pipes, and damage to other supply systems and installations, unless these interferences were willingly caused by the Landlord. The Tenant shall inform the Landlord of any such interference immediately.

IX. INSURANCE

The Landlord shall maintain fire, liability, as well as extended coverage insurance against water and storm for the Building and Rental Premises. The Landlord shall provide the Tenant with a copy of the current insurance policy.

The Tenant shall inform the Landlord if he is involved in commercial activity which based on its kind imposes abnormal risk, in order to adjust the respective insurance policies. Any increase in premiums shall be paid solely by the Tenant.

The Tenant shall carry employer's liability and business interruption insurance in a reasonable amount. The Tenant shall carry insurance based on the imposed risk of his commercial activity, meaning that in case of realization of the risk, the resulting damages will be fully covered. The Landlord requires a copy of the Tenant's insurance policy as proof of insurance.

Any sums awarded by the insurance of the Tenant, Landlord or a Third Party acting on behalf of the Landlord, shall be used by the Tenant to address the occurred damages of the Rental Premises or to pay the Base Rent. Failure to do so results in a full reimbursement of the sum to the Landlord.

X. WASTE DISPOSAL

If, due to the commercial activity of the Tenant, waste is produced which exceeds the normal amount or type of waste of the entire building, the Tenant is responsible for the disposal and storage of this waste (also if the disposal does not include legally hazardous waste) at his own cost in accordance to the appropriate security instructions. Especially, the Tenant guarantees the safety of the building and the premises in regards to contamination caused by the Tenant's waste. Further, the Tenant guarantees the safety of any person. The Landlord allocates waste storage space on the 2^nd basement level (Appendix A5) proportionate to the Tenant's leased space on the ground level and 4^th floor to the Tenant at no cost. The Landlord is not responsible for the provision of waste storage space suitable to the Tenant's waste in respect to any special requirements or conditions.

XI. CARE AND MAINTENANCE OF PREMISES

XI.1. The Tenant shall, at his own expense and at all times, maintain the premises in good and safe condition. The Tenant shall be held liable for any damages to the building that were caused willingly by the Tenant, excluding normal wear and tear, and shall pay any cost that occurred to repair the building.

Included in the Tenant's obligation of maintenance are any alterations, additions and improvements prompted by the Tenant as well as the amenities provided by the Landlord, but especially heating, ventilation, electrical, gas and plumbing installations of the Rental Premises. The Tenant is responsible solely for the maintenance of all installations on the Rental Premises, excluding technical areas and vertical distribution shafts.

The Tenant shall inform the Landlord of any damage immediately. Failure to do so entirely or in time results in the liability of the Tenant.

The Tenant shall handle the premises with care, and shall be responsible for all repairs required for damages caused by inappropriate handling.

XI.2. All supply lines and pipes shall be used to such an extent that lines are not overloaded. Power values are listed on the floor plans (Appendix B3). By written approval of the Landlord, the Tenant, at his own cost, has the right to extend these installations due to an increased demand. The Landlord may deny approval only in case of unreasonableness.

XI. The Tenant guarantees that the load on the ceiling will not exceed 500 (five hundred) kilogram per m² as approved by the building authorities.

XI.4. The Tenant shall, at his own expense, repair or replace any damaged glass – especially for windows and doors – immediately using materials of the same quality, unless he carries sufficient insurance against glass damages.

XI.5. Any alterations, additions and improvements of the Rental Premises prompted by the Tenant need the written approval of the Landlord. The Tenant shall bear all expenses of required permits associated with these amendments. The actual work shall be executed by licensed businesses hired and paid for by the Tenant. The Tenant is liable for any damages on the Rental Premises or other parts of the building caused by this type of work.

Failure to comply with the responsibility stipulated in Art. XI. After the Tenant has been notified in writing, grants the Landlord the right to prompt this type of work at the expense of the Tenant. The Landlord has the right to use the Tenant's Security Deposit to cover the payments for this work.

XII. LIABILITY

XII.1. Landlord's Liability:

The Landlord is liable for the suitability of the Rental Premises for the contractually stipulated use, excluding any additions or improvements of the Rental Premises prompted ​​by the Tenant. The Landlord shall carry building insurance for all buildings on the premises and is liable for such damages to the Rental Premises which were not negligently caused by the Tenant, if damages are covered by the insurance. The Landlord shall disclose contents of the insurance policy if desired by the Tenant.

The Landlord is not liable for damage due to theft, fire, or other action to objects and goods of the Tenant, irrelevant of their nature, cause, or extent of effects, unless the Landlord is guilty of gross negligence and the damage are not covered by the insurance.

XII.2. Tenant's Liability

It is noted, that in regards to any alterations, additions or improvements of the Rental Premises prompted by the Tenant, the Tenant is obligated to act in accordance to all appropriate laws, especially those in the field of technical security and shall meet all relevant security measures in accordance with current technical standards.

Further it is noted, that the Tenant is obligated to demonstrate to the Landlord his compliance with any appropriate regulations regarding his commercial activity, as well as any measurements taken to comply with regulatory actions. This proof (test reports, etc.) shall be provided for by experts of that subject area acknowledging the Tenant's compliance.

The Tenant agrees to free all escape routes leading through the Rental Premises in accordance with appropriate regulations. Escape routes and emergency exits are for the use of the Tenant's staff only.

The Tenant is liable for any damages occurred by failure to comply with this duty.

In case of failure to comply with his duty, the Tenant shall indemnify and hold harmless the Landlord for any third party claims.

If, in case of a third party claim regarding damages caused by the Tenant's failure to comply, the Landlord is held liable irrespective of fault, e.g. as part of strict liability, the Tenant shall indemnify and hold harmless the Landlord irrespective of fault as well.

The Tenant is liable for any damages of the Rental Premises, equipment, common areas and space, as well as any other objects or amenities belonging to the building, and shall address these damages immediately, if these damages were caused by the Tenant or his affiliates, employees, suppliers, clients, visitors, or pets. If the damages occurred within the Rental Premises, the Tenant is responsible to issue proof that the damages were not caused by the Tenant or his affiliates, employees, suppliers, clients, visitors, or pets.

Any further claims for damages against the Tenant by the Landlord will not be affected by these provisions.

XIII. Sublease and Assignment

XIII.1. As stipulated in Art. XIV, the Tenant has the right with the Landlord's consent to sublet the Rental Premises to a third party. The Landlord may only deny approval due to reasonable interests. The failure to request the Landlord's written consent may result in termination of this Leasing Agreement.

Any alienation or subletting of the business entity registered to operate within the Rental Premises shall be disclosed in writing to the Landlord, and without the Landlord's consent, shall only be of validity if the Tenant has provided a liability fund for the restructuring or merger.

The Tenant is liable for the third party's compliance with this Leasing Agreement as well as for the vacation of the Rental Premises within the stipulated period after the termination of this Leasing Agreement.

XIII.2. The Tenant acknowledges any future successors of the Landlord, regardless of the determination of property ownership eligibility as per land registry laws. The Landlord shall notify the Tenant in writing of any such transfer of property rights. The legal affectivity of any such transfer shall be determined by the date of the written notice (date of postmark).

XIV. GROUNDS FOR TERMINATION

The Landlord's grounds for immediate legal termination irrespective of termination periods or deadlines include the following:

XIV.1. Default of payment (including partial payments, non-compliance with deferral of payment) after written notice and a 14-day grace period;

XIV.2. Significant disadvantageous use of the Rental Premises, common areas of the building, or facilities;

XIV.3. Failure to comply with the contractually assumed responsibility for maintenance, resulting in serious damage to the Landlord or other tenants of the building, despite at least two written warnings;

XIV.4. Performance of structural changes without the consent of the Landlord, if the Landlord's disapproval was based on legitimate reasons;

XIV.5. Reckless or grossly improper behavior against the Landlord, his representatives, other tenants or their visitors, their affiliates or employees, despite at least two written warnings;

XIV.6. Repeated failure to comply with regulatory requirements or legal provisions resulting in damages to the Landlord, despite at least two written warnings;

XIV.7. Cessation of commercial activity within the Rental Premises for a period longer than 3 months, unless the Tenant is incapable to fulfill his obligations in this regard due to force majeure;

XIV.8. Opening of insolvency proceedings involving the financials of the Tenant or dismissal of the insolvency proceedings due to a lack of funds to cover the expected legal costs;

XIV.9. Improper waste disposal despite at least two written warnings, unless the Tenant is incapable to fulfill his obligations in this regard due to force majeure;

XIV.10. Failure to comply with the provisions of Art. XVI. of this agreement, despite of at least two written warnings;

XIV.11. Use of the Rental Premises for different reasons then stipulated in this agreement;

XIV.12. Transfer of Rental Premises to a third party in breach of agreement, if Rental Premises is subject to crucially disadvantageous use.

XV. STIPULATED GROUNDS FOR TERMINATION

According § 30 Par. 2 l.13MRG, both parties agree on the following grounds for termination:

XV.1. Transfer of Rental Premises in breach of agreement;

XV.2. Operation of business entity without required legal permit.

XVI. SECURITY DEPOSIT

On signing this Agreement, the Tenant shall pay to the Landlord the sum of three Base Rent payments plus VAT as a security deposit by means of

- cash payment or

- unlimited bank guarantee of a national financial institute.

The Landlord shall hold the Security Deposit, until it is (partially) needed for payment or refunded to the Tenant, yielding interest in form of overnight deposits at local rates.  Resulting interest accrued belong to the Tenant.

XVI.2. USE OF SECURITY DEPOSIT

The Security Deposit does not free the Tenant of any responsibilities stipulated by these provisions. The Security Deposit serves as a guaranty for any demands by the Landlord resulting from this agreement, especially

- in case of Tenant's default of (partial) payment for Base Rent and Additional Rent;

- to ensure the proper return of the Rental Premises after lease period has lapsed.

The Landlord may use the Security Deposit to cover any outstanding payments of the Tenant. In such case, the Tenant shall make additional payments to restock the Security Deposit to its original amount.

XVI.3. Guaranteed value and additional payments

In case of value adjustment in accordance to Art.V.1.2., or in case of the full or partial use of the Security Deposit during the actual tenancy, the Tenant shall make additional payments within 14 days after being notified in writing, to restock the Security Deposit to its original amount of three Base Rent payments plus VAT in consideration of all value adjustments.

According to § 1118 ABGB, the Tenant's failure to comply with his responsibility thereof, is subject for termination of this agreement.

The Landlord shall return the remaining balance of the Security Deposit after the termination of tenancy, provided the proper return of the Rental Premises and after subtraction of any outstanding Additional Rent payments.

XVII. RETURN OF RENTAL PREMISES

XVII.1. After termination of this Leasing Agreement, the Tenant shall return the Rental Premises in good and clean condition. In this sense, the Tenant shall, at his cost, ensure to fix any holes drilled for installations, to remove any hooks, pegs, beams or similar installations, and to clean the floors by hiring authorized companies or professionals. The Tenant shall paint all walls of the Rental Premises if this Leasing Agreement is terminated after 60 months. The Landlord may request the Tenant to remove all business signs and advertisements. This responsibility persists even in the event of incidental wear and tear of the Rental Premises. The Security Deposit serves as payment for these repair expenses as well.

XVII.2. If the Landlord paid for single (movable) objects partially or in full, these objects shall remain within the Rental Premises and shall not be removed. Especially, equipment and furnishings of the Rental Premises prompted on special requested by the Tenant for which he owes additional payments, irrespective of the fact whether this investment was done before or after the transfer of the Rental Premises.

XVII.4. After the termination of this Leasing Agreement, the Landlord has the right to request from the Tenant to return the Rental Premises, at his cost, in its original condition. While the Tenant fulfills this request, he shall pay a usage fee in the amount of the lastly stipulated Base Rent plus VAT (in consideration of future increases due to guaranteed value adjustments).

The Tenant's failure to return the Rental Premises to its original condition within 3 months, grants the Landlord the right to address the required work at the Tenant's expense. To cover this cost, the Landlord may use the Tenant's Security Deposit.

XVIII. SITE RULES

XVIII.1. The Tenant shall comply with all site rules stipulated in Appendix C and acknowledge these as an integral part of this Leasing Agreement.

XVIII.2. Repeated failure of compliance, are grounds for termination in accordance with § 30 Par.2 L.13 MRG.

XVIII.3. Faced with imminent danger or with regulatory inspections, the Tenant shall grant access to the Rental Premises to officials of fire and rescue services, ambulance, police and chimney sweeping services.

XIX. LANDLORD'S RIGHT TO ACCESS

The Landlord or the Landlord's agents may enter the premises for important reasons, while considering the interests of the Tenant; the Tenant shall consent to the temporary use or alteration of the Rental Premises for the following reasons:

- if such intrusion is necessary and appropriate for maintenance or repair work of the common areas of the building or to address severe damages within the Rental Premises, of the common areas of the building, or the rental premises of other tenants;

- if such intrusion is necessary and appropriate for alterations of other rental premises.

The Landlord or the Landlord's agents may also enter the premises in the event of imminent danger, as well as when based on appropriate reasons, or in order to conduct inspections to ensure the Tenant's compliance of the stipulations of this agreement during business hours.

Except in the cases of emergency, the Landlord shall notify the Tenant of such intrusion before entering and both parties shall agree within 14 days on a date and time. If the parties cannot agree on a date and time, the Landlord has the right to set the date and time.

XIX.3. After termination of this Leasing Agreement, the Tenant shall grant access to the Landlord in order to show the Rental Premises to potential tenants during an agreed date and time, in consideration of the interests of both parties. All persons entering the Rental Premises have to agree to confidentiality. The Landlord is responsible for any harm to the Tenant caused by the action of these persons. Showings shall be held only in presence of the Tenant or the Tenant's representatives.

XX. COST AND FEES

The Tenant shall bear all cost, taxes, fees and expenses of any kind for the establishment of this Leasing Agreement and agrees to indemnify and hold harmless the Landlord for any claims associated with this matter. Fees for legal actions are self-assessed. The Tenant shall pay the full amount within eight days after receiving Landlord's assessment. Each party shall bear their respective attorney fees associated with the entering of this Leasing Agreement.

XXI. INDEMNITY

XXI.1.Both parties agree to indemnify and hold harmless each other of and from any and all claims that the respective other party would have to fulfill.

XXI.2. If one of the parties faces a claim (e.g. claim for damages) of a third party for performance (asserted party) which fall under the obligation of the other party (obliged party), the asserted party shall notify the obliged party of this claim immediately; per request of the obliged party, the asserted party shall enter litigation with the third party provided that the obliged party pays the cost of litigation to the asserted party in form of a bank guaranty of a national financial institute.

XXII. GENERAL PROVISIONS

XXII.1. Official permits

The Tenant shall obtain any required official permits, in his name and at his cost, and indemnify and hold harmless the Landlord thereof. The Tenant shall fulfill all official requirements at his cost. The Landlord shall provide, in a timely manner, all required documents (especially, the notice of construction) to the Tenant which he will need to obtain his commercial permit or similar official documents, if these are available to the Landlord.

XXII.2. Delivery

Delivery to the Tenant shall be made to the legal address of the Rental Premises. After termination of this Leasing Agreement, the Tenant shall inform the Landlord of his forwarding address no later than when returning the Rental Premises; otherwise, the current address continues to serve as the Tenant's legal address.

XXII.3. Written Form

Changes, additions or amendments to this Leasing Agreement shall be made in written form. A waiver of written form itself is also subject to this provision. The Tenant shall not inform the Landlord in ways contrary to the previous – e.g. with reference to payment slips.

XXII.4. Waiver of Appeal

The Tenant shall waive any right to appeal this Leasing Agreement – regardless of the reason – but especially for reason of error or laesio enormis.

XXII.5. Interest for Late payment

In regards to all claims between the two parties – if not stipulated otherwise in this Leasing Agreement – interest for late payment shall be at 5% above the reference index which is stated regularly by the Austrian National Bank; any request for an amount exceeding this rate (in case of higher damages caused by the necessity for taking out a loan) shall not be excluded.

XXII.6. Severability clause

Should individual provisions of these conditions be or become, entirely or partly, invalid or void, the effectiveness of the remaining provisions shall remain unaffected thereby.

XXII.7. Copies

This Leasing Agreement was drawn up in two copies – one for the Landlord and one for the Tenant.

Vienna, Dec 1st, 2002Vienna, Dec 2^nd, 2002

Landlord:Tenant:

(signature)(signature)

DI Alois AignerDr. Michael Schaude

(signature)

Dr. Claus Hofer

(signature)

DI Bernhard Ölz

(signature)Dr. Paul Sutterlüty

Drawings of VIENNA BIOCENTER – VIENMARKTGASSE – USABLE SPACE

Supplement Agreement to the

LEASING AGREEMENT

between

VBC Vienna Bio Center Errichtungs GmbH FN 203657 x, HG Vienna

1010 Vienna, Rathausplatz 2

(hereinafter called "VBC")

represent by

the managing director Dipl.-Ing. Aigner and Dr. Claus Hofer

in the future, as a result of a merger

Competence Investment AG

FN 186141 m,State Court Feldkirch 6850 Dornbirn, Stadtstrasse 33

(hereinafter called "CIAG")

represent by

the board directors DI Bernhard Ölz and Dr. Paul Sutterlüty

as the Landlord

and

Medsystems Diagnostics GmbHFN171.696w, HG Vienna

1030 Vienna, Rennweg 95B

(hereinafter called "Medsystems")

represent by

the managing director Dr. Michael Schaude

as the Tenant

As an Appendix to the existing Leasing Agreement in regards to the Rental Premises Vienna Bio Center, Campus Vienna Bio Center 2 identical to Viehmarktgasse 2a, 1030 Vienna with total leased space of 1,435.61m², the parties agree to the following:

Article IV.1.:

Under Article IV.1. of this Leasing Agreement, the Tenant has waived his ordinary right of termination within 36 months under compliance with the agreed 6-months termination period.

Now, the Tenant waives his ordinary right of termination within an additional 84 months, hence, under compliance with the stipulated termination period, the first date for notification of termination of this tenancy shall be Jan 1^st, 2014 with effective termination on July 1^st, 2014.

Nevertheless, the Tenant shall be granted the right of termination after 36 months earliest on Jan 1^st,2007 in case that the Tenant requires additional space which is not available at Vienna Bio Center on agreed conditions.

All other provisions of the Leasing Agreement and remain unchanged by this Supplement Agreement and continue to be fully valid.

Vienna, Dec 1st, 2002Vienna, Dec 2^nd, 2002

Landlord:Tenant:

(signature)(signature)

DI Bernhard ÖlzDr. Michael Schaude

(signature)

Dr. Paul Sutterlüty

3 Drawings of VIENNA BIOCENTER – VIENMARKTGASSE

HOUSE RULES

VIENNA BIO CENTER

1. Scope

The House Rules apply to all tenants of Vienna Bio Center, hereinafter called the "Members". The House Rules are part of this Leasing Agreement. Ignorance of these rules shall not protect against the consequences for violation.

2. General items

In the interest of maintaining the House Rules, every Member agrees to considerate behavior. Compliance with the House Rules is with respect to neighboring restaurants of special importance. All Members agree to handle the building and all amenities with the greatest of care, including all common areas. Through careful handling of the premises, cost for repair, operation and maintenance can be held at a minimum.

3. Changes to the overall appearance of the building

Property management may deny single Members the installation or erecting of signs or objects if such action interferes with the overall appearance of the building. The premises shall appear as planned and wished for by the Members.

4. Leased Space

Every Member is responsible for maintenance, repair and continuous improvements of his respective leased space, unless the structure of the building is affected. Any alterations of the Rental Premises are subject to the written approval of the Landlord.

5. Liability

Ever Member shall pay for any damages to common rooms and amenities caused by his negligence or reckless behavior or by non-conformance with the House Rules.

Damage repair or cleaning will be done at the cost of the liable Member. The Member's failure to address the damage within reasonable time, grants the Landlord the right to prompt the necessary work at the cost of the Member.

Property management shall be informed immediately of any damages of water and drainage pipes, backlogged sewers, as well as damages to the roof. The same accounts for important events concerning the public, e.g. fire, break-ins, etc, even if endured by only one Member. Affiliates, visitors, clients, handymen, and suppliers of the Members shall be held liable under these rules.

6. Noise

Any unnecessary noise exceeding the regular noise levels of commercial activity shall be avoided. Property management shall be informed if any noise exceeding the regular levels is required on short notice.

7. Entry doors

All entry doors shall be closed and locked between 8pm and 7am.

8. Staircase and hallways

Waste disposal, storage of objects of any kind, as well as the cleaning of objects in the staircase and hallways of the building is prohibited. The staircase shall not serve as storage space for personal belongings, but as common area and shall comply with the overall appearance of the building. Damages or staining of the staircase or hallways caused by a Member shall be addressed immediately (cleaning, repair).

10. Fire safety

Storage or use of flammable, explosive, or poisonous substances is subject to official permits and written consent of property management of the Vienna Bio Center. Property management shall be informed immediately of the storage or temporary storage of such substances. For fire safety reasons, every member shall utilize only fire resistant waste bins.

11. Common areas and amenities

Common areas of the Vienna Bio Center include all public accessible stairs, staircases, parking structures, and green areas, and shall be handled with care. Cleanliness is of greatest concern, thus, all areas of the Vienna Bio Center shall appear clean and well-kept. Every Member is responsible to do their share to guarantee absolute cleanliness.

12. Liability insurance

Ever Member shall carry their own liability insurance in order to cover possible damages to the premises of "Vienna Bio Center Errichtungs GmbH" or other Members.

13. Waste disposal

Appointed waste bins serve for the disposal of regular waste. The waste disposal at any other location (including next to the waste bins) is prohibited.

Every Member is responsible for the transport and disposal of bulky waste.

14. Dealing with pests

If a single unit faces a pest, the Member shall, at his expense, address this issue immediately by hiring an authorized business. If the pest spreads to other units, the affected Member shall bear the cost for all resulting damages.

15. Cleaning Staff

Cleaning staff shall be hired to clean all common areas of the premises. Every Member is responsible to inform property management of any noticeable damages, stains, etc.

16. Statutory basis

The Austrian General Civil Code (ABGB) serves as the foundation of these House Rules.

Place, dateProperty management

2. Supplement Agreement

to the Lease Agreement from Dec 2^nd, 2002

regarding the 1. Supplement Agreement from June 2^nd, 2004

between

Blue Capital Europa Immobilien GmbH & Co. Fünfte Objekte Österreich KG

represented by the managing partner

Blue Capital Fonds GmbH

represented by the two managing directors or authorized person

Alter Wall22

20457 Hamburg

Germany

- hereinafter called the "the Landlord"-

and

Bender MedSystems GmbH

Represented by managing director Dr. Michael Schaude

Campus Vienna Bio Center 2

1030 Vienna

- hereinafter called "the Tenant"-

Page 1 of 2

As an Appendix to the existing lease agreement from Dec 2^nd, 2002 amended by the 1. Supplemented Agreement from June 2^nd, 2004 in regards to the Rental Premises Vienna Bio Center, Campus Vienna Bio Center 2 identical to Viehmarktgasse 2a, 1030 Vienna the parties agree to the following:

1. In addition to the existing lease agreement of the rental premises and according to the enclosed site plan, the Landlord hereby leases additional office space of 352.00m² as well as a seminar room proportionate of 5.26m² on the ground level of the building on the commercial property EZ 4335 land register 01006 highway owned by the Landlord to the Tenant, and the Tenant hereby leases the same from the Landlord.

2.  The term of the Leasing Agreement commences upon the transfer of the rental premises.

3. Subject to the Indexation Clause in Subparagraph V.1.2. of this Leasing Agreement, the Base Rent for the new office space amounts to 15.34€/m², payable monthly, plus VAT which currently amounts to 20% but will increase on Jan 1^st, 2008. The Landlord opts for VAT under the German Turnover Tax Act.

4. The Landlord is hereby responsible to grant the amount of maximal €7000.00 in costs for expansion if relevant receipts are presented by the Tenant.

5. The Tenant will bear any accumulating costs or fees in connection with this Supplemented Agreement.

6. The remaining provisions of the Leasing Agreement from Dec 2^nd, 2002 as well as the 1. Supplemented Agreement from June 2^nd, 2004 will remain unchanged and will apply to the newly leased premises by analogy. Both parties are in agreement that the previously mentioned Lease Agreement, the 1. Supplemented Agreement, as well as this 2. Supplemented Agreement are mutual and binding.

7. The space mentioned in Article 1 is currently rented to INTERCELL Biomedizinische Forschungs- und Entwicklungs AG, FN 166.438m. In order for this Supplemented Agreement to become fully effective, a cancellation agreement with INTERCELL shall be entered.

Hamburg, (date)Vienna, (date)

(signature)(signature)

Blue Capital Europa Immobilien GmbH & Bender MedSystems GmbH

Co. Fünfte Objekte Österreich KG

Page 2 of 2

3. Supplement Agreement

to the Lease Agreement from Dec 2^nd, 2002

as well as to the 1. Supplement Agreement from June 2^nd, 2004

and to the 2. Supplement Agreement from Oct 23^rd/11^th, 2007

between

Blue Capital Europa Immobilien GmbH & Co. Fünfte Objekte Österreich KG

represented by the managing partner

Blue Capital Fonds GmbH

which in turn is represented by

WealthCap Real Estate Management GmbH

represented by the two managing directors or authorized person

Arabellastraße 14

81925 Münschen

Germany

- hereinafter called the "the Landlord"-

and

Bender MedSystems GmbH

Represented by managing director Dr. Michael Schaude

Campus Vienna Bio Center 2

A-1030 Vienna

- hereinafter called "the Tenant"-

Commencement Clause

By the provision of the previously mentioned Leasing Agreement and the two corresponding Supplement Agreements, the Tenant has leased office space on the 3. floor, laboratory space on the 4. Floor, as well as storage space and 10 parking spaces in the underground parking structure of the building Vienna Bio Center, Viehmarktgasse 2a, A-1030 Vienna.

In this context, both parties amend the previous Leasing Agreement as follows:

In amendment to ArticleII. Rental Premises

II.1 will be added to the following paragraph:

Effective Oct 1st, 2008, the Landlord leases the additional office space of 352.00m² as well as a seminar room proportionate of 5.26m² on the ground level of the Rental Premises to the Tenant as marked in color on the enclosed site plan (Appendix./1), and the Tenant leases the same from the Landlord.

In amendment to ArticleIII. Transfer of Rental Premises

III.4 Transfer of the additional rental space will be added:

By the provision of this Supplemented Agreement, the transfer of the additional rental space will occur between the Tenant and the previous Tenant currently leasing the mentioned rental premises. The Tenant is fully aware of the condition of the rental premises.

In amendment to ArticleV. Base Rent

V.1 The Base Rent listed in Paragraph 1 will be redefined and amended by Paragraph 3:

Effective Oct 1st, 2008, the Base Rent for the rental premises mentioned in Article II. will amount to the following net amounts, payable monthly:

                                  SpacePrice (rounded)Total in €

Office space, GF352.00m²15.94 €/m²5609.41

Office space, 3.F235.27 m²18.10 €/m²4258.24

Laboratory space, 4.F780.54m²18.43 €/m²             14384.15

Seminar rooms               20.43m²20.62 €/m²   421.29

Storage space, 3.F414.86m²  6.47 €/m²2684.93

Parking space in10 spaces115.18/ea.1151.78

underground parking structure

Total          € 28509.80

excluding VAT.

It is noted that, according to Paragraph 2 from V.1.1. of the Leasing Agreement, the credit note in the amount of 3 monthly Base Rent payments does not apply to the newly leased space.

V.2.3 Additional Cost in Paragraph 4, 5 and 6 will be redefined as follows:

Currently, monthly additional cost amounts to € 5.29/ month/ m² plus appropriate VAT. This amount may be adjusted based on the additional cost statement of the previous year or budget plans for the following year.

The Tenant will pay the current monthly fixed rate of € 0.75 per square meter of rented storage space for Service Charges including Management Fees.

The Tenant will pay the current monthly fixed rate of € 7.94 plus VAT per rented parking space in the underground parking structure.

In amendment to ArticleXVII. Provisions

XVII.5 Provision for additional space will be added:

To avoid any doubt, it is noted that the provisions in Article XVII. of the Leasing Agreement apply to the newly rented space as well.

Condition Precedent

The provisions of this Leasing Agreement are subject to condition precedent that a legal cancellation agreement is entered with the current tenant of the additional space which will become fully effective on Sept 30^th, 2008.

Final Clause

All other provisions of the Leasing Agreement and both Supplement Agreements remain unchanged by this 3. Supplement Agreement and continue to be fully valid.

In case that any of the provisions of this agreement is or becomes invalid or unfeasible, the validity of the remaining provisions will not be affected. The invalid provision shall be replaced by a provision that most closely approximates the economic purpose of the contract while reasonably maintaining the mutual interests of the parties. The same shall apply in case of a regulatory gap.

All parties agree that the previously mentioned Leasing Agreement, Supplement Agreement 1 and 2, as well as this 3. Supplement Agreement are mutual and binding.

Appendix ./1:Site Plan

Munich, Oct. 9th, 2008Vienna, Sept 22^nd, 2008

(signature)(signature)

Blue Capital Europa Immobilien GmbH &Bender MedSystems GmbH

Co. Fünfte Objekte Österreich KGDr. Michael Schaude

Stephan KlemmerJoachim Mur

Site Plan Drawings (left top to right):

Archive

Meeting Room

Archive

Women's Restroom

Men's Restroom

Kitchen

Men's Restroom

Women's Restroom

Trash

Seminar Room

Hallway

Atrium

Office

Office

Men's Restroom

Storage Room

Staff Room

Café

Reception Area

Rental Premises

Contractee:

Blue Capital Europa Immobilien GmbH & Co.

Fünfte Objekte Österreich KG

Arabellastraße 14, 81925 München

Object:

Vienna, Biocenter

Ground floor

Rental premises

Scale: -

Reviser: J Minks

Effective: Sept 19th, 2008

Drawings No.:-

4. Supplement Agreement

to the Lease Agreement from Dec 2^nd, 2002

as well as to the 1. Supplement Agreement from June 2^nd, 2004

and to the 2. Supplement Agreement from Oct 23^rd/11^th, 2007

and 3. Supplement Agreement from Oct 9^th/Sept 22^nd, 2008

between

Blue Capital Europa Immobilien GmbH & Co. Fünfte Objekte Österreich KG

represented by the managing partner

Blue Capital Fonds GmbH

which in turn is represented by

WealthCap Real Estate Management GmbH

represented by the two managing directors or authorized person

Arabellastraße 14

81925 Münschen

Germany

- hereinafter called the "the Landlord"-

and

Bender MedSystems GmbH

Represented by managing director Dr. Michael Schaude

Campus Vienna Bio Center 2

A-1030 Vienna

- hereinafter called "the Tenant"-

Commencement Clause

By the provision of the previously mentioned Leasing Agreement and the 3^rd  Supplement Agreements, the Tenant has leased office space on the ground level and 3^rd floor, laboratory space on the 4^th Floor, as well as storage space and 10 parking spaces in the underground parking structure of the building Vienna Bio Center, Viehmarktgasse 2a, A-1030 Vienna.

In this context, both parties amend the previous Leasing Agreement as follows:

In amendment to ArticleII. Rental Premises

II.1 will be added to the following paragraph:

8. Effective Sept 1st, 2010, the Landlord leases the parking space # 26 on the ground level.

9. Effective Oct 1st, 2010, the Landlord leases the parking space # 29 on the ground level.

In amendment to ArticleV. Base Rent

V.1 The Base Rent listed in Paragraph 1 will be redefined and amended by Paragraph 3:

Effective Oct 1^st, 2010, the Base Rent for the Rental Premises mentioned in Article II. will amount to the following net amounts, payable monthly:

      SpacePrice (rounded)Total in €

Office space, GF352.00 m2                   16.45 €/m2                                                5,789.10 €

Office space, 3.F235.27 m2                   18.68 €/m2                                                4.394.65 €

Laboratory space, 4.F780.54 m2                   19.02 €/m2                                              14,844.94 €

Seminar rooms20.43 m2                       21.11 €/m2                                                  431.32 €

Storage space, 3.F414.86 m2                   6.68 €/m2                                                   2,770.94 €

UG parking space 14 - 21, 27, 2810 Spaces118.87 €/ea1,188.67 €

UG parking space 26 (eff. 01.09.10)1 space118.87 €/ea118.87 €

UG parking space (eff. 01.10.10)1 Space118.87 €/ea118.87 €

Total (eff. 01.10.2010)29,657.36 €

plus VAT

Final Clause

All other provisions of the Leasing Agreement remain unchanged by this Supplement Agreement and continue to be fully valid.

In case that any of the provisions of this agreement is or becomes invalid or unfeasible, the validity of the remaining provisions will not be affected. The invalid provision shall be replaced by a provision that most closely approximates the economic purpose of the contract while reasonably maintaining the mutual interests of the parties. The same shall apply in case of a regulatory gap.

All parties agree that the previously mentioned Leasing Agreement, Supplement Agreement 1., 2. And 3., as well as this 4. Supplement Agreement are mutual and binding.

Munich, Oct. 25th, 2010Vienna,

(2 signatures)(signature)

Blue Capital Europa Immobilien GmbH &Bender MedSystems GmbH

Co. Fünfte Objekte Österreich KGDr. Irene Rech-Weichselbraun

Stephan KlemmerJoachim Mur

EX-10.45

EXHIBIT 10.45

FIRST AMENDMENT TO CREDIT AGREEMENT

THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Agreement") is entered into as of July 20, 2012, by and among AFFYMETRIX, INC., a Delaware corporation (the "Borrower"), the other Credit Parties signatory hereto, GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation (in its individual capacity, "GE Capital"), for itself and as agent for the Lenders (in such capacity, the "Agent"), and the Lenders signatory hereto.  Unless otherwise specified herein, capitalized terms used in this Agreement shall have the meanings ascribed to them in the Credit Agreement (as hereinafter defined), as amended.

R E C I T A L S:

WHEREAS, Borrower, the other Credit Parties party thereto, the Agent and the Lenders entered into that certain Credit Agreement, dated as of June 25, 2012 (as amended, restated, supplemented or otherwise modified prior to the date hereof, the "Credit Agreement"); and

WHEREAS, the Credit Parties have requested that the Agent and the Lenders party hereto amend certain provisions of the Credit Agreement, and the Agent and each Lender party hereto agree to such amendments upon the terms and subject to the conditions set forth herein.

NOW THEREFORE, in consideration of the premises and the mutual agreements set forth, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1.Amendments.

(a)Exhibit 1.8(e) of the Credit Agreement is hereby amended by deleting the first reference to "$7,000,000" set forth therein and replacing the same with "$12,500,000".

(b)Exhibit 4.2(b) of the Credit Agreement is hereby amended by deleting the first reference to "$7,000,000" set forth therein and replacing the same with "$12,500,000".

2.Conditions.  This Agreement shall be effective upon execution and delivery to the Agent by the Credit Parties and the Required Lenders of their respective counterparts of this Agreement.

3.Counterparts; Facsimile Signature. This Agreement may be executed in any number of counterparts and by different parties in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.  Signature pages may be detached from multiple separate counterparts and attached to a single counterpart.  Delivery of an executed signature page of this Agreement by facsimile transmission or Electronic Transmission shall be as effective as delivery of a manually executed counterpart hereof.

4.Continuing Effect of the Credit Agreement.  Except as expressly set forth herein, this Agreement shall not by implication or otherwise limit, impair, constitute a waiver of, or otherwise affect the rights and remedies of the Lenders or the Agent under the Credit Agreement and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement, all of which are ratified and affirmed in all respects and shall continue in full force and effect.  Nothing herein shall be deemed to entitle the Credit Parties to a consent to, or a waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement in similar or different circumstances.  This Agreement shall apply and be effective only with respect to the provisions of the Credit Agreement specifically referred to herein.  After the effectiveness of this Agreement, any reference to the Credit Agreement shall mean the Credit Agreement as modified hereby. This Agreement shall constitute a Loan Document.

5.Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.

6.Captions.  The captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement.

(signature pages follow)

| CH\1385940.2||

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their duly authorized officers as of the day and year first above written.

AFFYMETRIX, INC.

By: /s/ Timothy Barabe

Name: Timothy Barabe

Title: CFO

USB CORPORATION

By: /s/ Timothy Barabe

Name: Timothy Barabe

Title: CFO

ANATRACE, INC.

By: /s/ John F. Runkel, Jr.

Name: John F. Runkel, Jr.

Title: Secretary

EBIOSCIENCE HOLDING COMPANY, INC.

By: /s/ John F. Runkel, Jr.

Name: John F. Runkel, Jr.

Title: Secretary

EBIOSCIENCE, INC.

By: /s/ John F. Runkel, Jr.

Name: John F. Runkel, Jr.

Title: Secretary

[Signature Page to First Amendment to Credit Agreement]

|

GENERAL ELECTRIC CAPITAL CORPORATION, as Agent

By:/s/ Andrew D. Moore

Name:Andrew D. Moore

Title:Duly Authorized Signatory

[Signature Page to First Amendment to Credit Agreement]

|

MORGAN STANLEY BANK, N.A.,

as a Lender

By:/s/ Alice Lee

Name:Alice Lee

Title:Authorized Signatory

[Signature Page to First Amendment to Credit Agreement]

|

MDC JV SPONSOR LTD,

as a Lender

By:/s/ Pierre Abunakle

Name:Pierre Abunakle

Title:Authorized Signatory

[Signature Page to First Amendment to Credit Agreement]

|

GE JV SPONSOR LTD,

as a Lender

By:/s/ Pierre Abunakle

Name:Pierre Abunakle

Title:Authorized Signatory

[Signature Page to First Amendment to Credit Agreement]

|

SILICON VALLEY BANK,

as a Lender

By:/s/ Peter Freyer

Name:Peter Freyer

Title:Director

[Signature Page to First Amendment to Credit Agreement]

|

CITIBANK, N.A,

as a Lender

By:/s/ Laura Fogarty

Name:Laura Fogarty

Title:Vice President

|

EX-10.46

EXHIBIT 10.46

SECOND AMENDMENT TO CREDIT AGREEMENT

THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Agreement") is entered into as of December 5, 2012, by and among AFFYMETRIX, INC., a Delaware corporation (the "Borrower"), the other Credit Parties signatory hereto, GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation (in its individual capacity, "GE Capital"), for itself and as agent for the Lenders (in such capacity, the "Agent"), and the Lenders signatory hereto.  Unless otherwise specified herein, capitalized terms used in this Agreement shall have the meanings ascribed to them in the Credit Agreement (as hereinafter defined), as amended.

R E C I T A L S:

WHEREAS, Borrower, the other Credit Parties party thereto, the Agent and the Lenders entered into that certain Credit Agreement, dated as of June 25, 2012 (as amended, restated, supplemented or otherwise modified prior to the date hereof, the "Credit Agreement"); and

WHEREAS, the Credit Parties have requested that the Agent and the Lenders party hereto amend certain provisions of the Credit Agreement, and the Agent and each Lender party hereto agree to such amendments upon the terms and subject to the conditions set forth herein.

NOW THEREFORE, in consideration of the premises and the mutual agreements set forth, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1.  Amendment.  Section 6.1 of the Credit Agreement is hereby amended by deleting  the  reference  to "$10,000,000"  set  forth  therein  and  replacing  the  same  with "$10,000,000, or an amount up to $13,500,000 provided, that the Capital Expenditure Limitation for the Fiscal Year ended December 31, 2013 shall be decreased by the amount by which Capital Expenditures for the Fiscal Year ended December 31, 2012 exceed $10,000,000".

2.  Conditions.  This Agreement shall be effective upon Agent's receipt of an executed signature page to this Agreement from each Credit Party, the Agent and the Required Lenders.

3.  Representations and Warranties of Credit Parties.  In order to induce the Agent and the Required Lenders to enter into this Agreement, each Credit Party represents and warrants to Agent and each Lender (which representations and warranties shall survive the execution and delivery of this Agreement), that:

(a)  the execution, delivery and performance by each Credit Party of this Agreement has been duly authorized by all necessary corporate action and this Agreement is a legal, valid and binding obligation of such Credit Party enforceable against such Credit Party in accordance  with  its  terms,  except  as  such  enforceability  may  be  limited  by  applicable bankruptcy, insolvency, reorganization, receivership, moratorium and similar Laws relating to or affecting the enforceability of creditors' rights generally, and except that the availability of equitable remedies is subject to the discretion of the courts (regardless of whether enforcement is sought in a proceeding at law or in equity);

(b)  upon the effectiveness of this Agreement, all of the representations and warranties contained in the Credit Agreement and in the other Loan Documents (other than those which speak expressly only as of an earlier date) are true and correct in all material respects on and as of the date of the effectiveness of this Agreement after giving effect to this Agreement and the transactions contemplated hereby;

(c)  neither the execution, delivery or performance of this Agreement by each Credit Party nor the consummation of the transactions contemplated hereby or thereby does or shall contravene, result in a breach of, or violate (i) any provision of such Credit Party's certificate or articles of incorporation or bylaws, or other organizational documents, (ii) any law or regulation, or any order or decree of any court or government instrumentality, or (iii) any indenture, mortgage, deed of trust, lease, agreement or other instrument to which such Credit Party or any of its Subsidiaries is a party or by which such Credit Party or any of its Subsidiaries or any of their property is bound, except in any such case to the extent such conflict or breach has been waived by a written waiver document, a copy of which has been delivered to Agent on or before the date hereof or which could not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect; and

(d)  no Default or Event of Default exists or will result after giving effect to this Agreement and the transactions contemplated hereby.

4.  Counterparts; Facsimile Signature.  This Agreement may be executed in any number of counterparts and by different parties in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.  Signature pages may be detached from multiple separate counterparts and attached to a single counterpart.  Delivery of an executed signature page of this Agreement by facsimile transmission or Electronic Transmission shall be as effective as delivery of a manually executed counterpart hereof.

5.  Continuing Effect of the Credit Agreement.  Except as expressly set forth herein, this Agreement shall not by implication or otherwise limit, impair, constitute a waiver of, or otherwise affect the rights and remedies of the Lenders or the Agent under the Credit Agreement and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement, all of which are ratified and affirmed in all respects and shall continue in full force and effect.  Nothing herein shall be deemed to entitle the Credit Parties to a consent to, or a waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement in similar or different circumstances.  This Agreement shall apply and be effective only with respect to the provisions of the Credit Agreement specifically referred to herein.  After the effectiveness of this Agreement, any reference to the Credit Agreement shall mean the Credit Agreement as modified hereby. This Agreement shall constitute a Loan Document.

6.  Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.

7.  Captions.  The captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement.

8.  Reaffirmation.  The Credit Parties signatory hereto hereby reaffirm their guaranties of the Obligations and reaffirm that the Obligations are and continue to be secured by the security interest granted by the Credit Parties in favor of the Agent under the Guaranty and Security Agreement and all of the terms, conditions, provisions, agreements, requirements, promises, obligations, duties, covenants and representations of the Credit Parties under such documents and agreements entered into with respect to the obligations under the Credit Agreement are incorporated herein by reference and are hereby ratified and affirmed in all respects by the Credit Parties.  Each Credit Party acknowledges that all references to "Credit Agreement" and "Obligations" in the Loan Documents shall take into account the provisions of this Agreement and be a reference to the "Credit Agreement" and the "Obligations" as amended hereby.

(signature pages follow)

IN WITNESS WHEROF, the parties hereto have caused this Agreement to be duly executed and delivered by the duly authorized officers as of the day and year first above written.

AFFYMETRIX, INC.

By: /s/ Timothy Barabe

Name: Timothy Barabe

Title: EVP and CFO

USB CORPORATION

By: /s/ Timothy Barabe

Name: Timothy Barabe

Title: CFO

ANATRACE, INC.

By: /s/ David Roberts

Name: David Roberts

Title: CFO

EBIOSCIENCE HOLDING COMPANY, INC.

By: /s/ Timothy Barabe

Name: Timothy Barabe

Title: Vice President

EBIOSCIENCE, INC.

By: /s/ Timothy Barabe

Name: Timothy Barabe

Title: Vice President

[Signature Page to Second Amendment to Credit Agreement]

|

GENERAL ELECTRIC CAPITAL CORPORATION, as Agent

By:/s/ Andrew D. Moore

Name:Andrew D. Moore

Title:Duly Authorized Signatory

[Signature Page to Second Amendment to Credit Agreement]

|

GE JV SPONSOR LTD, as a Lender

By: GENERAL ELECTRIC CAPITAL

CORPORATION, as Servicer

By:/s/ Andrew D. Moore

Name:Andrew D. Moore

Title:Duly Authorized Signatory

[Signature Page to Second Amendment to Credit Agreement]

|

MDC JV SPONSOR LTD, as a Lender

By: GENERAL ELECTRIC CAPITAL

CORPORATION, as Servicer

By:/s/ Andrew D. Moore

Name:Andrew D. Moore

Title:Duly Authorized Signatory

[Signature Page to Second Amendment to Credit Agreement]

|

SILICON VALLEY BANK,

as a Lender

By:/s/ Peter Freyer

Name:Peter Freyer

Title:Director –Corporate Finance;

Healthcare & Life Science

[Signature Page to Second Amendment to Credit Agreement]

|

BANK OF AMERICA, N.A.

as a Lender

By:/s/ John C. Plecque

Name:John C. Plecque

Title:Senior Vice President

[Signature Page to Second Amendment to Credit Agreement]

|

CITIBANK, N.A,

as a Lender

By:/s/ Alvaro De Valasco

Name:Alvaro De Valasco

Title:Vice President

[Signature Page to Second Amendment to Credit Agreement]

|

MORGAN STANLEY BANK, N.A,

as a Lender

By:/s/ Alice Lee

Name:Alice Lee

Title:Authorized Signatory

[Signature Page to Second Amendment to Credit Agreement]

|

|

EX-21

EXHIBIT 21

AFFYMETRIX, INC.

LIST OF SUBSIDIARIES

Affymetrix Biotech Ltda., a wholly-owned subsidiary incorporated in Brazil and doing business under such name.

Affymetrix Biotech Shanghai Ltd., a wholly-owned subsidiary incorporated in China and doing business under such name.

Affymetrix France S.A.S., a wholly-owned subsidiary incorporated in France and doing business under such name.

Affymetrix GmbH, a wholly-owned subsidiary incorporated in Germany and doing business under such name.

Affymetrix Japan K.K., a wholly-owned subsidiary incorporated in Japan and doing business under such name.

Affymetrix Pte Ltd, a wholly-owned subsidiary incorporated in Singapore and doing business under such name.

Affymetrix, UK Ltd, a wholly-owned subsidiary incorporated in the United Kingdom and doing business under such name.

Anatrace, Inc., a wholly-owned subsidiary incorporated in Ohio and doing business under such name.

Bender MedSystems GmbH, a wholly-owned subsidiary incorporated in Austria and doing business under such name.

Bender MedSystems Inc. a wholly-owned subsidiary incorporated in California and doing business under such name.

eBioscience GmbH, a wholly-owned subsidiary incorporated in Germany and doing business under such name.

eBioscience Holding Company, Inc., a wholly-owned subsidiary incorporated in Delaware and doing business under such name.

eBioscience, Inc., a wholly-owned subsidiary incorporated in California and doing business under such name.

eBioscience, Ltd., a wholly-owned subsidiary incorporated in the United Kingdom and doing business under such name.

eBioscience SAS, a wholly-owned subsidiary incorporated in France and doing business under such name.

Natutec GmbH, a wholly-owned subsidiary incorporated in Germany and doing business under such name.

Panomics, L.L.C., a wholly-owned subsidiary incorporated in California and doing business under such name.

Panomics SRL, a wholly-owned subsidiary incorporated in Italy and doing business under such name.

USB Corporation, a wholly-owned subsidiary incorporated in Ohio and doing business under such name.

EX-23

EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the following Registration Statements:

(1) Registration Statement on Form S-3 (No. 333-1818781) pertaining to the shelf-registration of Affymetrix, Inc. securities, and

(2) Registration Statements on Form S-8 pertaining to the 1993 Stock Plan and the 1996 Nonemployee Directors Stock Option Plan (No. 333-11299 and No. 333-35287), the 1998 Stock Incentive Plan (No. 333-85575 and No. 333-59158), the GMS/Affymetrix 1998 Stock Plan (No. 333-34320), the Affymetrix/Neomorphic, Inc. 1998 Stock Option Plan (No. 333-52804), the Affymetrix, Inc. 2000 Equity Incentive Plan (No. 333-59160), the Affymetrix, Inc. Amended and Restated 2000 Equity Incentive Plan (No. 333-123452, No. 333-151771 and No. 333-166894), the ParAllele BioScience, Inc. 2001 Stock Option Plan (No. 333-129269), and the 2011 Employee Stock Purchase Plan (No. 333-176638), and 2012 Inducement Plan (No. 333-182456);

of our reports dated March 1, 2013, with respect to the consolidated financial statements and schedule of Affymetrix, Inc., and the effectiveness of internal control over financial reporting of Affymetrix, Inc., included in this Annual Report (Form 10-K) for the year ended December 31, 2012.

	/s/ Ernst & Young LLP
Redwood City, California
March 1, 2013

EX-31.1

EXHIBIT 31.1

Certification of Chief Executive Officer

Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

I, Frank Witney, certify that:

1. I have reviewed this Annual Report on Form 10-K of Affymetrix, Inc.;

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 operations 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.

March 1, 2013	/s/ FRANK WITNEY
	Name:	Frank Witney
	Title:	Director, President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

I, Timothy C. Barabe, certify that:

1. I have reviewed this Annual Report on Form 10-K of Affymetrix, Inc.;

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 operations 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.

March 1, 2013	/s/ TIMOTHY C. BARABE
	Name:	Timothy C. Barabe
	Title:	Executive Vice President and Chief Financial Officer

EX-32

EXHIBIT 32

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF SARBANES-OXLEY ACT OF 2002

The certification set forth below is being submitted in connection with this Annual Report on Form 10-K for the year ended December 31, 2012 (the "Report") for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Section 1350 of Chapter 63 of Title 18 of the United States Code.

Each of the undersigned certifies that, to his knowledge:

1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Affymetrix, Inc.

March 1, 2013	/s/ FRANK WITNEY
	Name:	Frank Witney
	Title:	Director, President and Chief Executive Officer
	/S/ TIMOTHY C. BARABE
	Name:	Timothy C. Barabe
	Title:	Executive Vice President and Chief Financial Officer

This certification accompanying the Report is not deemed filed with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities such Section, and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before, on or after the date of the Report), irrespective of any general incorporation language contained in such filing.

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ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Tables)

12 Months Ended

Dec. 31, 2012

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES [Abstract]

Accounts payable and accrued liabilities

Accounts payable and accrued liabilities as of December 31, 2012 and 2011 consist of the following (in thousands):

	December 31,
	2012		2011
Accounts payable	$	13,716	$	15,629
Accrued compensation and related liabilities		15,760		12,169
Accrued interest		324		1,531
Accrued taxes		8,135		5,067
Accrued legal		594		1,808
Accrued audit and tax		1,106		963
Accrued warranties		802		1,500
Accrued royalties		1,608		1,206
Other		8,310		4,901
Total	$	50,355	$	44,774

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FAIR VALUE MEASUREMENTS (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Jun. 25, 2012	Dec. 31, 2011
Assets:
Total	$ 9,366		$ 62,438
Derivative assets	842		940
Liabilities:
Derivative liabilities	829		217
Debt Instrument, 3.50% Interest Rate, Stated Percentage	3.50%
Debt Instrument, 4.00% Interest Rate, Stated Percentage	4.00%	4.00%
3.50% Convertible Debt, Fair Value Disclosures	3,855
4.00% Convertible Debt, Fair Value Disclosures	87,297
Total amount borrowed as of balance sheet date	85,000	85,000
Notes Payable, Fair Value Disclosure	73,275
Quoted Prices In Active Markets (Level 1) [Member]
Assets:
Total	0		105
Derivative assets	0		0
Liabilities:
Derivative liabilities	0		0
Significant Other Observable Inputs (Level 2) [Member]
Assets:
Total	9,366		62,333
Derivative assets	842		940
Liabilities:
Derivative liabilities	829		217
U.S. government obligations and agency securities [Member]
Assets:
Total	6,829		19,598
U.S. government obligations and agency securities [Member] | Quoted Prices In Active Markets (Level 1) [Member]
Assets:
Total	0		0
U.S. government obligations and agency securities [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets:
Total	6,829		19,598
U.S. corporate debt [Member]
Assets:
Total	664		25,100
U.S. corporate debt [Member] | Quoted Prices In Active Markets (Level 1) [Member]
Assets:
Total	0		0
U.S. corporate debt [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets:
Total	664		25,100
Foreign government obligations and agency securities [Member]
Assets:
Total			2,810
Foreign government obligations and agency securities [Member] | Quoted Prices In Active Markets (Level 1) [Member]
Assets:
Total			0
Foreign government obligations and agency securities [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets:
Total			2,810
Foreign corporate debt and equity securities [Member]
Assets:
Total	1,873		14,930
Foreign corporate debt and equity securities [Member] | Quoted Prices In Active Markets (Level 1) [Member]
Assets:
Total	0		105
Foreign corporate debt and equity securities [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets:
Total	$ 1,873		$ 14,825

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ACQUISITION, Part I (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Jun. 25, 2012
ACQUISITION [Abstract]
Convertible price per share for outstanding eBio shares (in dollars per share)		$ 38.18
Revenue, Net, eBioscience specific	$ 37,011
Net Loss, eBioscience specific	8,941
Total purchase price		314,891
Business Acquisition, Cost of Acquired Entity, Acceleration of Stock Options	8,265	8,265
Business Acquisition, Cost of Acquired Entity, Purchase Price		306,626
Debt Instrument, 4.00% Interest Rate, Stated Percentage	4.00%	4.00%
Business Acquisition, Components of Cash Paid for Acquisition [Line Items]
Acquisition consideration		306,626
Share-based compensation expense	8,265	8,265
Total purchase price		314,891
Determination of Fair Value of Acquired Assets and Assumed Liabilities - Initial [Member]
ACQUISITION [Abstract]
Total purchase price		315,106
Business Acquisition, Cost of Acquired Entity, Acceleration of Stock Options		8,265
Business Acquisition, Cost of Acquired Entity, Purchase Price		306,841
Business Acquisition, Components of Cash Paid for Acquisition [Line Items]
Acquisition consideration		306,841
Share-based compensation expense		8,265
Total purchase price		315,106
Measurement Period Adjustments for Purchase Accounting [Member]
ACQUISITION [Abstract]
Total purchase price		(215)
Business Acquisition, Cost of Acquired Entity, Acceleration of Stock Options		0
Business Acquisition, Cost of Acquired Entity, Purchase Price		(215)
Business Acquisition, Components of Cash Paid for Acquisition [Line Items]
Acquisition consideration		(215)
Share-based compensation expense		0
Total purchase price		(215)
Determination of Fair Value of Acquired Assets and Assumed Liabilities- Final [Member]
ACQUISITION [Abstract]
Total purchase price		314,891
Business Acquisition, Cost of Acquired Entity, Acceleration of Stock Options		8,265
Business Acquisition, Cost of Acquired Entity, Purchase Price		306,626
Business Acquisition, Components of Cash Paid for Acquisition [Line Items]
Acquisition consideration		306,626
Share-based compensation expense		8,265
Total purchase price		$ 314,891

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STOCKHOLDERS' EQUITY AND SHARE-BASED COMPENSATION EXPENSE, Stock Plans and Share-Based Compensation (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Jun. 25, 2012
Stockholders Equity And Share Based Compensation Expense [Abstract]
Convertible preferred stock, Shares authorized (in shares)	5,000	5,000
Convertible preferred stock, Par value (in dollars per share)	$ 0.01	$ 0.01
Convertible preferred stock, Shares issued (in shares)	0	0
Convertible preferred stock, Shares outstanding (in shares)	0	0
Common stock reserved for future issuance (in shares)	5,262
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options issue price as percentage of fair value (in hundredths)	100.00%
Number of additional shares authorized (in shares)	4,500
Recognized share-based compensation expense [Abstract]
Total stock-based compensation expense	$ 17,207	$ 8,771	$ 9,910
Business Acquisition, Cost of Acquired Entity, Acceleration of Stock Options	8,265			8,265
Unrecognized share-based compensation expense	14,414
Weighted-average term of unrecognized share-based compensation expense	2 years 7 months 6 days
Costs of sales [Member]
Recognized share-based compensation expense [Abstract]
Total stock-based compensation expense	1,554	1,143	994
Research and development [Member]
Recognized share-based compensation expense [Abstract]
Total stock-based compensation expense	1,337	1,850	2,136
Selling, general and administrative [Member]
Recognized share-based compensation expense [Abstract]
Total stock-based compensation expense	$ 14,316	$ 5,778	$ 6,780
Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expiration period - beginning	7 years
Expiration period - ending	10 years
Vesting period	4 years
RSA [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	4 years
Vesting basis	one-for-one
Stock Plan 1998 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expiration period - ending	10 years
Number of shares authorized under plan (in shares)	3,600
Stock Plan 2000 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized under plan (in shares)	16,200
Stock Plan 2012 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized under plan (in shares)	2,000

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FINANCIAL INSTRUMENTS, Available-For-Sale Securities (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Summary of available-for-sale securities [Abstract]
Amortized Cost	$ 9,263	$ 62,325
Gross Unrealized Gains	103	483
Gross Unrealized Losses	0	(370)
Fair Value	9,366	62,438
Maximum realized gains on available for sale securities	549	637
Available-for-sale Securities, Realized Losses, Excluding Other than Temporary Impairments	61	1,613
Impairment charges	0	774
U.S. government obligations and agency securities [Member]
Summary of available-for-sale securities [Abstract]
Amortized Cost	6,775	19,421
Gross Unrealized Gains	54	177
Gross Unrealized Losses	0	0
Fair Value	6,829	19,598
U.S. corporate debt [Member]
Summary of available-for-sale securities [Abstract]
Amortized Cost	651	24,942
Gross Unrealized Gains	13	259
Gross Unrealized Losses	0	(101)
Fair Value	664	25,100
Foreign government obligations and agency securities [Member]
Summary of available-for-sale securities [Abstract]
Amortized Cost		2,805
Gross Unrealized Gains		6
Gross Unrealized Losses		(1)
Fair Value		2,810
Foreign corporate debt and equity securities [Member]
Summary of available-for-sale securities [Abstract]
Amortized Cost	1,837	15,157
Gross Unrealized Gains	36	41
Gross Unrealized Losses	0	(268)
Fair Value	$ 1,873	$ 14,930

XML

INCOME TAXES, Effective Tax Rate Reconciliation (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	12 Months Ended
	Jun. 30, 2012	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Income Taxes [Abstract]
Federal statutory income tax rate (in hundredths)		35.00%
Income tax reconciliation [Abstract]
Tax at federal statutory rate		$ (16,292)	$ (9,364)	$ (2,822)
State taxes, net		(1,136)	(1,740)	(1,646)
Non-deductible stock compensation		3,470	453	626
Non-deductible acquisition costs		410	878	0
Foreign rate differential		4,353	1,274	(547)
Research credits		0	(692)	(991)
Change in valuation allowance		(26,795)	10,461	7,026
Other		137	135	524
Income tax (benefit) provision		(35,853)	1,405	2,170
Income tax (benefit) provision related to acquisition after recast	$ 37,093	$ 37,093	$ 0	$ 0

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UNAUDITED QUARTERLY FINANCIAL INFORMATION (Tables)

12 Months Ended

Dec. 31, 2012

UNAUDITED QUARTERLY FINANCIAL INFORMATION [Abstract]

Schedule of Quarterly Financial Information

	2012											2011
	Fourth			Third			Second		First			Fourth			Third			Second			First
	Quarter			Quarter			Quarter (1)		Quarter			Quarter			Quarter			Quarter			Quarter
	(in thousands, except per share amounts)
Total revenue	$	84,349		$	79,624		$	66,403	$	65,247		$	65,104		$	63,987		$	64,659		$	73,724
Total cost of goods sold		39,171			37,938			27,682		27,344			30,412			27,648			25,793			27,099
Net (loss) income		(12,269	)		(17,859	)		23,649		(4,217	)		(14,739	)		(9,789	)		(3,672	)		39
Basic net (loss) income per common share		(0.17	)		(0.25	)		0.34		(0.06	)		(0.21	)		(0.14	)		(0.05	)		0.00
Diluted net (loss) income per common share		(0.17	)		(0.25	)		0.33		(0.06	)		(0.21	)		(0.14	)		(0.05	)		0.00

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ACQUISITION (Tables)

12 Months Ended

Dec. 31, 2012

ACQUISITION [Abstract]

Total purchase price

The following table summarizes the accounting treatment of the purchase price paid (in thousands):

	Before					After
	Adjustment					Adjustment
	of Final		Measurement			of Final
	Determination		Period			Determination
	of Fair Value		Adjustments			of Fair Value
Purchase consideration	$	306,841	$	(215	)	$	306,626
Share-based compensation expense		8,265		-			8,265
Total purchase price	$	315,106	$	(215	)	$	314,891

Provisional fair values of assets acquired, liabilities assumed and goodwill

The following table summarizes the fair values of assets acquired, liabilities assumed and goodwill (in thousands), as well as retrospective measurement period adjustments made during the year ended December 31, 2012:

	Before						After
	Adjustment						Adjustment
	of Final			Measurement			of Final
	Determination			Period			Determination
	of Fair Value(1)			Adjustments(2)			of Fair Value
Cash and cash equivalents	$	7,095		$	-		$	7,095
Accounts receivable, net		9,488			(8	)		9,480
Inventories		52,060			(1,380	)		50,680
Prepaid expenses and other assets		7,844			575			8,419
Property and equipment		5,969			551			6,520
Intangible assets		159,755			(22,155	)		137,600
Other non-current assets		1,769			(328	)		1,441
Identifiable assets acquired		243,980			(22,745	)		221,235
Accounts payable and accrued liabilities		(18,681	)		(2,691	)		(21,372	)
Deferred tax liability		(55,542	)		8,658			(46,884	)
Other non-current liabilities		(3,241	)		(225	)		(3,466	)
Identifiable liabilities acquired		(77,464	)		5,742			(71,722	)
Goodwill		140,325			16,788			157,113
Purchase consideration	$	306,841		$	(215	)	$	306,626

(1) As previously reported in the notes to the Condensed Consolidated Financial Statements included in the Company's Quarterly Report on Form 10-Q as of June 30, 2012 and for the three and six months then ended.

(2) During the second half of 2012, the Company finalized the valuations of the fair value of certain asset and liabilities included in the Acquisition resulting in the measurement period adjustments detailed above, including reducing the fair  value of certain intangible assets by $22.2 million to better reflect market participant assumptions about the facts and circumstances existing as of the Acquisition Date.

Definite-lived intangible assets acquired and their estimated useful lives

The following table summarizes the fair value of definite-lived intangible assets acquired at the Acquisition Date and their estimated useful lives (in thousands, except for estimated useful lives):

				Estimated
	Fair Value			Useful Life
Purchased intangible assets:
Customer base		$	61,100	12 years
Developed technologies			58,000	12 years
Trademarks and tradenames			15,500	5 years
Other contractual agreements			3,000	2 years
Total		$	137,600

Unaudited pro forma financial information

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information presents the combined results of operations for the years ended December 31, 2012 and 2011 as if the Acquisition had been completed on January 1, 2011, with adjustments to give effect to pro forma events that are directly attributable to the Acquisition. The unaudited pro forma results do not reflect any operating efficiencies or potential cost savings that may result from the consolidation of the operations of the Company and eBioscience. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the Acquisition had occurred at the beginning of the period presented, nor are they indicative of future results of operations (in thousands, except per share data):

	Years Ended December 31,
	2012			2011
Revenue	$	331,370		$	338,416
Net loss		(35,500	)		(24,529	)
Basic and diluted net loss per share		(0.50	)		(0.35	)

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INCOME TAXES, Deferred Tax Assets and Liabilities (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	12 Months Ended
	Jun. 30, 2012	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Deferred tax assets [Abstract]
Net operating loss carryforwards		$ 75,622	$ 57,677
Tax credit carryforwards		50,704	47,513
Deferred revenue		1,537	1,632
Capitalized research and development costs		394	487
Intangibles		21,175	20,462
Share-based compensation		5,808	4,284
Accrued compensation		1,775	2,025
Accrued warranty		446	570
Inventory reserves		5,664	4,860
Reserves and other		13,216	10,928
Depreciation and amortization		6,731	21,323
Other, net		6,069	1,742
Total deferred tax assets		189,141	173,503
Valuation allowance for deferred tax assets		(130,979)	(154,107)	(142,565)
Net deferred tax assets		58,162	19,396
Net deferred tax liabilities [Abstract]
Acquired intangibles		(45,397)	(2,459)
Acquired tangibles		(7,701)	0
Cancellation of debt		(9,669)	(9,669)
Deferred tax liabilities, undistributed foreign earnings		(3,282)	(5,139)
Other, net		(1,296)	(1,315)
Total deferred tax liabilities		(67,345)	(18,582)
Net deferred tax assets		(9,183)	814
Operating Loss Carryforwards [Line Items]
Operating loss carryforwards		356,106
Research and development tax credit carryforwards		23,683	41,284
Increase in valuation allowance		23,128	11,542
Income tax (benefit) provision related to acquisition after recast	37,093	37,093	0	0
Valuation allowance attributable to tax benefits of share based compensation		26,500
Tax benefits related to share based compensation not included in the deferred tax assets		4,808
Tax holidays and tax incentive programs expiration		12/31/2017
Federal [Member]
Operating Loss Carryforwards [Line Items]
Operating loss carryforwards		210,405
State [Member]
Operating Loss Carryforwards [Line Items]
Operating loss carryforwards		$ 145,701

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STOCKHOLDERS' EQUITY AND SHARE-BASED COMPENSATION EXPENSE, Performance-Based Awards (Details) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Stockholders Equity And Share Based Compensation Expense [Abstract]
PRSU: Award requisite service period	4 years
2011 CEO PRSU grants: Grants in period, Net of forfeitures (in shares)	240,000
Actual 2011 CEO PRSU Grants Achieved	60,000
2011 CEO PRSU grants: Grant date intrinsic value achieved (in dollars per share)	$ 4.63	$ 6.71
Expected 2011 CEO PRSU grants to be achieved (in shares)	15,000
2011 CEO PRSU grants: Nonvested awards, Compensation cost not yet recognized	$ 37
PRSUs granted, excluding 2011 CEO grants	916,500
Share-based compensation arrangement by share-based payment award, options, Grants in Period, Grant Date Intrinsic Value PRSUs, excluding 2011 CEO grants	$ 4.16
Expected PRSUs Granted, excluding 2011 CEO grants, to be Achieved	78.00%
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not Yet Recognized PRSU, excluding 2011 CEO grants	$ 1,643

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SUBSEQUENT EVENTS (Details) (USD $) In Thousands, unless otherwise specified	2 Months Ended	12 Months Ended
	Mar. 01, 2013	Dec. 31, 2012
SUBSEQUENT EVENTS [Abstract]
Repurchase of Convertible Debt, including accrued interest	$ 3,922	$ 92,059
Debt Instrument, 3.50% Convertible, Interest Expense	$ 67	$ 445

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FINANCIAL INSTRUMENTS, Non-Marketable Securities (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
FINANCIAL INSTRUMENTS [Abstract]
Carrying value of non marketable securities after recording OTTI	$ 4,397	$ 5,007
Recorded impairment charges on non marketable securities	$ 0	$ 1,347

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INCOME TAXES, (Loss) Income Before Taxes (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
(Loss) Income Before Income Taxes:
U.S.	$ (36,248)	$ (26,778)	$ (15,722)
Foreign	(10,301)	22	7,659
Loss before income taxes	$ (46,549)	$ (26,756)	$ (8,063)

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RELATED PARTY TRANSACTIONS (Details) (USD $)	12 Months Ended
	Dec. 31, 2012
RELATED PARTY TRANSACTIONS [Abstract]
Minimum royalty fee from related party	$ 100,000
Royalties earned	$ 0

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SEGMENT AND GEOGRAPHIC INFORMATION, Revenue and Income (Loss) From Operations (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Segment Reporting Information [Line Items]
Segment Reporting Information, Revenue for Reportable Segment	$ 272,116	$ 242,307
Segment Reporting Information, Income (Loss) from Operations for Reportable Segment	26,438	55,659
Affymetrix Core [Member]
Segment Reporting Information [Line Items]
Segment Reporting Information, Revenue for Reportable Segment	235,105	242,307
Segment Reporting Information, Income (Loss) from Operations for Reportable Segment	35,230	55,659
eBioscience [Member]
Segment Reporting Information [Line Items]
Segment Reporting Information, Revenue for Reportable Segment	37,011	0
Segment Reporting Information, Income (Loss) from Operations for Reportable Segment	$ (8,792)	$ 0

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UNAUDITED QUARTERLY FINANCIAL INFORMATION (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Jun. 25, 2012
Quarterly financial information [Abstract]
Total revenue	$ 84,349	$ 79,624	$ 65,247	$ 66,403	$ 65,104	$ 63,987	$ 64,659	$ 73,724	$ 295,623	$ 267,474	$ 310,746
Total cost of goods sold	39,171	37,938	27,682	27,344	30,412	27,648	25,793	27,099
Net (loss) income	(12,269)	(17,859)	23,649	(4,217)	(14,739)	(9,789)	(3,672)	39	(10,696)	(28,161)	(10,233)
Basic net (loss) income per common share (in dollars per share)	$ (0.17)	$ (0.25)	$ 0.34	$ (0.06)	$ (0.21)	$ (0.14)	$ (0.05)	$ 0.00
Diluted net (loss) income per common share (in dollars per share)	$ (0.17)	$ (0.25)	$ 0.33	$ (0.06)	$ (0.21)	$ (0.14)	$ (0.05)	$ 0.00
Income Tax (Benefit) provision acquisition adjustment	7,242								7,242			7,600
Income tax (benefit) provision related to acquisition before recast			44,315
Income tax (benefit) provision related to acquisition after recast			$ 37,093						$ 37,093	$ 0	$ 0

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INCOME TAXES, (Benefit) Provision For Income Taxes (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Current [Abstract]
Federal	$ (28)	$ 0	$ 0
State	568	106	37
Foreign	1,104	1,038	2,222
Subtotal	1,644	1,144	2,259
Deferred [Abstract]
Federal	(35,329)	0	0
State	(1,811)	0	0
Foreign	(357)	261	(89)
Subtotal	(37,497)	261	(89)
Income tax (benefit) provision	$ (35,853)	$ 1,405	$ 2,170

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STOCKHOLDERS' EQUITY AND SHARE-BASED COMPENSATION EXPENSE, Stock Options (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2012
Fair value of options estimated at the date of grant with weighted average assumptions [Abstract]
Risk free interest rate (in hundredths)	0.60%	1.50%	1.10%
Expected dividend yield (in hundredths)	0.00%	0.00%	0.00%
Expected volatility (in hundredths)	67.00%	67.00%	76.00%
Expected option term (in years)	4 years 7 months 6 days	4 years 6 months	4 years 1 month 6 days
Term of historical trend	10 years
Weighted average grant date fair value of options granted (in dollars per share)	$ 2.14	$ 2.86	$ 2.66
Options, Outstanding [Roll Forward]
Outstanding at beginning of the period (in shares)	6,276
Grants (in shares)	1,159
Exercises (in shares)	(109)
Forfeitures or expirations (in shares)	(1,225)
Outstanding at end of the period (in shares)	6,101	6,276
Exercisable (in shares)	3,175
Vested and expected to vest (in shares)	5,616
Weighted Average Exercise Price Per Share [Roll Forward]
Outstanding at beginning of the period (in dollars per share)	$ 9.41
Grants (in dollars per share)	$ 4.03
Exercises (in dollars per share)	$ 3.51
Forfeitures or expirations (in dollars per share)	$ 13.08
Outstanding at end of the period (in dollars per share)	$ 7.75	$ 9.41
Exercisable (in dollars per share)	$ 10.52
Vested and expected to vest (in dollars per share)	$ 8.03
Weighted-Average Remaining Contractual Terms [Abstract]
Outstanding at end of the period	4 years 5 months 12 days
Exercisable	3 years 3 months 18 days
Vested and expected to vest	4 years 3 months 7 days
Aggregate Intrinsic Value [Abstract]
Outstanding at end of the period	$ 85,529
Exercisable	70,079
Vested and expected to vest	85,444
Options outstanding and exercisable [Abstract]
Number of Options Outstanding (in shares)	6,101
Options Outstanding, Weighted-Average Remaining Contractual Life (in years)	4 years 5 months 1 day
Option Outstanding, Weighted-Average Exercise Price Per Share (in dollars per share)	$ 7.75
Number of Option Exercisable (in shares)	3,175
Option Exercisable, Weighted-Average Exercise Price Per Share (in dollars per share)				$ 10.52
Total intrinsic value of options exercised	$ 115	$ 399	$ 249
Reserved Shares [Abstract]
Options outstanding (in shares)	6,101	6,276
Options available for future grants (in shares)	5,262
Common stock reserved for convertible subordinated notes (in shares)	17,985
Total shares reserved (in shares)	29,348
Range $ 2.63 - 3.22 [Member]
Options outstanding and exercisable [Abstract]
Range Exercise Price , Lower Range Limit (in dollars per share)	$ 2.63
Range of Exercise Price, Upper Range Limit (in dollars per share)	$ 3.22
Number of Options Outstanding (in shares)	393
Options Outstanding, Weighted-Average Remaining Contractual Life (in years)	3 years 6 months 25 days
Option Outstanding, Weighted-Average Exercise Price Per Share (in dollars per share)	$ 2.95
Number of Option Exercisable (in shares)	253
Option Exercisable, Weighted-Average Exercise Price Per Share (in dollars per share)				$ 2.89
Range $ 3.32 - 4.16 [Member]
Options outstanding and exercisable [Abstract]
Range Exercise Price , Lower Range Limit (in dollars per share)	$ 3.32
Range of Exercise Price, Upper Range Limit (in dollars per share)	$ 4.16
Number of Options Outstanding (in shares)	954
Options Outstanding, Weighted-Average Remaining Contractual Life (in years)	6 years 5 months 8 days
Option Outstanding, Weighted-Average Exercise Price Per Share (in dollars per share)	$ 3.92
Number of Option Exercisable (in shares)	54
Option Exercisable, Weighted-Average Exercise Price Per Share (in dollars per share)				$ 3.85
Range $ 4.21 - 4.22 [Member]
Options outstanding and exercisable [Abstract]
Range Exercise Price , Lower Range Limit (in dollars per share)	$ 4.21
Range of Exercise Price, Upper Range Limit (in dollars per share)	$ 4.22
Number of Options Outstanding (in shares)	848
Options Outstanding, Weighted-Average Remaining Contractual Life (in years)	4 years 7 months 20 days
Option Outstanding, Weighted-Average Exercise Price Per Share (in dollars per share)	$ 4.22
Number of Option Exercisable (in shares)	409
Option Exercisable, Weighted-Average Exercise Price Per Share (in dollars per share)				$ 4.22
Range $ 4.26 - 4.85 [Member]
Options outstanding and exercisable [Abstract]
Range Exercise Price , Lower Range Limit (in dollars per share)	$ 4.26
Range of Exercise Price, Upper Range Limit (in dollars per share)	$ 4.85
Number of Options Outstanding (in shares)	797
Options Outstanding, Weighted-Average Remaining Contractual Life (in years)	5 years 7 months 28 days
Option Outstanding, Weighted-Average Exercise Price Per Share (in dollars per share)	$ 4.73
Number of Option Exercisable (in shares)	202
Option Exercisable, Weighted-Average Exercise Price Per Share (in dollars per share)				$ 4.75
Range $ 4.88 - 5.74 [Member]
Options outstanding and exercisable [Abstract]
Range Exercise Price , Lower Range Limit (in dollars per share)	$ 4.88
Range of Exercise Price, Upper Range Limit (in dollars per share)	$ 5.74
Number of Options Outstanding (in shares)	803
Options Outstanding, Weighted-Average Remaining Contractual Life (in years)	4 years 8 months 23 days
Option Outstanding, Weighted-Average Exercise Price Per Share (in dollars per share)	$ 5.37
Number of Option Exercisable (in shares)	362
Option Exercisable, Weighted-Average Exercise Price Per Share (in dollars per share)				$ 5.41
Range $ 5.78 - 8.29 [Member]
Options outstanding and exercisable [Abstract]
Range Exercise Price , Lower Range Limit (in dollars per share)	$ 5.78
Range of Exercise Price, Upper Range Limit (in dollars per share)	$ 8.29
Number of Options Outstanding (in shares)	1,027
Options Outstanding, Weighted-Average Remaining Contractual Life (in years)	4 years 5 months 19 days
Option Outstanding, Weighted-Average Exercise Price Per Share (in dollars per share)	$ 7.33
Number of Option Exercisable (in shares)	616
Option Exercisable, Weighted-Average Exercise Price Per Share (in dollars per share)				$ 7.45
Range $ 8.71 - 19.92 [Member]
Options outstanding and exercisable [Abstract]
Range Exercise Price , Lower Range Limit (in dollars per share)	$ 8.71
Range of Exercise Price, Upper Range Limit (in dollars per share)	$ 19.92
Number of Options Outstanding (in shares)	822
Options Outstanding, Weighted-Average Remaining Contractual Life (in years)	2 years 4 months 13 days
Option Outstanding, Weighted-Average Exercise Price Per Share (in dollars per share)	$ 12.52
Number of Option Exercisable (in shares)	822
Option Exercisable, Weighted-Average Exercise Price Per Share (in dollars per share)				$ 12.52
Range $ 20.90 - 57.08 [Member]
Options outstanding and exercisable [Abstract]
Range Exercise Price , Lower Range Limit (in dollars per share)	$ 20.90
Range of Exercise Price, Upper Range Limit (in dollars per share)	$ 57.08
Number of Options Outstanding (in shares)	457
Options Outstanding, Weighted-Average Remaining Contractual Life (in years)	1 year 3 months 25 days
Option Outstanding, Weighted-Average Exercise Price Per Share (in dollars per share)	$ 28.29
Number of Option Exercisable (in shares)	457
Option Exercisable, Weighted-Average Exercise Price Per Share (in dollars per share)				$ 28.29

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DEFINED-CONTRIBUTION SAVINGS PLANS

12 Months Ended

Dec. 31, 2012

DEFINED-CONTRIBUTION SAVINGS PLANS [Abstract]

DEFINED-CONTRIBUTION SAVINGS PLANS

NOTE 18—DEFINED‑CONTRIBUTION SAVINGS PLANS

The Company maintains a defined‑contribution savings plan which is qualified under Section 401(k) of the Internal Revenue Code. The plan covers substantially all full-time U.S. employees. Participating employees may defer a portion of their pretax earnings, up to the Internal Revenue Service annual contribution limit. The Company's expense associated with matching employee contributions, including eBioscience, for the years ended December 31, 2012, 2011 and 2010 totaled $3.0 million, $3.0 million and $2.8 million, respectively. Company contributions to employees vest ratably over four years.

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ACQUISITION, Part III (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Jun. 25, 2012
Purchased intangible assets [Line Items]
Fair Value		$ 137,600
Customer relationships [Member]
Purchased intangible assets [Line Items]
Fair Value		61,100
Estimated Useful Life	12 years
Developed technologies [Member]
Purchased intangible assets [Line Items]
Fair Value		58,000
Estimated Useful Life	12 years
Trademarks and tradenames [Member]
Purchased intangible assets [Line Items]
Fair Value		15,500
Estimated Useful Life	5 years
Other contractual agreements [Member]
Purchased intangible assets [Line Items]
Fair Value		$ 3,000
Estimated Useful Life	2 years

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LONG-TERM DEBT OBLIGATIONS (Tables)

12 Months Ended

Dec. 31, 2012

LONG-TERM DEBT OBLIGATIONS [Abstract]

Schedule of Maturities of Long-term Debt

The Term Loan will amortize in quarterly installments in amounts resulting in an annual amortization of 10% during the first year, 15% during the second year, 15% during the third year, 20% during the fourth year and 40% during the fifth year after June 25, 2012. The principal amount of unpaid maturities per the Credit Agreement is as follows (in thousands):

For the Year Ending December 31,
2013	$	-
2014		12,713
2015		13,813
2016		17,000
2017		29,750
Total	$	73,276

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LEGAL PROCEEDINGS (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012
LEGAL PROCEEDINGS [Abstract]
Significant costs incurred in connection with administrative proceedings	$ 0

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PROPERTY AND EQUIPMENT (Tables)

12 Months Ended

Dec. 31, 2012

PROPERTY AND EQUIPMENT [Abstract]

Property and equipment

Property and equipment consists of the following as of December 31, 2012 and 2011 (in thousands):

	December 31,
	2012			2011 (1)
Property and equipment:
Construction-in-progress	$	1,790		$	838
Equipment and furniture		126,790			113,690
Building and leasehold improvements		54,579			96,390
Land		-			1,310
		183,159			212,228
Less: accumulated depreciation and amortization		(154,496	)		(172,645	)
Net property and equipment	$	28,663		$	39,583

(1) Included in the balance as of December 31, 2011 was the Company's West Sacramento facility that was reclassified to held-for-sale on the accompanying Consolidated Balance Sheets at an estimated fair value of $9.0 million at December 31, 2011. During the third quarter of 2012, the Company recognized an impairment of $4.0 million on the facility based on offers to purchase the property. During the fourth quarter of 2012, the Company sold the facility for gross proceeds of $5.8 million, which included $0.3 million in commissions and closing costs paid by the Company, and reduced the total impairment recognized in 2012 to $3.5 million.

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ACQUISITION, Part V (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended	12 Months Ended			24 Months Ended
	Jun. 30, 2012	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2012	Jun. 25, 2012
Unaudited pro forma financial information [Abstract]
Revenues		$ 331,370	$ 338,416
Net income (loss)		(35,500)	(24,529)
Diluted earnings per share (in dollars per share)		$ (0.50)	$ (0.35)
Business Acquisition, Cost of Acquired Entity, Acceleration of Stock Options		8,265			8,265	8,265
Income tax (benefit) provision related to acquisition after recast	37,093	37,093	0	0
Business Acquisition, Cost of Acquired Entity, Transaction Costs Duration		6,145	2,936		9,081
Business Acquisition, Cost of Acquired Entity, Transaction Costs incurred by eBioscience		$ 5,470	$ 644

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LONG-TERM DEBT OBLIGATIONS, Term Loan (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Jun. 25, 2012
LONG-TERM DEBT OBLIGATIONS [Abstract]
Original aggregate principal amount of term loan		$ 85,000
Original revolving credit facility		15,000
Maturity period	5 years
Amount of term loan borrowed as of balance sheet date	85,000	85,000
Debt Instrument, Applicable Interest Rate (in hundredths)	6.50%
Debt issuance cost related to term loan		4,500
Amortization period for debt issuance cost term loan		5 years
Outstanding principal balance of term loan as of balance sheet date	73,276
Interest expense incurred	$ 3,586

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INVENTORIES, Fair Value Step-Up in Basis (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Jun. 25, 2012
INVENTORIES [Abstract]
Business Combination, Recognized Identifiable Assets Acquired And Liabilities Assumed Inventory	$ 41,354
Inventory, Step Up Adjustment	19,543	28,987
Cost of goods sold inventory step-up, amortization	$ 9,444

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]
Foreign currency transaction gains and losses	$ 1,259	$ 2,483	$ 48
Ownership interest in a limited partnership investment fund (in hundredths)	6.00%
Impairment charges	0	774
Impairment of investment in limited partnership investment fund	0	1,347
Sales price of long-lived assets held for sale	5,752
Commissions and closing costs on sale of long-lived assets held for sale	247
Long Lived Assets Held-for-sale, Proceeds from Sale	5,508
Finite-Lived Intangible Asset, Weighted Average Period before Next Renewal or Extension Beginning	1 year
Finite-Lived Intangible Asset, Weighted Average Period before Next Renewal or Extension Ending	12 years
Goodwill impairment	0
Impairment of Long-Lived Assets Held-for-use	1,710	348
Amortization of software development costs	522	695	695
Amount capitalized for internal-use software	364	0
Accumulated amortization of internal-use software	819
Advertising costs recorded	2,031	641	1,182
Requisite service period	4 years
Components of accumulated other comprehensive income, net of tax [Abstract]
Foreign currency translation adjustment	5,374	821
Unrealized gains on available-for-sale and non-marketable securities	896	845
Unrealized gains on cash flow hedges	32	826
Accumulated other comprehensive income, net of tax	$ 6,302	$ 2,492
Securities excluded from diluted earnings per common share [Abstract]
Securities excluded from diluted earnings per common share (in shares)	19,944	12,106	11,758
Employee stock options [Member]
Securities excluded from diluted earnings per common share [Abstract]
Securities excluded from diluted earnings per common share (in shares)	6,101	6,276	6,636
Employee stock purchase plan [Member]
Securities excluded from diluted earnings per common share [Abstract]
Securities excluded from diluted earnings per common share (in shares)	210	64	0
Restricted stock and restricted stock units [Member]
Securities excluded from diluted earnings per common share [Abstract]
Securities excluded from diluted earnings per common share (in shares)	3,734	2,597	1,953
Convertible notes [Member]
Securities excluded from diluted earnings per common share [Abstract]
Securities excluded from diluted earnings per common share (in shares)	9,899	3,169	3,169

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2012

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Affymetrix and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The consolidated financial statements include the results of companies acquired by us from the date of each acquisition for the applicable reporting periods.

Certain prior year amounts on the accompanying Consolidated Statements of Cash Flows have been reclassified to conform to the current period presentation.

USE OF ESTIMATES

The preparation of the consolidated financial statements is in conformity with U.S. generally accepted accounting principles ("US GAAP") which require management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates.

BUSINESS COMBINATIONS

The Company's condensed consolidated financial statements include the operations of an acquired business after the completion of the acquisition. The Company accounts for acquired businesses using the acquisition method of accounting which requires, among other things, that assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date, while transaction costs are expensed as incurred, except for any debt and equity issuance costs. The measurement of the fair value of assets acquired and liabilities assumed requires significant judgment. Any excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill.

FOREIGN CURRENCY

Certain operations from foreign subsidiaries of the Company have a functional currency other than the U.S. dollar. All other subsidiaries have the U.S. dollar as their functional currency.

Assets and liabilities of non-U.S. subsidiaries that use the local currency as their functional currency are translated to U.S. dollars at exchange rates in effect at the balance sheet date with the resulting translation adjustments directly recorded to a separate component of accumulated other comprehensive income (loss) within stockholders' equity. Income and expense accounts are translated at average exchange rates during the year. Foreign currency transaction gains and losses are recognized, net of hedging activity, in interest income and other, net and were comprised of net losses of $1.3 million, $2.5 million and less than $0.1 million for the years ended December 31, 2012, 2011 and 2010, respectively.

The Company's subsidiaries that use the U.S. dollar as their functional currency remeasure monetary assets and liabilities at exchange rates in effect at the end of each period, and inventories, property and nonmonetary assets and liabilities at historical rates. Gains and losses from these remeasurements were insignificant and have been included in the Company's results of operations.

CASH EQUIVALENTS, AVAILABLE-FOR-SALE SECURITIES AND INVESTMENTS

Restricted Cash

The Company's restricted cash balances consist primarily of outstanding letters of credits that are fully cash collateralized and reserves for value added tax in foreign locations.

Marketable Securities

The Company's investments consist of marketable equity and debt securities, including U.S. government notes and bonds; corporate notes, bonds and asset‑backed securities; mortgage‑backed securities, municipal notes and bonds; and publicly traded equity securities. The Company reports all securities with maturities at the date of purchase of 90 days or less that are readily convertible into cash and have insignificant interest rate risk as cash equivalents. The Company's investments are carried at fair value with unrealized gains and losses reported in accumulated other comprehensive income (loss) in stockholders' equity. The cost of its marketable securities is adjusted for the amortization of premiums and discounts to maturity. This amortization is included in interest income and other, net. Realized gains and losses, as well as interest income, on available-for-sale securities are also included in interest income and other, net. The cost of securities sold is based on the specific identification method. The fair values of securities are based on quoted market prices. The Company has classified its available-for-sale securities in current assets on the accompanying Consolidated Balance Sheets as it expects to liquidate the securities within the next twelve months.

Non-marketable Securities

As part of the Company's strategic efforts to gain access to potential new products and technologies, the Company owns an approximately 6% interest in a limited partnership investment fund that is accounted for under the equity method and included in other long-term assets in the accompanying Consolidated Balance Sheets.

Other-than-temporary Impairment

All of the Company's marketable and non-marketable securities are subject to quarterly reviews for impairment that is deemed to be other-than-temporary ("OTTI"). An investment is considered other-than-temporarily impaired when its fair value is below its amortized cost and (1) the Company intends to sell the security; (2) it is "more likely than not" that the Company will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not expected to recover the entire amortized cost basis. Below is a summary of the Company's analysis:

· Marketable securities –As part of its review, the Company is required to take into consideration current market conditions, extent and nature of change in fair value, issuer rating changes and trends, volatility of earnings, current analysts' evaluations, all available information relevant to the collectability of debt securities and other factors when evaluating for the existence of OTTI in its securities portfolio. OTTI is separated into credit-related losses, which exist when amortized cost basis is not expected to be fully recovered, and non-credit related losses, which are the result of all other factors, such as illiquidity. Any credit-related OTTI is recognized in earnings while noncredit-related OTTI is recorded in other comprehensive income (loss) ("OCI"). No impairment charges were recognized on its marketable securities during the year ended December 31, 2012. During the year ended December 31, 2011, the Company recorded an impairment charge of $0.8 million due to OTTI of its investment in a publicly-traded company. Refer to Note 6. "Financial Instruments – Investments in Debt and Equity Securities" for further information.

· Non-marketable securities – The Company periodically monitors the liquidity and financing activities of its non-marketable securities to determine if any impairment exists and accordingly writes down, to the extent necessary, the carrying value of the non-marketable equity securities to their estimated fair values. In order to determine whether a decline in value is other-than-temporary, the Company evaluates, among other factors: the duration and extent to which the fair value has been less than the carrying value; the financial condition of and business outlook of the issuer, including key operational and cash flow metrics, current market conditions; and the Company's intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in estimated fair value. No impairment charges were recognized on its non-marketable securities during the year ended December 31, 2012. During the year ended December 31, 2011, the Company recorded impairment charges totaling $1.3 million, primarily related to its investment in a limited partnership investment fund. Refer to Note 6. "Financial Instruments – Non-Marketable Securities" for further information.

ACCOUNTS RECEIVABLE

Trade accounts receivable are recorded at net invoice value. The Company considers amounts past due based on the related terms of the invoice. The Company reviews its exposure to amounts receivable and provides an allowance for specific amounts if collectability is no longer reasonably assured. The Company also provides an allowance for a percentage of the gross trade receivable balance (excluding any specifically reserved amounts) based on its collection history. The allowance for doubtful accounts was not material at December 31, 2012 and 2011.

DERIVATIVE INSTRUMENTS

The Company accounts for its derivative instruments as either assets or liabilities and carries them at fair value. Derivatives that are not defined as hedges must be adjusted to fair value through earnings at each reporting date.

For derivative instruments that hedge the exposure to variability in expected future cash flows that are designated as cash flow hedges, the Company measures the effectiveness of the derivative instruments by comparing the cumulative change in the hedge contract with the cumulative change in the hedged item. The effective portion of the gain or loss on the derivative instrument is reported as a component of OCI in stockholders' equity and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The ineffective portion of the gain or loss on the derivative instrument is recognized in current earnings. To receive hedge accounting treatment, cash flow hedges must be highly effective in offsetting changes to expected future cash flows on hedged transactions. The net gain or loss on the effective portion of a derivative instrument that is designated as an economic hedge of the foreign currency translation exposure of the net investment in a foreign operation is reported in the same manner as a foreign currency translation adjustment. Refer to Note 6. "Financial Instruments – Derivative Financial Instruments" for further information.

INVENTORIES

Inventory cost is computed on an adjusted standard basis (which approximates actual cost on a first-in, first-out basis). Provisions for slow moving, potentially excess and obsolete inventories are provided based on estimated demand requirements, product life cycle and development plans, component cost trends, product pricing, product expiration and quality issues.

Inventory that is not expected to be utilized until more than 12 months from the balance sheet date is classified as long-term. Estimating the level of inventory utilization for the upcoming 12 months requires management to exercise significant judgment. The Company maintains inventory levels in excess of 12 months for certain components of work-in-progress that have useful lives of up to 10 years. Carrying such levels of inventory impacts the Company's liquidity and cash flows since the inventory will not be converted to cash for more than one year.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the assets or the lease term, whichever is shorter. Equipment and furniture is depreciated over useful lives generally ranging from 3 to 7 years and leasehold improvements are depreciated over the shorter of the expected life of the asset or lease terms generally ranging from 3 to 15 years. Maintenance and repair costs are expensed as incurred. The Company reassesses the useful life on its property and equipment on a periodic basis and may adjust the lives accordingly.

In the fourth quarter of 2012, the Company sold its facility located in West Sacramento, California to a third-party for $5.8 million, which included $0.3 million of commissions and closing costs paid by the Company, and received $5.5 million in cash.

GOODWILL, INTANGIBLE ASSETS AND OTHER LONG-LIVED ASSETS

Goodwill represents the excess of the fair value of the acquired entity over the fair value of the net tangible and identifiable intangible assets acquired and liabilities assumed in a business combination. Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives which range from one to twelve years with the amortization recognized in either cost of revenue or operating expenses, as appropriate.

Goodwill is not subject to amortization, but is tested for impairment on an annual basis during the fourth quarter or whenever events or changes in circumstances indicate the carrying amount of these assets may not be recoverable. Goodwill impairment testing is a two-step process and performed on a reporting unit level. In the first step, the Company conducts an assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines that it is more likely than not that the fair value of its reporting unit is less than its carrying amount, it then conducts the second step, a two-part test for impairment of goodwill. The Company first compares the fair value of its reporting units to their carrying values. If the fair values of the reporting units exceed the carrying value of the net assets, goodwill is not considered impaired and no further analysis is required. If the carrying values of the net assets exceed the fair values of the reporting units, then the second part of the impairment test must be performed in order to determine the implied fair value of the goodwill. If the carrying value of the goodwill exceeds the implied fair value, then an impairment loss equal to the difference would be recorded. For 2012, the Company performed its annual goodwill impairment analysis during the fourth quarter of 2012 and concluded that goodwill is not impaired.

Finite-lived intangible assets and other long-lived assets are reviewed for impairment when facts or circumstances suggest that the carrying value of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written down to their estimated fair values. Additionally, during each period, the Company evaluates the estimated remaining useful lives of purchased finite-lived intangible assets and other long-lived assets to determine whether events or changes in circumstances warrant a revision to the remaining period of amortization. For the year ended December 31, 2012, no impairment charges were recognized. For the years ended December 31, 2011 and 2010, the Company recognized $1.7 million and $0.3 million, respectively, of impairment charges on its long-lived assets.

INCOME TAXES

Income tax expense is based on pre-tax financial accounting income. Under the liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company must then assess the likelihood that the resulting deferred tax assets will be realized. To the extent the Company believes that realization of the deferred tax assets is not more likely than not, the Company establishes a valuation allowance. Significant estimates are required in determining the Company's provision for income taxes, deferred tax assets and liabilities, any valuation allowance to be recorded against net deferred tax assets, and reserves for income tax related uncertainties. Some of these estimates are based on interpretations of existing tax laws or regulations. Various internal and external factors may have favorable or unfavorable effects on the Company's future effective tax rate. These factors include, but are not limited to, changes in overall levels of characterization and geographical mix of pretax earnings (losses), changes in tax laws, regulations and/or rates, changing interpretations of existing tax laws or regulations, changes in the valuation of deferred tax assets or liabilities, levels of research and development spending, nondeductible expenses, applicability of tax holidays, ultimate outcomes of income tax audits, and income tax impacts of any business combination transactions or changes in our equity structure. Relative to uncertain tax positions, the Company only recognizes the tax benefit if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the Company's financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

CONTINGENCIES

The Company is subject to various legal proceedings principally related to intellectual property matters. Based on the information available at the most recent balance sheet date, the Company assesses the likelihood of any material adverse judgments or outcomes that may result from these matters, as well as the range of possible or probable loss, if any. If losses are probable and reasonably estimable, the Company will record a reserve. Any reserves recorded may change in the future due to new developments in each matter.

REVENUE RECOGNITION

Overview

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is reasonably assured. In instances where final acceptance of the product or system is required or performance obligations remain, revenue is deferred until all the acceptance criteria or performance obligations have been met.

The Company derives the majority of its revenue from product sales of probe arrays, reagents, and related instrumentation that may be sold individually or combined with any of the Company's products, services or other sources of revenue. When a sale combines multiple elements upon delivery or performance of multiple products, services and/or rights to use assets, the Company allocates revenue for transactions or collaborations that include multiple elements to each unit of accounting based on its relative fair value or best estimate selling price, and recognizes revenue for each unit of accounting when the revenue recognition criteria have been met. The price charged when the element is sold separately generally determines fair value.

Effective January 1, 2010, the Company adopted Auditing Standards Update ("ASU") No. 2009-13, Revenue Recognition (ASC Topic 605) – Multiple-Deliverable Revenue Arrangements on a prospective basis, which establishes the relative selling price method whereby the Company is required to allocate consideration to all deliverables at the inception of the arrangement based on their relative selling prices. This change in accounting principle did not have a material impact on the Company's financial results.

Product Sales

Product sales include sales of probe arrays, reagents and related instrumentation. Probe array, reagent and instrumentation revenue is recognized when earned, which is generally upon shipment and transfer of title to the customer and fulfillment of any significant post-delivery obligations. Accruals are provided for anticipated warranty expenses at the time the associated revenue is recognized.

Services

Services revenue includes equipment service revenue; scientific services revenue, which includes associated consumables; and revenue from custom probe array design fees. Revenue from equipment service contracts are recognized ratably over the life of the contract.

Revenue from scientific and DNA analysis services are recognized upon shipment of the required data to the customer.

Revenue from custom probe array design fees associated with the Company's GeneChip^® CustomExpress™ and CustomSeq™ products are recognized when the associated products are shipped.

Royalties and Other Revenue

Royalties and other revenue include license revenue; royalties earned from third party license agreements; milestones and royalties earned from collaborative product development and supply agreements; subscription fees earned under GeneChip^® array access programs; and research revenue, which mainly consists of amounts earned under government grants.

License revenue is generally recognized upon the execution of an agreement or is recognized ratably over the period of expected performance.

Revenue from royalties is recognized under the terms of the related agreement.

The Company enters into collaborative arrangements which generally include a research and product development phase and a manufacturing and product supply phase. These arrangements may include up-front nonrefundable license fees, milestones, the rights to royalties based on the sale of final product by the partner, product supply agreements and distribution arrangements.

Any up-front, nonrefundable payments from collaborative product development agreements are recognized ratably over the research and product development period, and at-risk substantive based milestones are recognized when earned. Any payments received which are not yet earned are included in deferred revenue.

Transactions with Distributors

The Company recognizes revenue from transactions with distributors when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller's price is fixed or determinable, and collectability is reasonably assured. The Company's agreements with distributors do not include rights of return.

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses consist of costs incurred for internal, collaborative and grant‑sponsored research and development. Research and development expenses include salaries, contractor fees, building costs, utilities and allocations of shared corporate services. In addition, the Company funds research and development at other companies and research institutions under agreements which are generally cancelable. All such costs are charged to research and development expense as incurred.

SOFTWARE DEVELOPMENT COSTS

Development Costs of Software to Be Sold, Leased or Marketed

Certain software development costs subsequent to the establishment of technological feasibility are capitalized. The Company's software is deemed to have achieved technological feasibility at the point a working model of the software product is developed. For the years ended December 31, 2012 and 2011, the Company did not capitalize any software development costs. Amortization of such costs was $0.5 million for the year ended December 31, 2012 and $0.7 million for each of the years ended December 31, 2011 and 2010. The costs of developing routine software enhancements are expensed as research and development when incurred because of the short time between the determination of technological feasibility and the date of general release of the related products.

Internal-Use Software

For the year ended December 31, 2012, the Company capitalized $0.4 million of costs associated with internal-use software. There was nothing capitalized for the year ended December 31, 2011. All costs associated with software developed for internal use will be amortized from the time at which the software is ready for its intended use. As of December 31, 2012, the Company had recognized total cumulative amortization costs related to internal-use software of $0.8 million.

ADVERTISING COSTS

The Company expenses advertising costs as incurred. Advertising costs recorded for the years ended December 31, 2012, 2011 and 2010 were $2.0 million, $0.6 million and $1.2 million, respectively.

SHARE‑BASED COMPENSATION

The Company estimates the fair value of its option grants and shares sold under its Employee Stock Purchase Plan using the Black‑Scholes-Merton ("BSM") option pricing model. This model requires the use of certain estimates and assumptions such as the expected term of options, estimated forfeitures, expected volatility of the Company's stock price, expected dividends and the risk-free interest rate at the grant date to determine the fair value of the stock options. The fair value of its restricted stock, restricted stock units and performance based restricted stock units, collectively referred to as restricted stock awards ("RSAs"), is based on the market price of the Company's common stock on the grant date. The Company recognizes the fair value of its share-based compensation as expense on a straight-line basis over the requisite service period of each award, generally four years. Refer to Note 14. "Stockholders' Equity and Share-Based Compensation Expense" for further information.

COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) is comprised of net loss and other comprehensive income (loss). Other comprehensive income (loss) includes foreign currency translation adjustments, unrealized gains and losses on the Company's available-for-sale securities that are excluded from net loss and unrealized gains and losses on cash flow hedges. Total comprehensive income (loss) has been disclosed in the Company's Consolidated Statements of Comprehensive Loss.

At December 31, 2012 and 2011, the components of accumulated other comprehensive income, net of tax, are as follows (in thousands):

	Year Ended December 31,
	2012		2011
Foreign currency translation adjustment	$	5,374	$	821
Unrealized gains on available-for-sale and non-marketable securities		896		845
Unrealized gains on cash flow hedges		32		826
Accumulated other comprehensive income	$	6,302	$	2,492

NET LOSS PER COMMON SHARE

Basic net loss per common share is calculated using the weighted‑average number of common shares outstanding during the period less the weighted‑average shares subject to repurchase. Diluted net loss per common share gives effect to dilutive common stock subject to repurchase, stock options (calculated based on the treasury stock method), shares purchased under the employee stock purchase plan and convertible debt (calculated using an as-if-converted method).

Diluted earnings per share, if any, include certain potential dilutive securities from common stock subject to repurchase, outstanding stock options (on the treasury stock method), shares purchased under the employee stock purchase plan and convertible notes (on the as-if-converted basis). The potentially dilutive securities excluded from diluted earnings per common share on an actual outstanding basis, were as follows (in thousands):

	Year Ended December 31,
	2012		2011		2010
Employee stock options		6,101		6,276		6,636
Employee stock purchase plan		210		64		-
Restricted stock and restricted stock units		3,734		2,597		1,953
Convertible notes		9,899		3,169		3,169
Total		19,944		12,106		11,758

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2011, the FASB issued an amendment to an existing accounting standard which requires companies to present net income and other comprehensive income in one continuous statement or in two separate, but consecutive, statements. In addition, in December 2011, the FASB issued an amendment to an existing accounting standard which defers the requirement to present components of reclassifications of other comprehensive income on the face of the income statement. The Company adopted this guidance on January 1, 2012 on a retrospective basis and the adoption did not have a material effect on its consolidated financial statements.

In May 2011, the FASB issued a new accounting standard update, which amends the fair value measurement guidance and includes some enhanced disclosure requirements. The most significant change in disclosures is an expansion of the information required for Level 3 measurements based on unobservable inputs. The standard is effective for fiscal years beginning after December 15, 2011. The Company adopted this standard in the first quarter of 2012 and the adoption did not have a material impact on its financial statements and disclosures.

In September 2011, the FASB issued new guidance on testing goodwill for impairment. The new guidance allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. An entity is no longer required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The Company adopted this accounting standard in the fourth quarter of 2012 and completed its 2012 goodwill impairment analysis based on this guidance. The adoption of this guidance did not have a material impact on the accompanying Consolidated Financial Statements.

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PROPERTY AND EQUIPMENT (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	12 Months Ended
	Sep. 30, 2012	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Property, Plant and Equipment [Line Items]
Property and equipment		$ 183,159	$ 212,228
Less: accumulated depreciation and amortization		(154,496)	(172,645)
Net property and equipment		28,663	39,583
Sales price of long-lived assets held for sale		5,752
Commissions and closing costs on sale of long-lived assets held for sale		247
Facility held for sale, Estimated fair value			9,000
Depreciation expense		15,786	19,031	22,156
Impairment of property and equipment, net-held for sale	4,000
Long Lived Assets Held-for-sale, Final Impairment Charges		3,491	1,710	0
Construction in Progress [Member]
Property, Plant and Equipment [Line Items]
Property and equipment		1,790	838
Equipment and furniture [Member]
Property, Plant and Equipment [Line Items]
Property and equipment		126,790	113,690
Building and leasehold improvements [Member]
Property, Plant and Equipment [Line Items]
Property and equipment		54,579	96,390
Land [Member]
Property, Plant and Equipment [Line Items]
Property and equipment		$ 0	$ 1,310

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STOCKHOLDERS' EQUITY AND SHARE-BASED COMPENSATION EXPENSE (Tables)

12 Months Ended

Dec. 31, 2012

Stockholders Equity And Share Based Compensation Expense [Abstract]

Share-based compensation expense

The following table sets forth the total share-based compensation expense resulting from stock options and RSAs included in the accompanying Consolidated Statements of Operations (in thousands):

	Year Ended December 31,
	2012		2011		2010
Costs of product sales	$	1,554	$	1,143	$	994
Research and development		1,337		1,850		2,136
Selling, general and administrative (1)		14,316		5,778		6,780
Total share-based compensation expense	$	17,207	$	8,771	$	9,910

(1) Includes $8.3 million of share-based compensation expense related to the acceleration of unvested stock options in connection with the Acquisition during the year ended December 31, 2012

Fair value of options estimated at the date of grant with weighted-average assumptions

The fair value of options was estimated at the date of grant using the BSM option pricing model with the following weighted‑average assumptions:

	Year Ended December 31,
	2012			2011			2010
Risk free interest rate		0.6	%		1.5	%		1.1	%
Expected dividend yield		0.0	%		0.0	%		0.0	%
Expected volatility		67	%		67	%		76	%
Expected option term (in years)		4.6			4.5			4.1

Stock options plan activity

Activity under the Company's stock plans for the year ended December 31, 2012 is as follows (in thousands, except per share amounts):

				Weighted-Average		Weighted-Average		Aggregate
				Exercise Price		Remaining		Intrinsic
	Shares			Per Share		Contractual Terms		Value
						(in years)
Outstanding at December 31, 2011		6,276		$	9.41
Grants		1,159			4.03
Exercises		(109	)		3.51
Forfeitures or expirations		(1,225	)		13.08
Outstanding at December 31, 2012		6,101		$	7.75		4.42	$	85,529
Exercisable at December 31, 2012		3,175		$	10.52		3.30	$	70,079
Vested and expected to vest at December 31, 2012		5,616		$	8.03		4.27	$	85,444

Summary of outstanding and exercisable options

The following table summarizes information concerning currently outstanding and exercisable options at December 31, 2012:

Range of Exercise Prices				Options Outstanding						Options Exercisable
						Weighted-Average		Weighted-Average				Weighted-Average
						Remaining		Exercise Price				Exercise Price
Lower		Upper		Number		Contractual Life		Per Share		Number		Per Share
				(in thousands)		(in years)				(in thousands)
$	2.63	$	3.22		393		3.57	$	2.95		253	$	2.89
$	3.32	$	4.16		954		6.44	$	3.92		54	$	3.85
$	4.21	$	4.22		848		4.64	$	4.22		409	$	4.22
$	4.26	$	4.85		797		5.66	$	4.73		202	$	4.75
$	4.88	$	5.74		803		4.73	$	5.37		362	$	5.41
$	5.78	$	8.29		1,027		4.47	$	7.33		616	$	7.45
$	8.71	$	19.92		822		2.37	$	12.52		822	$	12.52
$	20.90	$	57.08		457		1.32	$	28.29		457	$	28.29
Total					6,101		4.42	$	7.75		3,175	$	10.52

Reserved shares

At December 31, 2012, the Company has shares reserved for future issuance as follows (in thousands):

Options outstanding	6,101
Options available for future grants	5,262
Convertible notes	17,985
Total at December 31, 2012	29,348

Summary of RSAs activity

The following table summarizes the Company's RSAs activity for the year ended December 31, 2012 (in thousands, except per share amounts):

	Number			Weighted-Average
	of Shares			Grant Date Fair Value
Restricted stock awards
Outstanding at December 31, 2011		540		$	7.32
Granted		-			-
Vested		(310	)		8.22
Forfeited		(63	)		6.64
Outstanding at December 31, 2012		167		$	5.89
Restricted stock units
Outstanding at December 31, 2011		2,057		$	4.74
Granted		1,451			4.09
Vested		(515	)		5.20
Forfeited		(302	)		4.69
Outstanding at December 31, 2012		2,691		$	4.31

Assumptions Used to Value Employees Stock Purchase Rights

During the years ended December 31, 2012 and 2011, the fair value of shares under the ESPP was estimated using the following assumptions:

	2012			2011
Risk free interest rate		0.1	%		0.1	%
Expected dividend yield		0.0	%		0.0	%
Expected volatility		64	%		67	%
Expected term (in years)		0.7			0.7

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SUBSEQUENT EVENTS

12 Months Ended

Dec. 31, 2012

SUBSEQUENT EVENTS [Abstract]

SUBSEQUENT EVENTS

NOTE 22—SUBSEQUENT EVENTS

During the first quarter of 2013, the Company redeemed its remaining outstanding 3.50% Notes due on January 15, 2015 for $3.9 million in total cash consideration, including accrued interest of $0.1 million. The notes were redeemed at par and the related deferred financing costs written off.

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RESTRUCTURING

12 Months Ended

Dec. 31, 2012

RESTRUCTURING [Abstract]

RESTRUCTURING [Text Block]

NOTE 21—RESTRUCTURING

In late 2012, the Company initiated a cost reduction action that included workforce. In January 2013, approximately 100 employees were notified of their involuntary termination. The Company estimates that the total restructuring charge associated with the plan will be approximately $6.8 million, substantially all of which is compensation and benefits afforded to terminated employees. The restructuring charges is expected to be recognized during the first quarter of 2013 in Restructuring expenses except for $1.8 million related to employees who were notified prior to December 31, 2012 and accrued and recognized in the accompanying Consolidated Financial Statements for the year ended December 31, 2012. The Company anticipates substantially all of the cash expenditures will be released during the first quarter of 2013. As of December 31, 2012, the Company had $1.8 million outstanding in Accounts payable and accrued liabilities on the accompanying Consolidated Balance Sheets.

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FINANCIAL INSTRUMENTS, Contractual Maturities of Available-For-Sale Securities (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Contractual maturities of available-for-sale securities [Abstract]
Less than one year	$ 7,083	$ 7,937
One to two years	664	25,785
More than two years	1,619	28,716
Total Available-For-Sale Securities	$ 9,366	$ 62,438

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INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2012

Income Taxes [Abstract]

Components of consolidated loss before income taxes

The following table presents the U.S. and foreign components of consolidated loss before income taxes (in thousands):

	Year Ended December 31,
	2012				2011				2010
(LOSS) INCOME BEFORE INCOME TAXES:
U.S.		$	(36,248	)		$	(26,778	)		$	(15,722	)
Foreign			(10,301	)			22				7,659
Loss before income taxes		$	(46,549	)		$	(26,756	)		$	(8,063	)

Provision (benefit) for income taxes

The following table presents the (benefit) provision for income taxes (in thousands):

	Year Ended December 31,
	2012			2011		2010
(BENEFIT) PROVISION FOR INCOME TAXES:
Current:
Federal	$	(28	)	$	-	$	-
State		568			106		37
Foreign		1,104			1,038		2,222
Subtotal		1,644			1,144		2,259
Deferred:
Federal		(35,329	)		-		-
State		(1,811	)		-		-
Foreign		(357	)		261		(89	)
Subtotal		(37,497	)		261		(89	)
Income tax (benefit) provision	$	(35,853	)	$	1,405	$	2,170

Difference between the provision (benefit) for income taxes and the amount computed by federal statutory income tax rate

The difference between the (benefit) provision for income taxes and the amount computed by applying the federal statutory income tax rate (35%) to loss before taxes is explained as follows (in thousands):

	Year Ended December 31,
	2012			2011			2010
Tax at federal statutory rate	$	(16,292	)	$	(9,364	)	$	(2,822	)
State taxes, net		(1,136	)		(1,740	)		(1,646	)
Non-deductible stock compensation		3,470			453			626
Non-deductible acquisition costs		410			878			-
Foreign rate differential		4,353			1,274			(547	)
Research credits		-			(692	)		(991	)
Change in valuation allowance		(26,795	)		10,461			7,026
Other		137			135			524
Income tax (benefit) provision	$	(35,853	)	$	1,405		$	2,170

Significant components of the deferred tax assets and liabilities

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's assets and liabilities are as follows (in thousands):

	December 31,
	2012			2011
Deferred tax assets:
Net operating loss carryforwards	$	75,622		$	57,677
Tax credit carryforwards		50,704			47,513
Deferred revenue		1,537			1,632
Capitalized research and development costs		394			487
Intangibles		21,175			20,462
Share-based compensation		5,808			4,284
Accrued compensation		1,775			2,025
Accrued warranty		446			570
Inventory reserves		5,664			4,860
Reserves and other		13,216			10,928
Depreciation and amortization		6,731			21,323
Other, net		6,069			1,742
Total deferred tax assets		189,141			173,503
Valuation allowance for deferred tax assets		(130,979	)		(154,107	)
Net deferred tax assets		58,162			19,396
Net deferred tax liabilities:
Acquired intangible assets		(45,397	)		(2,459	)
Acquired tangible assets		(7,701	)		-
Cancellation of debt		(9,669	)		(9,669	)
Foreign earnings		(3,282	)		(5,139	)
Other, net		(1,296	)		(1,315	)
Total deferred tax liabilities		(67,345	)		(18,582	)
Net deferred tax (liabilities) assets	$	(9,183	)	$	814

Unrecognized tax benefits

The following table presents the Company's total amount of gross unrecognized tax benefits (in thousands):

	2012			2011
Unrecognized tax benefits, beginning of year	$	16,480		$	20,758
Gross increases - tax positions in prior period		3,027			517
Gross decreases - tax positions in prior period		(376	)		(201	)
Gross increases - current period tax positions		1,282			1,203
Settlements		-			(5,797	)
Unrecognized tax benefits, end of year	$	20,413		$	16,480

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Schedule II-Valuation and Qualifying Accounts

12 Months Ended

Dec. 31, 2012

Schedule II-Valuation and Qualifying Accounts [Abstract]

Schedule II-Valuation and Qualifying Accounts

Schedule II—Valuation and Qualifying Accounts

(in thousands)

			Additions
	Balance at		Charged to
	Beginning of		Operations or			Write-offs, net			Balance at
	Period		Other Accounts			of recoveries			End of Period
Allowance for Doubtful Accounts:
Year Ended December 31, 2012 (1)	$	496	$	590		$	(395	)	$	691
Year Ended December 31, 2011	$	949	$	(282	)	$	(171	)	$	496
Year Ended December 31, 2010	$	1,853	$	(685	)	$	(219	)	$	949

(1) Activity in 2012 includes the addition of eBioscience since the Acquisition Date

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2012

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

BASIS OF PRESENTATION

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Affymetrix and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The consolidated financial statements include the results of companies acquired by us from the date of each acquisition for the applicable reporting periods.

Certain prior year amounts on the accompanying Consolidated Statements of Cash Flows have been reclassified to conform to the current period presentation.

USE OF ESTIMATES

USE OF ESTIMATES

The preparation of the consolidated financial statements is in conformity with U.S. generally accepted accounting principles ("US GAAP") which require management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates.

BUSINESS COMBINATIONS

BUSINESS COMBINATIONS

The Company's condensed consolidated financial statements include the operations of an acquired business after the completion of the acquisition. The Company accounts for acquired businesses using the acquisition method of accounting which requires, among other things, that assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date, while transaction costs are expensed as incurred, except for any debt and equity issuance costs. The measurement of the fair value of assets acquired and liabilities assumed requires significant judgment. Any excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill.

FOREIGN CURRENCY

FOREIGN CURRENCY

Certain operations from foreign subsidiaries of the Company have a functional currency other than the U.S. dollar. All other subsidiaries have the U.S. dollar as their functional currency.

Assets and liabilities of non-U.S. subsidiaries that use the local currency as their functional currency are translated to U.S. dollars at exchange rates in effect at the balance sheet date with the resulting translation adjustments directly recorded to a separate component of accumulated other comprehensive income (loss) within stockholders' equity. Income and expense accounts are translated at average exchange rates during the year. Foreign currency transaction gains and losses are recognized, net of hedging activity, in interest income and other, net and were comprised of net losses of $1.3 million, $2.5 million and less than $0.1 million for the years ended December 31, 2012, 2011 and 2010, respectively.

The Company's subsidiaries that use the U.S. dollar as their functional currency remeasure monetary assets and liabilities at exchange rates in effect at the end of each period, and inventories, property and nonmonetary assets and liabilities at historical rates. Gains and losses from these remeasurements were insignificant and have been included in the Company's results of operations.

CASH EQUIVALENTS, AVAILABLE-FOR-SALE SECURITIES AND INVESTMENTS

CASH EQUIVALENTS, AVAILABLE-FOR-SALE SECURITIES AND INVESTMENTS

Restricted Cash

The Company's restricted cash balances consist primarily of outstanding letters of credits that are fully cash collateralized and reserves for value added tax in foreign locations.

Marketable Securities

The Company's investments consist of marketable equity and debt securities, including U.S. government notes and bonds; corporate notes, bonds and asset‑backed securities; mortgage‑backed securities, municipal notes and bonds; and publicly traded equity securities. The Company reports all securities with maturities at the date of purchase of 90 days or less that are readily convertible into cash and have insignificant interest rate risk as cash equivalents. The Company's investments are carried at fair value with unrealized gains and losses reported in accumulated other comprehensive income (loss) in stockholders' equity. The cost of its marketable securities is adjusted for the amortization of premiums and discounts to maturity. This amortization is included in interest income and other, net. Realized gains and losses, as well as interest income, on available-for-sale securities are also included in interest income and other, net. The cost of securities sold is based on the specific identification method. The fair values of securities are based on quoted market prices. The Company has classified its available-for-sale securities in current assets on the accompanying Consolidated Balance Sheets as it expects to liquidate the securities within the next twelve months.

Non-marketable Securities

As part of the Company's strategic efforts to gain access to potential new products and technologies, the Company owns an approximately 6% interest in a limited partnership investment fund that is accounted for under the equity method and included in other long-term assets in the accompanying Consolidated Balance Sheets.

Other-than-temporary Impairment

All of the Company's marketable and non-marketable securities are subject to quarterly reviews for impairment that is deemed to be other-than-temporary ("OTTI"). An investment is considered other-than-temporarily impaired when its fair value is below its amortized cost and (1) the Company intends to sell the security; (2) it is "more likely than not" that the Company will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not expected to recover the entire amortized cost basis. Below is a summary of the Company's analysis:

· Marketable securities –As part of its review, the Company is required to take into consideration current market conditions, extent and nature of change in fair value, issuer rating changes and trends, volatility of earnings, current analysts' evaluations, all available information relevant to the collectability of debt securities and other factors when evaluating for the existence of OTTI in its securities portfolio. OTTI is separated into credit-related losses, which exist when amortized cost basis is not expected to be fully recovered, and non-credit related losses, which are the result of all other factors, such as illiquidity. Any credit-related OTTI is recognized in earnings while noncredit-related OTTI is recorded in other comprehensive income (loss) ("OCI"). No impairment charges were recognized on its marketable securities during the year ended December 31, 2012. During the year ended December 31, 2011, the Company recorded an impairment charge of $0.8 million due to OTTI of its investment in a publicly-traded company. Refer to Note 6. "Financial Instruments – Investments in Debt and Equity Securities" for further information.

· Non-marketable securities – The Company periodically monitors the liquidity and financing activities of its non-marketable securities to determine if any impairment exists and accordingly writes down, to the extent necessary, the carrying value of the non-marketable equity securities to their estimated fair values. In order to determine whether a decline in value is other-than-temporary, the Company evaluates, among other factors: the duration and extent to which the fair value has been less than the carrying value; the financial condition of and business outlook of the issuer, including key operational and cash flow metrics, current market conditions; and the Company's intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in estimated fair value. No impairment charges were recognized on its non-marketable securities during the year ended December 31, 2012. During the year ended December 31, 2011, the Company recorded impairment charges totaling $1.3 million, primarily related to its investment in a limited partnership investment fund. Refer to Note 6. "Financial Instruments – Non-Marketable Securities" for further information.

ACCOUNTS RECEIVABLE

ACCOUNTS RECEIVABLE

Trade accounts receivable are recorded at net invoice value. The Company considers amounts past due based on the related terms of the invoice. The Company reviews its exposure to amounts receivable and provides an allowance for specific amounts if collectability is no longer reasonably assured. The Company also provides an allowance for a percentage of the gross trade receivable balance (excluding any specifically reserved amounts) based on its collection history. The allowance for doubtful accounts was not material at December 31, 2012 and 2011.

DERIVATIVE INSTRUMENTS

DERIVATIVE INSTRUMENTS

The Company accounts for its derivative instruments as either assets or liabilities and carries them at fair value. Derivatives that are not defined as hedges must be adjusted to fair value through earnings at each reporting date.

For derivative instruments that hedge the exposure to variability in expected future cash flows that are designated as cash flow hedges, the Company measures the effectiveness of the derivative instruments by comparing the cumulative change in the hedge contract with the cumulative change in the hedged item. The effective portion of the gain or loss on the derivative instrument is reported as a component of OCI in stockholders' equity and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The ineffective portion of the gain or loss on the derivative instrument is recognized in current earnings. To receive hedge accounting treatment, cash flow hedges must be highly effective in offsetting changes to expected future cash flows on hedged transactions. The net gain or loss on the effective portion of a derivative instrument that is designated as an economic hedge of the foreign currency translation exposure of the net investment in a foreign operation is reported in the same manner as a foreign currency translation adjustment. Refer to Note 6. "Financial Instruments – Derivative Financial Instruments" for further information.

INVENTORIES

INVENTORIES

Inventory cost is computed on an adjusted standard basis (which approximates actual cost on a first-in, first-out basis). Provisions for slow moving, potentially excess and obsolete inventories are provided based on estimated demand requirements, product life cycle and development plans, component cost trends, product pricing, product expiration and quality issues.

Inventory that is not expected to be utilized until more than 12 months from the balance sheet date is classified as long-term. Estimating the level of inventory utilization for the upcoming 12 months requires management to exercise significant judgment. The Company maintains inventory levels in excess of 12 months for certain components of work-in-progress that have useful lives of up to 10 years. Carrying such levels of inventory impacts the Company's liquidity and cash flows since the inventory will not be converted to cash for more than one year.

PROPERTY AND EQUIPMENT

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the assets or the lease term, whichever is shorter. Equipment and furniture is depreciated over useful lives generally ranging from 3 to 7 years and leasehold improvements are depreciated over the shorter of the expected life of the asset or lease terms generally ranging from 3 to 15 years. Maintenance and repair costs are expensed as incurred. The Company reassesses the useful life on its property and equipment on a periodic basis and may adjust the lives accordingly.

In the fourth quarter of 2012, the Company sold its facility located in West Sacramento, California to a third-party for $5.8 million, which included $0.3 million of commissions and closing costs paid by the Company, and received $5.5 million in cash.

GOODWILL, INTANGIBLE ASSETS AND OTHER LONG-LIVED ASSETS

GOODWILL, INTANGIBLE ASSETS AND OTHER LONG-LIVED ASSETS

Goodwill represents the excess of the fair value of the acquired entity over the fair value of the net tangible and identifiable intangible assets acquired and liabilities assumed in a business combination. Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives which range from one to twelve years with the amortization recognized in either cost of revenue or operating expenses, as appropriate.

Goodwill is not subject to amortization, but is tested for impairment on an annual basis during the fourth quarter or whenever events or changes in circumstances indicate the carrying amount of these assets may not be recoverable. Goodwill impairment testing is a two-step process and performed on a reporting unit level. In the first step, the Company conducts an assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines that it is more likely than not that the fair value of its reporting unit is less than its carrying amount, it then conducts the second step, a two-part test for impairment of goodwill. The Company first compares the fair value of its reporting units to their carrying values. If the fair values of the reporting units exceed the carrying value of the net assets, goodwill is not considered impaired and no further analysis is required. If the carrying values of the net assets exceed the fair values of the reporting units, then the second part of the impairment test must be performed in order to determine the implied fair value of the goodwill. If the carrying value of the goodwill exceeds the implied fair value, then an impairment loss equal to the difference would be recorded. For 2012, the Company performed its annual goodwill impairment analysis during the fourth quarter of 2012 and concluded that goodwill is not impaired.

Finite-lived intangible assets and other long-lived assets are reviewed for impairment when facts or circumstances suggest that the carrying value of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written down to their estimated fair values. Additionally, during each period, the Company evaluates the estimated remaining useful lives of purchased finite-lived intangible assets and other long-lived assets to determine whether events or changes in circumstances warrant a revision to the remaining period of amortization. For the year ended December 31, 2012, no impairment charges were recognized. For the years ended December 31, 2011 and 2010, the Company recognized $1.7 million and $0.3 million, respectively, of impairment charges on its long-lived assets.

INCOME TAXES

INCOME TAXES

Income tax expense is based on pre-tax financial accounting income. Under the liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company must then assess the likelihood that the resulting deferred tax assets will be realized. To the extent the Company believes that realization of the deferred tax assets is not more likely than not, the Company establishes a valuation allowance. Significant estimates are required in determining the Company's provision for income taxes, deferred tax assets and liabilities, any valuation allowance to be recorded against net deferred tax assets, and reserves for income tax related uncertainties. Some of these estimates are based on interpretations of existing tax laws or regulations. Various internal and external factors may have favorable or unfavorable effects on the Company's future effective tax rate. These factors include, but are not limited to, changes in overall levels of characterization and geographical mix of pretax earnings (losses), changes in tax laws, regulations and/or rates, changing interpretations of existing tax laws or regulations, changes in the valuation of deferred tax assets or liabilities, levels of research and development spending, nondeductible expenses, applicability of tax holidays, ultimate outcomes of income tax audits, and income tax impacts of any business combination transactions or changes in our equity structure. Relative to uncertain tax positions, the Company only recognizes the tax benefit if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the Company's financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

CONTINGENCIES

CONTINGENCIES

The Company is subject to various legal proceedings principally related to intellectual property matters. Based on the information available at the most recent balance sheet date, the Company assesses the likelihood of any material adverse judgments or outcomes that may result from these matters, as well as the range of possible or probable loss, if any. If losses are probable and reasonably estimable, the Company will record a reserve. Any reserves recorded may change in the future due to new developments in each matter.

REVENUE RECOGNITION

REVENUE RECOGNITION

Overview

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is reasonably assured. In instances where final acceptance of the product or system is required or performance obligations remain, revenue is deferred until all the acceptance criteria or performance obligations have been met.

The Company derives the majority of its revenue from product sales of probe arrays, reagents, and related instrumentation that may be sold individually or combined with any of the Company's products, services or other sources of revenue. When a sale combines multiple elements upon delivery or performance of multiple products, services and/or rights to use assets, the Company allocates revenue for transactions or collaborations that include multiple elements to each unit of accounting based on its relative fair value or best estimate selling price, and recognizes revenue for each unit of accounting when the revenue recognition criteria have been met. The price charged when the element is sold separately generally determines fair value.

Effective January 1, 2010, the Company adopted Auditing Standards Update ("ASU") No. 2009-13, Revenue Recognition (ASC Topic 605) – Multiple-Deliverable Revenue Arrangements on a prospective basis, which establishes the relative selling price method whereby the Company is required to allocate consideration to all deliverables at the inception of the arrangement based on their relative selling prices. This change in accounting principle did not have a material impact on the Company's financial results.

Product Sales

Product sales include sales of probe arrays, reagents and related instrumentation. Probe array, reagent and instrumentation revenue is recognized when earned, which is generally upon shipment and transfer of title to the customer and fulfillment of any significant post-delivery obligations. Accruals are provided for anticipated warranty expenses at the time the associated revenue is recognized.

Services

Services revenue includes equipment service revenue; scientific services revenue, which includes associated consumables; and revenue from custom probe array design fees. Revenue from equipment service contracts are recognized ratably over the life of the contract.

Revenue from scientific and DNA analysis services are recognized upon shipment of the required data to the customer.

Revenue from custom probe array design fees associated with the Company's GeneChip^® CustomExpress™ and CustomSeq™ products are recognized when the associated products are shipped.

Royalties and Other Revenue

Royalties and other revenue include license revenue; royalties earned from third party license agreements; milestones and royalties earned from collaborative product development and supply agreements; subscription fees earned under GeneChip^® array access programs; and research revenue, which mainly consists of amounts earned under government grants.

License revenue is generally recognized upon the execution of an agreement or is recognized ratably over the period of expected performance.

Revenue from royalties is recognized under the terms of the related agreement.

The Company enters into collaborative arrangements which generally include a research and product development phase and a manufacturing and product supply phase. These arrangements may include up-front nonrefundable license fees, milestones, the rights to royalties based on the sale of final product by the partner, product supply agreements and distribution arrangements.

Any up-front, nonrefundable payments from collaborative product development agreements are recognized ratably over the research and product development period, and at-risk substantive based milestones are recognized when earned. Any payments received which are not yet earned are included in deferred revenue.

Transactions with Distributors

The Company recognizes revenue from transactions with distributors when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller's price is fixed or determinable, and collectability is reasonably assured. The Company's agreements with distributors do not include rights of return.

RESEARCH AND DEVELOPMENT EXPENSES

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses consist of costs incurred for internal, collaborative and grant‑sponsored research and development. Research and development expenses include salaries, contractor fees, building costs, utilities and allocations of shared corporate services. In addition, the Company funds research and development at other companies and research institutions under agreements which are generally cancelable. All such costs are charged to research and development expense as incurred.

SOFTWARE DEVELOPMENT COSTS

SOFTWARE DEVELOPMENT COSTS

Development Costs of Software to Be Sold, Leased or Marketed

Certain software development costs subsequent to the establishment of technological feasibility are capitalized. The Company's software is deemed to have achieved technological feasibility at the point a working model of the software product is developed. For the years ended December 31, 2012 and 2011, the Company did not capitalize any software development costs. Amortization of such costs was $0.5 million for the year ended December 31, 2012 and $0.7 million for each of the years ended December 31, 2011 and 2010. The costs of developing routine software enhancements are expensed as research and development when incurred because of the short time between the determination of technological feasibility and the date of general release of the related products.

Internal-Use Software

For the year ended December 31, 2012, the Company capitalized $0.4 million of costs associated with internal-use software. There was nothing capitalized for the year ended December 31, 2011. All costs associated with software developed for internal use will be amortized from the time at which the software is ready for its intended use. As of December 31, 2012, the Company had recognized total cumulative amortization costs related to internal-use software of $0.8 million.

ADVERTISING COSTS

ADVERTISING COSTS

The Company expenses advertising costs as incurred. Advertising costs recorded for the years ended December 31, 2012, 2011 and 2010 were $2.0 million, $0.6 million and $1.2 million, respectively.

SHARE-BASED COMPENSATION

SHARE‑BASED COMPENSATION

The Company estimates the fair value of its option grants and shares sold under its Employee Stock Purchase Plan using the Black‑Scholes-Merton ("BSM") option pricing model. This model requires the use of certain estimates and assumptions such as the expected term of options, estimated forfeitures, expected volatility of the Company's stock price, expected dividends and the risk-free interest rate at the grant date to determine the fair value of the stock options. The fair value of its restricted stock, restricted stock units and performance based restricted stock units, collectively referred to as restricted stock awards ("RSAs"), is based on the market price of the Company's common stock on the grant date. The Company recognizes the fair value of its share-based compensation as expense on a straight-line basis over the requisite service period of each award, generally four years. Refer to Note 14. "Stockholders' Equity and Share-Based Compensation Expense" for further information.

COMPREHENSIVE INCOME (LOSS)

COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) is comprised of net loss and other comprehensive income (loss). Other comprehensive income (loss) includes foreign currency translation adjustments, unrealized gains and losses on the Company's available-for-sale securities that are excluded from net loss and unrealized gains and losses on cash flow hedges. Total comprehensive income (loss) has been disclosed in the Company's Consolidated Statements of Comprehensive Loss.

At December 31, 2012 and 2011, the components of accumulated other comprehensive income, net of tax, are as follows (in thousands):

	Year Ended December 31,
	2012		2011
Foreign currency translation adjustment	$	5,374	$	821
Unrealized gains on available-for-sale and non-marketable securities		896		845
Unrealized gains on cash flow hedges		32		826
Accumulated other comprehensive income	$	6,302	$	2,492

NET LOSS PER COMMON SHARE

NET LOSS PER COMMON SHARE

Basic net loss per common share is calculated using the weighted‑average number of common shares outstanding during the period less the weighted‑average shares subject to repurchase. Diluted net loss per common share gives effect to dilutive common stock subject to repurchase, stock options (calculated based on the treasury stock method), shares purchased under the employee stock purchase plan and convertible debt (calculated using an as-if-converted method).

Diluted earnings per share, if any, include certain potential dilutive securities from common stock subject to repurchase, outstanding stock options (on the treasury stock method), shares purchased under the employee stock purchase plan and convertible notes (on the as-if-converted basis). The potentially dilutive securities excluded from diluted earnings per common share on an actual outstanding basis, were as follows (in thousands):

	Year Ended December 31,
	2012		2011		2010
Employee stock options		6,101		6,276		6,636
Employee stock purchase plan		210		64		-
Restricted stock and restricted stock units		3,734		2,597		1,953
Convertible notes		9,899		3,169		3,169
Total		19,944		12,106		11,758

RECENT ACCOUNTING PRONOUNCEMENTS

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2011, the FASB issued an amendment to an existing accounting standard which requires companies to present net income and other comprehensive income in one continuous statement or in two separate, but consecutive, statements. In addition, in December 2011, the FASB issued an amendment to an existing accounting standard which defers the requirement to present components of reclassifications of other comprehensive income on the face of the income statement. The Company adopted this guidance on January 1, 2012 on a retrospective basis and the adoption did not have a material effect on its consolidated financial statements.

In May 2011, the FASB issued a new accounting standard update, which amends the fair value measurement guidance and includes some enhanced disclosure requirements. The most significant change in disclosures is an expansion of the information required for Level 3 measurements based on unobservable inputs. The standard is effective for fiscal years beginning after December 15, 2011. The Company adopted this standard in the first quarter of 2012 and the adoption did not have a material impact on its financial statements and disclosures.

In September 2011, the FASB issued new guidance on testing goodwill for impairment. The new guidance allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. An entity is no longer required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The Company adopted this accounting standard in the fourth quarter of 2012 and completed its 2012 goodwill impairment analysis based on this guidance. The adoption of this guidance did not have a material impact on the accompanying Consolidated Financial Statements.

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NATURE OF OPERATIONS

12 Months Ended

Dec. 31, 2012

NATURE OF OPERATIONS [Abstract]

NATURE OF OPERATIONS

NOTE 1—NATURE OF OPERATIONS

Affymetrix, Inc. ("Affymetrix" or the "Company") is a provider of life science tools and molecular diagnostic products that enable multiplex and parallel analysis of biological systems at the gene, protein and cell level. The Company sells products to genomic research centers, academic institutions, government and private laboratories, as well as pharmaceutical, diagnostic and biotechnology companies. The Company also sells some of its products through life science supply specialists acting as authorized distributors in Latin America, India, the Middle East and Asia Pacific regions, including China.

In June 2012, the Company acquired eBioscience Holdings, Inc. ("eBioscience") for approximately $315 million (the "Acquisition"). eBioscience is based in San Diego, California, and engaged in the development, manufacture and sale of flow cytometry and immunoassay reagents for life science research and diagnostics. Refer to Note 3. "Acquisition" for further information.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

12 Months Ended

Dec. 31, 2012

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Components of accumulated other comprehensive income, net of tax

At December 31, 2012 and 2011, the components of accumulated other comprehensive income, net of tax, are as follows (in thousands):

	Year Ended December 31,
	2012		2011
Foreign currency translation adjustment	$	5,374	$	821
Unrealized gains on available-for-sale and non-marketable securities		896		845
Unrealized gains on cash flow hedges		32		826
Accumulated other comprehensive income	$	6,302	$	2,492

Antidilutive securities excluded from diluted earnings per common share

Diluted earnings per share, if any, include certain potential dilutive securities from common stock subject to repurchase, outstanding stock options (on the treasury stock method), shares purchased under the employee stock purchase plan and convertible notes (on the as-if-converted basis). The potentially dilutive securities excluded from diluted earnings per common share on an actual outstanding basis, were as follows (in thousands):

	Year Ended December 31,
	2012		2011		2010
Employee stock options		6,101		6,276		6,636
Employee stock purchase plan		210		64		-
Restricted stock and restricted stock units		3,734		2,597		1,953
Convertible notes		9,899		3,169		3,169
Total		19,944		12,106		11,758

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SEGMENT AND GEOGRAPHIC INFORMATION, Revenue by Geographic Region (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	$ 295,623	$ 267,474	$ 310,746
Number of major customers	0
Minimum percentage of revenue major customer accounted for (in hundredths)	10.00%
United States [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	171,176	142,508	178,029
Europe [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	71,526	76,286	80,914
Japan [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	21,039	19,989	22,248
Other countries [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	$ 31,882	$ 28,691	$ 29,555

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COMMITMENTS (Tables)

12 Months Ended

Dec. 31, 2012

COMMITMENTS [Abstract]

Net of sublease income, under all non-cancelable operating leases

Future minimum lease obligations, net of sublease income, at December 31, 2012 under all non-cancelable operating leases are as follows (in thousands):

For the Year Ending December 31,	Amount
2013	$	10,465
2014		8,429
2015		7,825
2016		5,128
2017		5,120
Thereafter		27,471
Total	$	64,438

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CONCENTRATIONS OF RISK (Details)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Concentration Risk [Line Items]
Revenue percentage from sales outside the U.S. (in hundredths)	42.00%	47.00%	43.00%

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STOCKHOLDERS' EQUITY AND SHARE-BASED COMPENSATION EXPENSE, Restricted Stock Awards (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Weighted Average Grant Date Fair Value [Roll Forward]
Restricted stock awards vested, Fair value	$ 16,216	$ 14,644
Restricted Stock Awards (RSAs) [Member]
Number of Shares [Roll Forward]
Non-vested stock outstanding at beginning of the period (in shares)	540
Granted (in shares)	0
Vested (in shares)	(310)
Forfeited (in shares)	(63)
Non-vested stock outstanding at end of the period (in shares)	167
Weighted Average Grant Date Fair Value [Roll Forward]
Non-vested stock outstanding at the beginning of the period (in dollars per share)	$ 7.32
Granted (in dollars per share)	$ 0
Vested (in dollars per share)	$ 8.22
Forfeited (in dollars per share)	$ 6.64
Non-vested stock outstanding at end of the period (in dollars per share)	$ 5.89
Restricted Stock Units (RSUs) [Member]
Number of Shares [Roll Forward]
Non-vested stock outstanding at beginning of the period (in shares)	2,057
Granted (in shares)	1,451
Vested (in shares)	(515)
Forfeited (in shares)	(302)
Non-vested stock outstanding at end of the period (in shares)	2,691
Weighted Average Grant Date Fair Value [Roll Forward]
Non-vested stock outstanding at the beginning of the period (in dollars per share)	$ 4.74
Granted (in dollars per share)	$ 4.09
Vested (in dollars per share)	$ 5.20
Forfeited (in dollars per share)	$ 4.69
Non-vested stock outstanding at end of the period (in dollars per share)	$ 4.31

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CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Current assets:
Cash and cash equivalents	$ 25,671	$ 201,937
Restricted cash	699	692
Available-for-sale securities-short-term portion	9,366	7,937
Accounts receivable, net	53,893	44,021
Inventories, net-short term portion	72,691	42,851
Deferred tax assets-short-term portion	359	364
Property and equipment, net-held for sale	0	9,000
Prepaid expenses and other current assets	10,126	7,785
Total current assets	172,805	314,587
Available-for-sale securities-long-term portion	0	54,501
Property and equipment, net	28,663	30,583
Inventory, Net-Long-Term Portion	11,772	0
Goodwill	159,736	0
Intangible assets, net	152,718	29,525
Deferred tax assets-long-term portion	3,394	450
Other long-term assets	15,206	8,369
Total assets	544,294	438,015
Current liabilities:
Accounts payable and accrued liabilities	50,355	44,774
Convertible notes-short-term portion	3,855	0
Term loan-short-term portion	12,713	0
Deferred revenue-short-term portion	8,498	9,852
Total current liabilities	75,421	54,626
Deferred revenue-long-term portion	3,450	3,959
Other long-term liabilities	22,689	9,127
Convertible notes	105,000	95,469
Term loan-long-term portion	60,563	0
Stockholders' equity:
Convertible redeemable preferred stock, $0.01 par value; 5,000 shares authorized; no shares issued and outstanding at December 31, 2012 and 2011	0	0
Common stock, $0.01 par value; 200,000 shares authorized; 71,030 and 70,454 shares issued and outstanding at December 31, 2012 and 2011, respectively	710	704
Additional paid-in capital	759,549	750,332
Accumulated other comprehensive income	6,302	2,492
Accumulated deficit	(489,390)	(478,694)
Total stockholders' equity	277,171	274,834
Total liabilities and stockholders' equity	$ 544,294	$ 438,015

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SEGMENT AND GEOGRAPHIC INFORMATION (Tables)

12 Months Ended

Dec. 31, 2012

SEGMENT AND GEOGRAPHIC INFORMATION [Abstract]

Schedule of Segment Reporting Information, by Segment [Table Text Block]

The following table shows revenue and income (loss) from operations by reportable operating segment for the years ended December 31, 2012 and 2011 (in thousands):

	Year Ended December 31,
	2012			2011
Revenue (a):
Affymetrix Core	$	235,105		$	242,307
eBioscience		37,011			-
Totals	$	272,116		$	242,307
Income (loss) from operations (a):
Affymetrix Core	$	35,230		$	55,659
eBioscience		(8,792	)		-
Totals	$	26,438		$	55,659

Reconciliation of Revenue and Income (Loss) from Operations from Segments to Consolidated [Table Text Block]

The following table reconciles total operating segment revenue and loss from operations to the accompanying Consolidated Statements of Operations

	Year Ended December 31,
	2012			2011
Total revenue from reportable operating segments	$	272,116		$	242,307
Other revenue (a)		23,507			25,167
Total revenue	$	295,623		$	267,474
Total income from operations from reportable operating segments	$	26,438		$	55,659
Other corporate expenses, net (b)		(65,529	)		(72,300	)
Total loss from operations	$	(39,091	)	$	(16,641	)

(a) Other revenue include field service revenue and royalty revenue

(b) Other corporate expenses, net include cost of goods sold directly associated with other revenue, research and development, corporate marketing, facilities and other separately-managed general and administrative expenses.

Schedule of segment reporting information, by region

The following table shows revenue and income (loss) from operations by reportable operating segment for the years ended December 31, 2012 and 2011 (in thousands):

	Year Ended December 31,
	2012			2011
Revenue (a):
Affymetrix Core	$	235,105		$	242,307
eBioscience		37,011			-
Totals	$	272,116		$	242,307
Income (loss) from operations (a):
Affymetrix Core	$	35,230		$	55,659
eBioscience		(8,792	)		-
Totals	$	26,438		$	55,659

Net property and equipment by major geographic areas

Net property and equipment, classified by major geographic areas in which the Company operates was as follows (in thousands):

	Year Ended December 31,
	2012		2011
Net property and equipment:
United States (1)	$	22,204	$	32,168
Singapore		4,260		6,022
Europe		1,770		1,059
Other countries		430		335
Total	$	28,663	$	39,583

(1) Included in the balance as of December 31, 2011 was the Company's West Sacramento facility that was reclassified to held-for-sale on the accompanying Consolidated Balance Sheets at an estimated fair value of $9.0 million at December 31, 2011.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (USD $) In Thousands	Common Stock [Member]	Additional Paid-In Capital [Member]	Accumulated Other Comprehensive Income (loss) [Member]	Accumulated Deficit [Member]	Total
Balance at Dec. 31, 2009	$ 710	$ 733,378	$ 4,051	$ (440,300)	$ 297,839
Balance (in shares) at Dec. 31, 2009	71,000
Common stock issued upon exercise of stock options and restricted stock, net of tax withholding related to vesting of restricted stock units (in shares)	(422)
Common stock issued upon exercise of stock options and restricted stock, net of tax withholding related to vesting of restricted stock units	(4)	(1,178)	0	0	(1,182)
Share-based compensation expense	0	9,910	0	0	9,910
Income tax benefit from share-based compensation	0	96	0	0	96
Net change in other comprehensive income (loss), net of tax	0	0	(2,675)	0	(2,675)
Net loss	0	0	0	(10,233)	(10,233)
Balance at Dec. 31, 2010	706	742,206	1,376	(450,533)	293,755
Balance (in shares) at Dec. 31, 2010	70,578
Common stock issued upon exercise of stock options and restricted stock, net of tax withholding related to vesting of restricted stock units (in shares)	(124)
Common stock issued upon exercise of stock options and restricted stock, net of tax withholding related to vesting of restricted stock units	(2)	(681)	0	0	(683)
Share-based compensation expense	0	8,771	0	0	8,771
Income tax benefit from share-based compensation	0	36	0	0	36
Net change in other comprehensive income (loss), net of tax	0	0	1,116	0	1,116
Net loss	0	0	0	(28,161)	(28,161)
Balance at Dec. 31, 2011	704	750,332	2,492	(478,694)	274,834
Balance (in shares) at Dec. 31, 2011	70,454
Common stock issued upon exercise of stock options and restricted stock, net of tax withholding related to vesting of restricted stock units (in shares)	271
Common stock issued upon exercise of stock options and restricted stock, net of tax withholding related to vesting of restricted stock units	5	(756)	0	0	(751)
Stock issued, ESPP (in shares)	305
Stock issued, ESPP	1	1,026	0	0	1,027
Share-based compensation expense	0	8,947	0	0	8,947
Income tax benefit from share-based compensation	0		0	0	0
Net change in other comprehensive income (loss), net of tax	0	0	3,810	0	3,810
Net loss	0	0	0	(10,696)	(10,696)
Balance at Dec. 31, 2012	$ 710	$ 759,549	$ 6,302	$ (489,390)	$ 277,171
Balance (in shares) at Dec. 31, 2012	71,030

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FINANCIAL INSTRUMENTS, Gain (Loss) by Hedging Relationship (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Derivative designated as hedging instrument [Member]
Effect of derivative instruments on statements of operations [Abstract]
Net gain (loss) recognized in OCI, net of tax (1)	$ (794)	$ 826	$ 0
Net gain reclassified from accumulated OCI into income, net of tax (2)	1,226	0	0
Net gain (loss) recognized in other income and expense (3)	109	(103)	0
Derivative not designated as hedging instrument [Member]
Effect of derivative instruments on statements of operations [Abstract]
Net income (loss) recognized in other income and expense (4)	$ (539)	$ (1,720)	$ 957

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FINANCIAL INSTRUMENTS (Tables)

12 Months Ended

Dec. 31, 2012

FINANCIAL INSTRUMENTS [Abstract]

Summary of available-for-sale securities

The following is a summary of available-for-sale securities as of December 31, 2012 (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
U.S. government obligations and agency securities	$	6,775	$	54	$	-	$	6,829
U.S. corporate debt		651		13		-		664
Foreign corporate debt and equity securities		1,837		36		-		1,873
Total available-for-sale securities	$	9,263	$	103	$	-	$	9,366

The following is a summary of available-for-sale securities as of December 31, 2011 (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
U.S. government obligations and agency securities	$	19,421	$	177	$	-		$	19,598
U.S. corporate debt		24,942		259		(101	)		25,100
Foreign government obligations and agency securities		2,805		6		(1	)		2,810
Foreign corporate debt and equity securities		15,157		41		(268	)		14,930
Total available-for-sale securities	$	62,325	$	483	$	(370	)	$	62,438

Contractual maturities of available for sale securities

Contractual maturities of available-for-sale securities as of December 31, 2012 and 2011 are as follows (in thousands):

	December 31,		December 31,
	2012		2011
Less than one year	$	7,083	$	7,937
One to two years		664		25,785
More than two years		1,619		28,716
Total available-for-sale securities	$	9,366	$	62,438

Notional values of entity's foreign currency forward contracts mature within 12 months

As of December 31, 2012 and 2011, the total notional values of the Company's derivative assets and liabilities that mature within 12 months are as follows (in thousands):

	December 31,		December 31,
	2012		2011
Euro	$	16,933	$	11,851
Japanese yen		10,542		7,008
British pound		4,278		4,459
Interest rate swap		27,519		-
Total	$	59,272	$	23,318

Entity's foreign currency derivatives measured at fair value

The following table shows the Company's foreign currency derivatives measured at fair value as reflected on the accompanying Consolidated Balance Sheets as of December 31, 2012 and 2011 (in thousands):

	December 31,		December 31,		Balance Sheet
	2012		2011		Classification
Derivative assets:
Foreign exchange contracts	$	842	$	940	Other current assets
Derivative liabilities:
Foreign exchange contracts		752		217	Accrued liabilities
Interest rate swap		77		-	Accrued liabilities

Effect of entity's derivative instruments, net of tax, on Condensed Statements of Operations

The following table shows the effect, net of tax, of the Company's derivative instruments on the accompanying Consolidated Statements of Operations and OCI for the years ended December 31, 2012, 2011 and 2010 (in thousands):

	Year ended December 31,
	2012			2011			2010
Derivatives in cash flow hedging relationships:
Net (loss) gain recognized in OCI, net of tax (1)	$	(794	)	$	826		$	-
Net gain reclassified from accumulated OCI into income, net of tax (2)		1,226			-			-
Net gain (loss) recognized in other income and expense (3)		109			(103	)		-
Derivatives not designated as hedging relationships:
Net (loss) gain recognized in income (4)		(539	)		(1,720	)		957

(1) Net change in the fair value of the effective portion classified in OCI

(2) Effective portion classified as revenue

(3) Ineffective portion and amount excluded from effectiveness testing classified as Interest and other, net

(4) Classified in Interest and other, net

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COMMITMENTS (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Operating Leases [Abstract]
Renewal options period from	2 years
Renewal options period to	5 years
Rent expense related to operating leases	$ 11,302	$ 11,018	$ 9,688
Future minimum lease obligations, under non cancelable operating leases [Abstract]
2013	10,465
2014	8,429
2015	7,825
2016	5,128
2017	5,120
Thereafter	27,471
Total	64,438
Sublease rentals to be recognized in 2013	502
Sublease rentals to be recognized thereafter	0
Inventory supply agreements	863
Accrued liabilities related to indemnification agreements	$ 0

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LEGAL PROCEEDINGS

12 Months Ended

Dec. 31, 2012

LEGAL PROCEEDINGS [Abstract]

LEGAL PROCEEDINGS

NOTE 15—LEGAL PROCEEDINGS

The Company has been in the past, and continues to be, a party to litigation which has consumed, and may continue to consume, substantial financial and managerial resources. The Company could incur substantial costs and divert attention of management and technical personnel in defending against litigation, and any adverse ruling or perception of an adverse ruling could have a material adverse impact on the Company's stock price. In addition, any adverse ruling could have a material adverse impact on the Company's cash flow and financial condition. The results of any litigation or any other legal proceedings are uncertain and as of the date of this report, the Company has not accrued any liability with respect to any of the litigation matters listed below:

E8 Pharmaceuticals LLC

On July 1, 2008, the Company was named as a defendant in a complaint filed by plaintiffs E8 Pharmaceuticals LLC and Massachusetts Institute of Technology ("MIT") in the United States District Court of Massachusetts. In the complaint, the plaintiffs allege that the Company is infringing one patent owned by MIT and licensed to E8 Pharmaceuticals by making and selling the Company's GeneChip® products to customers and teaching its customers how to use the products. The plaintiffs seek a permanent injunction enjoining the Company from further infringement, unspecified monetary damages, enhanced damages pursuant to 35 U.S.C. §284, costs, attorneys' fees and other relief as the court deems just and proper. On September 4, 2012, the District Court issued its ruling construing key claims of the patent at issue. The parties thereafter stipulated to the dismissal of plaintiff's claims and in September, the District Court dismissed the lawsuit in its entirety. On September 26, 2012, the plaintiffs filed an appeal with the United States Court of Appeals for the Federal Circuit appealing the District Court's dismissal of the lawsuit. The Company will continue to vigorously defend against the plaintiffs' claims.

Enzo Litigation

Southern District of New York Case: On October 28, 2003, Enzo Life Sciences, Inc., a wholly-owned subsidiary of Enzo Biochem, Inc. (collectively "Enzo"), filed a complaint against the Company that is pending in the United States District Court for the Southern District of New York for breach of contract, injunctive relief and declaratory judgment. The Enzo complaint relates to a 1998 distributorship agreement with Enzo under which the Company served as a non-exclusive distributor of certain reagent labeling kits supplied by Enzo. In its complaint, Enzo seeks monetary damages and an injunction against the Company from using, manufacturing or selling Enzo products and from inducing collaborators and customers to use Enzo products in violation of the 1998 agreement. Enzo also seeks the transfer of certain Affymetrix patents to Enzo.

On November 10, 2003, the Company filed a complaint against Enzo in the United States District Court for the Southern District of New York for declaratory judgment, breach of contract and injunctive relief relating to the 1998 agreement. In its complaint, the Company alleges that Enzo has engaged in a pattern of wrongful conduct against it and other Enzo labeling reagent customers by, among other things, asserting improperly broad rights in its patent portfolio, improperly using the 1998 agreement and distributorship agreements with others in order to corner the market for non-radioactive labeling reagents, and improperly using the 1998 agreement to claim ownership rights to the Company's proprietary technology. The court has not set a trial date for these actions, but has advised the parties to clear time for trials at the end of 2013 or the beginning of 2014, to potentially try these actions as well as other related actions between Enzo and other third parties

Delaware Case: On April 6, 2012, Enzo filed a complaint against the Company in the United States District Court for the District of Delaware. In the complaint, plaintiff alleges that Affymetrix is infringing U.S. Patent No. 7,064,197 by making and selling certain GeneChip® products. The plaintiff seeks a preliminary and permanent injunction enjoining the Company from further infringement and unspecified monetary damages. The Company will vigorously defend against the plaintiff's case. No trial date is set for this action.

Life Technologies Litigation

On October 12, 2010, Life Technologies Corporation filed a complaint against eBioscience in the United States District Court for the Southern District of California, alleging that eBioscience is infringing U.S. Patent Nos. 6,423,551, 6,699,723, and 6,927,069 related to certain eBioscience products. The parties reached a settlement of this lawsuit in January 2013. See Note 3. "Acquisition" for further details.

Administrative Proceedings

The Company's intellectual property is subject to a number of significant administrative actions. These proceedings could result in the Company's patent protection being significantly modified or reduced, and the incurrence of significant costs and the consumption of substantial managerial resources. For the year ended December 31, 2012, the Company did not incur significant costs in connection with administrative proceedings.

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INVENTORIES (Tables)

12 Months Ended

Dec. 31, 2012

INVENTORIES [Abstract]

Inventories

Inventories, net of reserves, consist of the following at December 31, 2012 and 2011 (in thousands):

	December 31,
	2012		2011
Raw materials	$	11,167	$	8,635
Work-in-process		35,562		10,554
Finished goods		37,734		23,662
Total	$	84,463	$	42,851
Short-term portion	$	72,691	$	42,851
Long-term portion	$	11,772	$	-

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SEGMENT AND GEOGRAPHIC INFORMATION

12 Months Ended

Dec. 31, 2012

SEGMENT AND GEOGRAPHIC INFORMATION [Abstract]

SEGMENT AND GEOGRAPHIC INFORMATION

NOTE 17—SEGMENT AND GEOGRAPHIC INFORMATION

The Company reports segment information on the "management" approach which designates the internal reporting used by management for making decisions and assessing performance as the source of the Company's reportable segments. The Company has determined that its Chief Executive Officer is the Company's chief operating decision maker ("CODM") as he is responsible for reviewing and approving investments in the Company's technology platforms and manufacturing infrastructure. Prior to 2012, the Company was organized as one reportable operating segment. Subsequent to the Acquisition, the Company's business was reorganized into two reportable operating segments for financial reporting purposes, Affymetrix Core and eBioscience.

Beginning in 2012, prior to the Acquisition, the Company reorganized its business in the following four business units: Expression, Genetic Analysis and Clinical Applications, Life Science Reagents, which the Company categorized into its reportable operating segment, Affymetrix Core, and Corporate. The reorganization into business units represented a fundamental change for the Company. The necessary information for the year ended December 31, 2010 is not disclosed as the cost to develop it would be excessive. The Expression business unit develops and markets the Company's gene expression products and services, including in vitro transcription and other whole transcript arrays and QuantiGene line targeted at low-to-mid-plex products. The Genetic Analysis and Clinical Applications business unit develops and markets the Company's genotyping and cytogenetics products. The Life Science Reagents business unit targets the life science reagent markets, developing and marketing reagents, enzymes, purification kits and biochemicals used by life science researchers. The Corporate business unit is comprised primarily of revenue from royalty arrangements, and field revenue from services provided to customers by the Company. The Company has concluded that its manufacturing operations are based on platforms that are used to produce various products that serve multiple applications and markets. Its manufacturing and the majority of its supporting operations have not been reorganized into business units but is centralized and Affymetrix Core business units are aggregated into one reportable operating segment, except for the Corporate business unit which was not deemed to be an operating segment.

The Company's other reportable operating segment, eBioscience, was acquired in the second quarter of 2012 and will be operated as a separate business unit in order to minimize or avoid any disruption of services, while taking advantage of immediate opportunities to create efficiencies. Refer to Note 3. "Acquisition" for further information. eBioscience specializes in the development, manufacturing, marketing and distribution of research tools in the areas of flow cytometry, immunoassays, microscopic imaging and other protein-based analyses. The Acquisition allows the Company to expand addressable markets and continue to diversify the business beyond genomics discovery into cell and protein analysis.

The Company evaluates the performance of its reportable operating segments based on revenue and income (loss) from operations. Revenue are allocated to each business unit based on product codes. Excluding eBioscience whose business is primarily operated on a stand-alone basis except for certain cross-functional areas, operating expenses are allocated to Affymetrix Core in the following manner: Research and development costs are allocated to the business units based on respective products in which the research and development costs are incurred, with the remaining costs allocated to the Corporate business unit. Sales and marketing costs are allocated based on surveys with company personnel on the business unit in which employees incur their time. General and administrative costs are primarily allocated to the Corporate business unit.

The following table shows revenue and income (loss) from operations by reportable operating segment for the years ended December 31, 2012 and 2011 (in thousands):

	Year Ended December 31,
	2012			2011
Revenue (a):
Affymetrix Core	$	235,105		$	242,307
eBioscience		37,011			-
Totals	$	272,116		$	242,307
Income (loss) from operations (a):
Affymetrix Core	$	35,230		$	55,659
eBioscience		(8,792	)		-
Totals	$	26,438		$	55,659

The following table reconciles total operating segment revenue and loss from operations to the accompanying Consolidated Statements of Operations

	Year Ended December 31,
	2012			2011
Total revenue from reportable operating segments	$	272,116		$	242,307
Other revenue (a)		23,507			25,167
Total revenue	$	295,623		$	267,474
Total income from operations from reportable operating segments	$	26,438		$	55,659
Other corporate expenses, net (b)		(65,529	)		(72,300	)
Total loss from operations	$	(39,091	)	$	(16,641	)

(a) Other revenue include field service revenue and royalty revenue

(b) Other corporate expenses, net include cost of goods sold directly associated with other revenue, research and development, corporate marketing, facilities and other separately-managed general and administrative expenses.

The Company reported total revenue by region as follows (in thousands):

	Year Ended December 31,
	2012		2011		2010
Customer location:
United States	$	171,176	$	142,508	$	178,029
Europe		71,526		76,286		80,914
Japan		21,039		19,989		22,248
Other		31,882		28,691		29,555
Total	$	295,623	$	267,474	$	310,746

There were no customers representing 10% or more of total revenue in 2012, 2011 and 2010.

The Company's long-lived assets other than purchased intangible assets, which the Company does not allocate to specific geographic locations as it is impracticable to do so, are composed principally of net property and equipment.

Net property and equipment, classified by major geographic areas in which the Company operates was as follows (in thousands):

	Year Ended December 31,
	2012		2011
Net property and equipment:
United States (1)	$	22,204	$	32,168
Singapore		4,260		6,022
Europe		1,770		1,059
Other countries		430		335
Total	$	28,663	$	39,583

(1) Included in the balance as of December 31, 2011 was the Company's West Sacramento facility that was reclassified to held-for-sale on the accompanying Consolidated Balance Sheets at an estimated fair value of $9.0 million at December 31, 2011.

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LONG-TERM DEBT OBLIGATIONS, Term Loan Maturities (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Long-term Debt, Fiscal Year Maturity Term Loan [Abstract]
2013, remainder thereof	$ 0
2014	12,713
2015	13,813
2016	17,000
2017	29,750
Total	73,276
Repayments of Secured Debt	11,724	0	0
Secured Debt, Current	$ 12,713	$ 0

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
CASH FLOWS FROM OPERATING ACTIVITIES [Abstract]
Net loss	$ (10,696)	$ (28,161)	$ (10,233)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization	36,068	32,309	35,460
Amortization of Inventory Step-Up in Fair value	9,444	0	0
Excess tax benefits for share-based compensation	0	(200)	(416)
Share-based compensation including acquisition	17,207	8,771	9,910
Change in deferred tax assets	(34,003)	415	(73)
Impairment of property and equipment, net-held for sale	3,491	1,710	0
Other noncash income (expense)	1,348	6,702	323
Changes in operating assets and liabilities [Abstract]
Accounts receivable, net	(514)	8,260	12,599
Inventories	12	6,522	5,117
Prepaid expenses and other assets	6,338	3,297	10,802
Accounts payable and accrued liabilities	(21,655)	(448)	(12,801)
Deferred revenue	(2,023)	(1,740)	(2,881)
Other long-term liabilities	(1,286)	1,900	168
Net cash provided by operating activities	3,731	39,337	47,975
CASH FLOWS FROM INVESTING ACTIVITIES [Abstract]
Capital expenditures	(8,166)	(5,779)	(7,726)
Purchases of available-for-sale securities	0	(86,252)	(453,138)
Proceeds from sales of available-for-sale securities	52,063	189,440	417,981
Proceeds from maturities of available-for-sale securities	1,138	32,982	110,477
Acquisition of businesses, net of cash acquired	(307,796)	0	0
Proceeds from sale of property and equipment	5,509	493	0
Capital distribution from non-marketable investments	681	0	0
Purchase of technology rights	(2,362)	(3,250)	(1,383)
Net cash(used in) provided by investing activities	(258,933)	127,634	66,211
CASH FLOWS FROM FINANCING ACTIVITIES [Abstract]
Issuance of common stock, net	276	(683)	(1,182)
Repurchase of convertible notes	(91,614)	(3)	(143,993)
Excess tax benefits for share-based compensation	0	200	416
Net Proceeds From Term Loan	80,500	0	0
Payments of Term Loan	(11,724)	0	0
Net proceeds from 4.00% convertible senior notes	101,062	0	0
Net cash provided by (used in) financing activities	78,500	(486)	(144,759)
Effect of exchange rate changes on cash and cash equivalents	436	(32)	415
Net (decrease) increase in cash and cash equivalents	(176,266)	166,453	(30,158)
Cash and cash equivalents at beginning of year	201,937	35,484	65,642
Cash and cash equivalents at end of year	25,671	201,937	35,484
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION [Abstract]
Cash paid for interest	(6,968)	(3,341)	(9,284)
Cash received (paid) for income taxes, net of refunds	$ 3,905	$ (633)	$ (1,450)

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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Per Share data, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Stockholders' equity:
Convertible preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Convertible preferred stock, shares authorized (in shares)	5,000	5,000
Convertible stock, shares issued (in shares)	0	0
Convertible preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	200,000	200,000
Common stock, shares issued (in shares)	71,030	70,454
Common stock, shares outstanding (in shares)	71,030	70,454

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ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

12 Months Ended

Dec. 31, 2012

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES [Abstract]

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

NOTE 10—ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities as of December 31, 2012 and 2011 consist of the following (in thousands):

	December 31,
	2012		2011
Accounts payable	$	13,716	$	15,629
Accrued compensation and related liabilities		15,760		12,169
Accrued interest		324		1,531
Accrued taxes		8,135		5,067
Accrued legal		594		1,808
Accrued audit and tax		1,106		963
Accrued warranties		802		1,500
Accrued royalties		1,608		1,206
Other		8,310		4,901
Total	$	50,355	$	44,774

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Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2012	Feb. 22, 2013	Jun. 30, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	AFFYMETRIX INC
Entity Central Index Key	0000913077
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Public Float			$ 327,619,125
Entity Common Stock, Shares Outstanding		71,053,521
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	FY
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2012

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COMMITMENTS

12 Months Ended

Dec. 31, 2012

COMMITMENTS [Abstract]

COMMITMENTS

NOTE 11—COMMITMENTS

Operating Leases

The Company leases laboratory, office and manufacturing facilities under non-cancelable operating leases that expire at various times through 2023. Some of these leases contain renewal options ranging from two to five years and escalation clauses. Rent expense related to operating leases for the years ended December 31, 2012, 2011 and 2010 was approximately $11.3 million, $11.0 million and $9.7 million, respectively. In connection with some of these facility leases, the Company has made security deposits totaling $3.6 million, which are included in other long-term assets in the accompanying Consolidated Balance Sheets.

Future minimum lease obligations, net of sublease income, at December 31, 2012 under all non-cancelable operating leases are as follows (in thousands):

For the Year Ending December 31,	Amount
2013	$	10,465
2014		8,429
2015		7,825
2016		5,128
2017		5,120
Thereafter		27,471
Total	$	64,438

Sublease income is expected to be approximately $0.5 million for the year ended December 31, 2013 and none thereafter.

Non-Cancelable Supply Agreements

As of December 31, 2012, the Company had approximately $0.9 million of non-cancelable inventory supply agreements that are in effect through 2013.

Indemnifications

From time to time the Company has entered into indemnification provisions under certain of its agreements with other companies in the ordinary course of business, typically with business partners, customers, and suppliers. Pursuant to these agreements, the Company generally indemnifies, holds harmless, and agrees to reimburse the indemnified parties on a case by case basis for losses suffered or incurred by the indemnified parties in connection with any U.S. patent or other intellectual property infringement claim by any third party with respect to its products. The term of these indemnification provisions is generally perpetual from the time of the execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is unlimited. In addition, the Company has entered into indemnification agreements with its officers and directors. The Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. As of December 31, 2012, the Company had not accrued a liability for this guarantee, because the likelihood of incurring a payment obligation in connection with this guarantee is remote.

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INCOME TAXES, Uncertain Tax Positions (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Unrecognized tax benefits [Abstract]
Unrecognized tax benefits, beginning of year	$ 16,480	$ 20,758
Gross increases - tax positions in prior period	3,027	517
Gross decreases - tax positions in prior period	(376)	(201)
Gross increases - current period tax positions	1,282	1,203
Settlements	0	(5,797)
Unrecognized tax benefits, end of year	20,413	16,480
Unrecognized tax benefits that would impact income tax expense	5,329
Accrued interest and penalties	200
Income taxes payable noncurrent	1,100
Reserves reversed related to uncertain tax positions	$ 1,900

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Schedule II-Valuation and Qualifying Accounts (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Valuation and Qualifying Accounts Disclosure [Line Items]
Balance at Beginning of Period	$ 496	$ 949	$ 1,853
Additions Charged to Operations or Other Accounts	590	(282)	(685)
Write-offs, net of Recoveries	(395)	(171)	(219)
Balance at End of Period	$ 691	$ 496	$ 949

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CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
REVENUE:
Product sales	$ 266,063	$ 241,273	$ 277,743
Services and Other	29,560	26,201	33,003
Total revenue	295,623	267,474	310,746
COSTS AND EXPENSES:
Cost of product sales	116,261	97,815	117,384
Cost of services and other	15,874	13,137	15,822
Research and development	57,881	63,591	67,934
Selling, general and administrative	142,853	109,572	114,773
Restructuring charges	1,845	0	0
Total costs and expenses	334,714	284,115	315,913
Loss from operations	(39,091)	(16,641)	(5,167)
Interest income and other, net	(265)	(6,302)	(1,487)
Interest expense	7,193	3,813	7,706
Gain from repurchase of convertible notes	0	0	6,297
Loss before income taxes	(46,549)	(26,756)	(8,063)
Income tax (benefit) provision	(35,853)	1,405	2,170
Net loss	$ (10,696)	$ (28,161)	$ (10,233)
Basic and diluted net loss per common share (in dollars per share)	$ (0.15)	$ (0.4)	$ (0.15)
Shares used in computing basic and diluted net loss per common share (in shares)	70,300	70,877	68,856

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FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2012

FAIR VALUE MEASUREMENTS [Abstract]

FAIR VALUE MEASUREMENTS

NOTE 5—FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and consider assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions and risk of nonperformance.

A fair value hierarchy was established which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of inputs that may be used to measure fair value are as follows:

Level 1: quoted prices in active markets for identical assets or liabilities;

Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or

Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company considers an active market to be one in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, and views an inactive market as one in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers. Where appropriate the Company's or the counterparty's non-performance risk is considered in determining the fair values of liabilities and assets, respectively.

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table represents the Company's fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2012 and 2011 (in thousands):

			Significant
	Quoted Prices		Other
	In Active		Observable
	Markets		Inputs
	(Level 1)		(Level 2)		Total
December 31, 2012
Assets:
U.S. government obligations and agency securities	$	-	$	6,829	$	6,829
U.S. corporate debt		-		664		664
Foreign corporate debt and equity securities		-		1,873		1,873
Total	$	-	$	9,366	$	9,366
Derivative assets	$	-	$	842	$	842
Liabilities:
Derivative liabilities	$	-	$	829	$	829
December 31, 2011:
Assets:
U.S. government obligations and agency securities	$	-	$	19,598	$	19,598
U.S. corporate debt		-		25,100		25,100
Foreign government obligations and agency securities		-		2,810		2,810
Foreign corporate debt and equity securities		105		14,825		14,930
Total	$	105	$	62,333	$	62,438
Derivative assets	$	-	$	940	$	940
Liabilities:
Derivative liabilities	$	-	$	217	$	217

The Company's Level 2 input assumptions are determined based on review of third-party sources.

The fair values of the Company's available-for-sale securities are based on quoted market prices and are included in cash and cash equivalents, available-for-sale securities—short-term and available-for-sale securities—long-term on the accompanying Consolidated Balance Sheets based on each respective security's maturity.

The fair value of the Company's derivative assets and liabilities is determined based on the estimated consideration the Company would pay or receive to terminate these agreements on the reporting date. The derivative assets and liabilities are located in Other current assets and Accrued expenses, respectively, in the accompanying Consolidated Balance Sheets.

As of December 31, 2012 and 2011, the Company had no financial assets or liabilities requiring Level 3 classification, including those that have unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets and liabilities.

Debt Obligations

Debt obligations are not recorded at fair value on a recurring basis and are carried at amortized cost.

The fair values of the Company's 3.50% Senior Convertible Notes due 2039 (the "3.50% Notes") and 4.00% Notes are based on quoted market prices at the balance sheet date. At December 31, 2012, the fair value of the Company's remaining 3.50% Notes was $3.9 million and the fair value of the Company's 4.00% Notes was $87.3 million.

On June 25, 2012, the Company entered into a Credit Agreement and borrowed $85.0 million under the Term Loan. As of December 31, 2012, the fair value of the Term Loan approximated its carrying value of $73.3 million, as this was a recent transaction.

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CONCENTRATIONS OF RISK

12 Months Ended

Dec. 31, 2012

CONCENTRATIONS OF RISK [Abstract]

CONCENTRATIONS OF RISK

NOTE 4—CONCENTRATIONS OF RISK

Cash equivalents and investments are financial instruments that potentially subject Affymetrix to concentrations of risk to the extent of amounts recorded in the accompanying Consolidated Balance Sheets. Company policy restricts the amount of credit exposure to any one issuer and to any one type of investment, other than securities issued by the United States Government.

The Company has not experienced significant credit losses from its accounts receivable. Affymetrix performs a regular review of its customer activity and associated credit risks and does not require collateral from its customers. The Company maintains an allowance for doubtful accounts receivable based upon the expected collectability of accounts receivable.

Certain raw materials or components used in the synthesis of probe arrays or the assembly of instrumentation are currently available only from a single source or limited sources. No assurance can be given that these raw materials or other components of the GeneChip^® system will be available in commercial quantities at acceptable costs from other vendors should the need arise. If the Company is required to seek alternative sources of supply, it could be time consuming and expensive.

In addition, the Company is dependent on its vendors to provide components of appropriate quality and reliability and to meet applicable regulatory requirements. Consequently, in the event that supplies from these vendors are delayed or interrupted for any reason, the Company's ability to develop and supply its products could be impaired, which could have a material adverse effect on the Company's business, financial condition and results of operations.

For the years ended December 31, 2012, 2011 and 2010, approximately 42%, 47% and 43%, respectively, of the Company's total revenue was generated from sales outside the United States. The Company's results of operations are affected by such factors as changes in foreign currency exchange rates, trade protection measures, longer accounts receivable collection patterns and changes in regional or worldwide economic or political conditions. The risks of the Company's international operations are mitigated in part by the extent to which its sales are geographically distributed.

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INCOME TAXES

12 Months Ended

Dec. 31, 2012

Income Taxes [Abstract]

INCOME TAXES

NOTE 16—INCOME TAXES

The following table presents the U.S. and foreign components of consolidated loss before income taxes (in thousands):

	Year Ended December 31,
	2012				2011				2010
(LOSS) INCOME BEFORE INCOME TAXES:
U.S.		$	(36,248	)		$	(26,778	)		$	(15,722	)
Foreign			(10,301	)			22				7,659
Loss before income taxes		$	(46,549	)		$	(26,756	)		$	(8,063	)

The following table presents the (benefit) provision for income taxes (in thousands):

	Year Ended December 31,
	2012			2011		2010
(BENEFIT) PROVISION FOR INCOME TAXES:
Current:
Federal	$	(28	)	$	-	$	-
State		568			106		37
Foreign		1,104			1,038		2,222
Subtotal		1,644			1,144		2,259
Deferred:
Federal		(35,329	)		-		-
State		(1,811	)		-		-
Foreign		(357	)		261		(89	)
Subtotal		(37,497	)		261		(89	)
Income tax (benefit) provision	$	(35,853	)	$	1,405	$	2,170

The difference between the (benefit) provision for income taxes and the amount computed by applying the federal statutory income tax rate (35%) to loss before taxes is explained as follows (in thousands):

	Year Ended December 31,
	2012			2011			2010
Tax at federal statutory rate	$	(16,292	)	$	(9,364	)	$	(2,822	)
State taxes, net		(1,136	)		(1,740	)		(1,646	)
Non-deductible stock compensation		3,470			453			626
Non-deductible acquisition costs		410			878			-
Foreign rate differential		4,353			1,274			(547	)
Research credits		-			(692	)		(991	)
Change in valuation allowance		(26,795	)		10,461			7,026
Other		137			135			524
Income tax (benefit) provision	$	(35,853	)	$	1,405		$	2,170

During the year ended December 31, 2012, the Company recognized a reduction in the valuation allowance recorded against the Company's net deferred tax assets of $37.1 million. The reduction was related to net deferred tax liabilities recognized for the difference between the fair value and carrying basis of certain tangible and intangible assets obtained as part of the Acquisition, which can be used as a source of income to support realization of certain domestic deferred tax assets. Under US GAAP, changes in an acquirer's valuation allowances that stem from a business combination should be recognized as an element of the acquirer's deferred income tax expense (benefit) in the reporting period that includes the business combination. There were no changes to the valuation allowance recorded as deferred income tax expense (benefit) during the years ended December 31, 2011 and 2010.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's assets and liabilities are as follows (in thousands):

	December 31,
	2012			2011
Deferred tax assets:
Net operating loss carryforwards	$	75,622		$	57,677
Tax credit carryforwards		50,704			47,513
Deferred revenue		1,537			1,632
Capitalized research and development costs		394			487
Intangibles		21,175			20,462
Share-based compensation		5,808			4,284
Accrued compensation		1,775			2,025
Accrued warranty		446			570
Inventory reserves		5,664			4,860
Reserves and other		13,216			10,928
Depreciation and amortization		6,731			21,323
Other, net		6,069			1,742
Total deferred tax assets		189,141			173,503
Valuation allowance for deferred tax assets		(130,979	)		(154,107	)
Net deferred tax assets		58,162			19,396
Net deferred tax liabilities:
Acquired intangible assets		(45,397	)		(2,459	)
Acquired tangible assets		(7,701	)		-
Cancellation of debt		(9,669	)		(9,669	)
Foreign earnings		(3,282	)		(5,139	)
Other, net		(1,296	)		(1,315	)
Total deferred tax liabilities		(67,345	)		(18,582	)
Net deferred tax (liabilities) assets	$	(9,183	)	$	814

The deferred tax liabilities for 2012 include amounts related to the Acquisition and therefore the change in total deferred tax liabilities in 2012 includes changes that are recorded to goodwill.

As of December 31, 2012, the Company had total U.S. net operating loss carryforwards of $356.1 million, comprised of $210.4 million for U.S. federal purposes, which expire in the years 2021 through 2032 if not utilized, and $145.7 million for state purposes, the majority of which expire in the years 2013 through 2032 if not utilized. Additionally, the Company has federal research and development tax credit carryforwards of approximately $23.7 million, which expire in the years 2017 through 2032 if not utilized. The Company also has state research and development tax credit carryforwards and other various tax credit carryforwards of approximately $41.3 million. Substantially all of the state tax credits can be carried forward indefinitely. Certain of the net operating loss and tax credit carryforwards are subject to annual limitations due to the ownership change provisions under Internal Revenue Code Section 382 and similar state provisions. The limitations will not result in significant expirations of the net operating loss carryforwards before utilization.

As of December 31, 2012, the Company has recorded a full valuation allowance against all U.S. and certain foreign deferred tax assets. The valuation allowance decrease of $23.1 million from $154.1 million in 2011 to $131.0 in 2012 is primarily attributable to the reduction in the valuation allowance recorded against the Company's net deferred tax assets of $37.1 million as part of the Acquisition, partially offset by U.S losses which was recorded as a tax benefit through the income statement. Approximately $26.5 million of the valuation allowance as of December 31, 2012 is attributable to the income tax benefits of share-based compensation, the benefit of which will be credited to stockholders' equity when, and if, realized. The valuation allowance increase of $11.5 million from $142.6 million in 2010 to $154.1 million in 2011 was primarily attributable to U.S. losses and a release in reserves related to uncertain tax positions.

Not included in the deferred tax assets as of December 31, 2012 is approximately $4.8 million of tax benefits related to share-based compensation. When, and if, realized the tax benefit of these assets will be accounted for as a credit to stockholders' equity, rather than a reduction of the income tax provision.

Of the total tax benefits realized from the share-based compensation nominal amounts were recorded to stockholders' equity for the years ended December 31, 2012 and 2011, respectively.

The Company provides for U.S. income tax on the earnings of foreign subsidiaries unless the earnings are considered indefinitely reinvested outside the U.S. As of December 31, 2012, the Company has a nominal amount of previously untaxed earnings from its foreign subsidiaries which were not indefinitely reinvested outside the U.S. The potential federal and state taxes on these repatriations is nominal.

A portion of the Company's operations in Singapore operate under various tax holidays and tax incentive programs, which expire in whole or in part at various dates through 2017. There was a minimal net impact of these tax holidays and tax incentive programs for the year ended December 31, 2012.

The following table presents the Company's total amount of gross unrecognized tax benefits (in thousands):

	2012			2011
Unrecognized tax benefits, beginning of year	$	16,480		$	20,758
Gross increases - tax positions in prior period		3,027			517
Gross decreases - tax positions in prior period		(376	)		(201	)
Gross increases - current period tax positions		1,282			1,203
Settlements		-			(5,797	)
Unrecognized tax benefits, end of year	$	20,413		$	16,480

If recognized, the amount of unrecognized tax benefits that would impact income tax expense is $5.3 million. As of December 31, 2012, the Company does not anticipate any material changes to the amount of unrecognized tax benefits during the next 12 months. The Company classifies interest and penalties related to tax positions as components of income tax expense. For the year ended December 31, 2012, the amount of accrued interest and penalties related to tax uncertainties was approximately $0.2 million for a total cumulative amount included in non-current income taxes payable of $1.1 million as of December 31, 2012. A number of major tax jurisdictions are currently subject to examination. The amount of unrecognized tax benefits that could change in the next 12 months as a result is $1.9 million.

The Company files U.S. federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations. The Company's major tax jurisdictions are the U.S. federal, California, Singapore, the United Kingdom and Austria. The federal and California statute of limitations on assessments remain open for substantially all tax years. The major foreign jurisdictions remain open for primarily tax years 2007 through 2012.

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WARRANTIES

12 Months Ended

Dec. 31, 2012

WARRANTIES [Abstract]

WARRANTIES

NOTE 12—WARRANTIES

The Company provides for anticipated warranty costs at the time the associated revenue is recognized. Product warranty costs are estimated based upon the Company's historical experience and the warranty period. The Company periodically reviews the adequacy of its warranty reserve and adjusts, if necessary, the warranty percentage and accrual based on actual experience and estimated costs to be incurred. Information regarding the changes in the Company's product warranty liability for the years ended December 31, 2012 and 2011 is as follows (in thousands):

	Amount
Balance at December 31, 2010	$	1,493
Additions charged to cost of product sales		879
Repairs and replacements		(872	)
Balance at December 31, 2011	$	1,500
Additions charged to cost of product sales		611
Repairs and replacements		(1,309	)
Balance at December 31, 2012	$	802

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SEGMENT AND GEOGRAPHIC INFORMATION, Long-Lived Assets by Geographic Region (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-Lived Assets	$ 28,663	$ 39,583
Assets Held-for-sale, Long Lived, Fair Value Disclosure		9,000
United States [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-Lived Assets	22,204	32,168
Europe [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-Lived Assets	1,770	1,059
Singapore [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-Lived Assets	4,260	6,022
Other countries [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-Lived Assets	$ 430	$ 335

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PROPERTY AND EQUIPMENT

12 Months Ended

Dec. 31, 2012

PROPERTY AND EQUIPMENT [Abstract]

PROPERTY AND EQUIPMENT

NOTE 8—PROPERTY AND EQUIPMENT

Property and equipment consists of the following as of December 31, 2012 and 2011 (in thousands):

	December 31,
	2012			2011 (1)
Property and equipment:
Construction-in-progress	$	1,790		$	838
Equipment and furniture		126,790			113,690
Building and leasehold improvements		54,579			96,390
Land		-			1,310
		183,159			212,228
Less: accumulated depreciation and amortization		(154,496	)		(172,645	)
Net property and equipment	$	28,663		$	39,583

(1) Included in the balance as of December 31, 2011 was the Company's West Sacramento facility that was reclassified to held-for-sale on the accompanying Consolidated Balance Sheets at an estimated fair value of $9.0 million at December 31, 2011. During the third quarter of 2012, the Company recognized an impairment of $4.0 million on the facility based on offers to purchase the property. During the fourth quarter of 2012, the Company sold the facility for gross proceeds of $5.8 million, which included $0.3 million in commissions and closing costs paid by the Company, and reduced the total impairment recognized in 2012 to $3.5 million.

For the years ended December 31, 2012, 2011 and 2010, the Company recorded depreciation expense of $15.8 million, $19.0 million and $22.2 million, respectively.

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INVENTORIES (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Inventories [Abstract]
Raw materials	$ 11,167	$ 8,635
Work-in-process	35,562	10,554
Finished goods	37,734	23,662
Total	84,463	42,851
Inventory, Net-Short-Term Portion	72,691	42,851
Inventory, Net-Long-Term Portion	$ 11,772	$ 0

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FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2012

FINANCIAL INSTRUMENTS [Abstract]

FINANCIAL INSTRUMENTS

NOTE 6—FINANCIAL INSTRUMENTS

Investments in Debt and Equity Securities

As described in further detail in Note 3. "Acquisition", the Company liquidated the majority of its available-for-sale securities as part of the Acquisition in 2012.

The following is a summary of available-for-sale securities as of December 31, 2012 (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
U.S. government obligations and agency securities	$	6,775	$	54	$	-	$	6,829
U.S. corporate debt		651		13		-		664
Foreign corporate debt and equity securities		1,837		36		-		1,873
Total available-for-sale securities	$	9,263	$	103	$	-	$	9,366

The following is a summary of available-for-sale securities as of December 31, 2011 (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
U.S. government obligations and agency securities	$	19,421	$	177	$	-		$	19,598
U.S. corporate debt		24,942		259		(101	)		25,100
Foreign government obligations and agency securities		2,805		6		(1	)		2,810
Foreign corporate debt and equity securities		15,157		41		(268	)		14,930
Total available-for-sale securities	$	62,325	$	483	$	(370	)	$	62,438

Contractual maturities of available-for-sale securities as of December 31, 2012 and 2011 are as follows (in thousands):

	December 31,		December 31,
	2012		2011
Less than one year	$	7,083	$	7,937
One to two years		664		25,785
More than two years		1,619		28,716
Total available-for-sale securities	$	9,366	$	62,438

Realized gains for the years ended December 31, 2012 and 2011 were $0.5 million and $0.6 million, respectively. Realized losses for the years ended December 31, 2012 and 2011 were $0.1 million and $1.6 million, respectively. Realized gains and losses are included in Interest income and other, net in the accompanying Consolidated Statements of Operations. During the year ended December 31, 2011, an equity security that experienced a decline in fair value was deemed other-than-temporarily impaired and impairment charges totaling $0.8 million were recorded. No significant facts or circumstances have arisen to indicate that there has been any deterioration in the creditworthiness of the issuers of the Company's other securities as of December 31, 2012.

Non-Marketable Securities

Non-marketable securities represents an investment in a limited partnership investment fund accounted for on the equity method. As of December 31, 2012 and 2011, the carrying amounts of the Company's non-marketable securities, totaling $4.4 million and $5.0 million, respectively, equaled their estimated fair values. The investments held by the limited partnership investment fund are in the life science industry and located in the United States. The investments are initially valued at the purchase price and subsequently on the basis of inputs that market participants would use in pricing such investments. The portfolio of investments includes Level 1 publicly traded equity securities and Level 3 equity securities and notes. During the year ended December 31, 2011, the Company recorded impairment charges on its non-marketable securities totaling $1.3 million. Net investment losses are included in Interest income and other, net in the accompanying Consolidated Statements of Operations. Depending on market conditions, the Company may incur additional charges on this investment in the future.

Derivative Financial Instruments

The Company derives a portion of its revenues in foreign currencies, predominantly in Europe and Japan, as part of its ongoing business operations. In addition, a portion of its assets are held in the nonfunctional currencies of its subsidiaries. The Company enters into foreign currency forward contracts to manage a portion of the volatility related to transactions that are denominated in foreign currencies. The Company's foreign currency forward contracts are entered into for periods consistent with the related underlying exposures and do not constitute positions that are independent of those exposures. The Company's accounting policies for these instruments are based on whether the instruments are classified as designated or non-designated hedging instruments. The Company records all derivatives on the accompanying Consolidated Balance Sheets at fair value. The effective portions of designated cash flow hedges are recorded in OCI until the hedged item is recognized in operations. As of December 31, 2012, the Company's existing foreign currency forward exchange contracts mature within 12 months. The deferred amount related to the Company's derivatives currently recorded in OCI and expected to be recognized into earnings over the next 12 months is a net gain of less than $0.1 million. Derivatives that are not designated as hedging instruments and the ineffective portions of cash flow hedges are adjusted to fair value through earnings.

Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur in the initially identified time period or within a subsequent two-month time period. Deferred gains and losses in other comprehensive income (loss) associated with such derivative instruments are reclassified immediately into operations through other income and expense. Any subsequent changes in fair value of such derivative instruments are reflected in Interest income and other, net unless they are re-designated as hedges of other transactions. The Company did not recognize any net gains or losses related to the loss of hedge designation on discontinued cash flow hedges during the years ended December 31, 2012 and 2011.

Under the Credit Agreement as defined in Note 13. "Long-Term Debt Obligations", the Company is required to maintain derivative contracts to protect against fluctuations in interest rates with respect to at least 35% of the aggregate principal amount of the Term Loan then outstanding, with such derivative contracts being required to have at least a three-year term. Accordingly, the Company has entered into an interest rate swap (the "Interest Rate Swap") for which the notional amount was originally set at $27.5 million, with quarterly reduction to the notional amount consistent with the mandatory amortization schedule of the Term Loan. The Interest Rate Swap calls for fixed rate quarterly payments of 1.70% of the notional amount in exchange for a variable rate quarterly receipt equal to a 3 month LIBOR rate with a floor of 1.50%. The Interest Rate Swap terminates on June 25, 2015.

The Company did not designate the Interest Rate Swap as a hedging instrument and will recognize adjustments to fair value through Interest income and other, net on the accompanying Consolidated Statements of Operations at each reporting date. As of December 31, 2012, the fair value of the Interest Rate Swap was $0.1 million.

As of December 31, 2012 and 2011, the total notional values of the Company's derivative assets and liabilities that mature within 12 months are as follows (in thousands):

	December 31,		December 31,
	2012		2011
Euro	$	16,933	$	11,851
Japanese yen		10,542		7,008
British pound		4,278		4,459
Interest rate swap		27,519		-
Total	$	59,272	$	23,318

Other than the Interest Rate Swap, the Company did not have any derivative assets or liabilities that were not designated or qualifying as hedges as of December 31, 2012. As of December 31, 2011, the Company did not have any derivative assets or liabilities that were not designated or qualifying as hedges.

As a result of the use of derivative instruments, the Company is exposed to the risk that the counterparties may be unable to meet the terms of the agreements. To mitigate the risk, only contracts with carefully selected highly-rated major financial institutions are entered into. In the event of non-performance by these counterparties, the asset position carrying values of the financial instruments represent the maximum amount of loss that can be incurred, however, no losses as a result of counterparty defaults are expected. The Company does not require and is not required to pledge collateral for these financial instruments. The Company does not enter into foreign currency forward contracts for trading or speculative purposes and is not party to any leveraged derivative instruments.

The following table shows the Company's foreign currency derivatives measured at fair value as reflected on the accompanying Consolidated Balance Sheets as of December 31, 2012 and 2011 (in thousands):

	December 31,		December 31,		Balance Sheet
	2012		2011		Classification
Derivative assets:
Foreign exchange contracts	$	842	$	940	Other current assets
Derivative liabilities:
Foreign exchange contracts		752		217	Accrued liabilities
Interest rate swap		77		-	Accrued liabilities

The following table shows the effect, net of tax, of the Company's derivative instruments on the accompanying Consolidated Statements of Operations and OCI for the years ended December 31, 2012, 2011 and 2010 (in thousands):

	Year ended December 31,
	2012			2011			2010
Derivatives in cash flow hedging relationships:
Net (loss) gain recognized in OCI, net of tax (1)	$	(794	)	$	826		$	-
Net gain reclassified from accumulated OCI into income, net of tax (2)		1,226			-			-
Net gain (loss) recognized in other income and expense (3)		109			(103	)		-
Derivatives not designated as hedging relationships:
Net (loss) gain recognized in income (4)		(539	)		(1,720	)		957

(1) Net change in the fair value of the effective portion classified in OCI

(2) Effective portion classified as revenue

(3) Ineffective portion and amount excluded from effectiveness testing classified as Interest and other, net

(4) Classified in Interest and other, net

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INVENTORIES

12 Months Ended

Dec. 31, 2012

INVENTORIES [Abstract]

INVENTORIES

NOTE 7—INVENTORIES

Inventories, net of reserves, consist of the following at December 31, 2012 and 2011 (in thousands):

	December 31,
	2012		2011
Raw materials	$	11,167	$	8,635
Work-in-process		35,562		10,554
Finished goods		37,734		23,662
Total	$	84,463	$	42,851
Short-term portion	$	72,691	$	42,851
Long-term portion	$	11,772	$	-

Inventory at December 31, 2012 includes $41.4 million of inventory acquired from eBioscience that includes the unamortized balance of the fair value step-up in basis of $19.5 million discussed in Note 3. "Acquisition." Amortization expense on the fair value step-up during the year ended December 31, 2012 was $9.4 million.

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GOODWILL AND INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2012

GOODWILL AND INTANGIBLE ASSETS [Abstract]

GOODWILL AND INTANGIBLE ASSETS

NOTE 9—GOODWILL AND INTANGIBLE ASSETS

The gross carrying amounts and net book values of the Company's definite-lived intangible assets are as follows (in thousands):

	Carrying Value, Gross						Accumulated Amortization									Intangible Assets, Net				Weighted
	December 31,				December 31,		December 31,						December 31,			December 31,		December 31,		Average
	2011		Additions		2012		2011			Additions			2012			2011		2012		Useful Life
Customer relationships	$	14,600	$	62,274	$	76,874	$	(9,510	)	$	(4,836	)	$	(14,346	)	$	5,090	$	62,528	12 years
Developed technologies		17,653		59,161		76,814		(13,179	)		(5,310	)		(18,489	)		4,474		58,325	12 years
Trademarks and tradenames		2,300		15,518		17,818		(1,126	)		(1,883	)		(3,009	)		1,174		14,809	5 years
Other contractual agreements		-		3,055		3,055		-			(785	)		(785	)		-		2,270	2 years
Licenses		79,142		2,014		81,156		(60,355	)		(6,015	)		(66,370	)		18,787		14,786	Variable
Total definite-lived intangible assets	$	113,695	$	142,022	$	255,717	$	(84,170	)	$	(18,829	)	$	(102,999	)	$	29,525	$	152,718

The expected future annual amortization expense of the Company's intangible assets is as follows (in thousands):

	Amortization
For the Year Ending December 31,	Expense
2013	$	23,600
2014		20,867
2015		14,715
2016		13,861
2017		12,186
Thereafter		67,489
Total	$	152,718

The Company recognized goodwill of $157.1 million in connection with the Acquisition. Refer to Note 2. "Acquisition" for further details. Information in regards to changes in the Company's goodwill at December 31, 2012 is as follows (in thousands):

Balance at December 31, 2011	$	-
Additions:
Acquisition of eBioscience		157,113
Effects of foreign currency change		2,623
Balance at December 31, 2012	$	159,736

During the year ended December 31, 2012, the Company concluded that there were no indicators of impairment during its annual impairment test of goodwill and the balance at December 31, 2012 is expected to be recoverable.

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ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES [Abstract]
Accounts payable	$ 13,716	$ 15,629
Accrued compensation and related liabilities	15,760	12,169
Accrued interest	324	1,531
Accrued taxes	8,135	5,067
Accrued legal	594	1,808
Accrued Audit and Tax	1,106	963
Accrued warranties	802	1,500
Accrued Royalties	1,608	1,206
Other	8,310	4,901
Total	$ 50,355	$ 44,774

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DEFINED-CONTRIBUTION SAVINGS PLANS (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
DEFINED-CONTRIBUTION SAVINGS PLANS [Abstract]
Expense associated with employee contributions	$ 2,970	$ 2,997	$ 2,758
Contributions to employees, Vesting period	4 years

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WARRANTIES (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Changes in Entity's Product Warranty Liability [Abstract]
Balance at beginning of the period	$ 1,500	$ 1,493
Additions charged to cost of product sales	611	879
Repairs and replacements	(1,309)	(872)
Balance at the end of the period	$ 802	$ 1,500

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GOODWILL AND INTANGIBLE ASSETS (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Jun. 25, 2012
Definite lived intangible assets [Abstract]
Beginning Carrying Value Of Finite-Lived Intangible Assets	$ 113,695
Finite-Lived Intangible Assets Acquired	142,022
Ending Carrying Value Of Finite-Lived Intangible Assets	255,717
Finite-Lived Intangible Assets, Accumulated Amortization	(84,170)
Amortization of Intangible Assets	(18,829)
Finite-Lived Intangible Assets, Accumulated Amortization	(102,999)
Finite-Lived Intangible Assets, Net, Beginning Balance	29,525
Finite-Lived Intangible Assets, Net, Ending Balance	152,718
Expected future annual amortization expense [Abstract]
2013	23,600
2014	20,867
2015	14,715
2016	13,861
2017	12,186
Thereafter	67,489
Total	152,718
Goodwill recognized in connection with acquisition		157,113
Schedule of Goodwill [Rollforward}
Balance at December 31, 2011	0
Goodwill, Acquired During Period	157,113
Goodwill, Translation Adjustments	2,623
Balance at December 31, 2012	159,736
Customer relationships [Member]
Definite lived intangible assets [Abstract]
Beginning Carrying Value Of Finite-Lived Intangible Assets	14,600
Finite-Lived Intangible Assets Acquired	62,274
Ending Carrying Value Of Finite-Lived Intangible Assets	76,874
Finite-Lived Intangible Assets, Accumulated Amortization	(9,510)
Amortization of Intangible Assets	(4,836)
Finite-Lived Intangible Assets, Accumulated Amortization	(14,346)
Finite-Lived Intangible Assets, Net, Beginning Balance	5,090
Finite-Lived Intangible Assets, Net, Ending Balance	62,528
Weighted Average Useful Life	12 years
Expected future annual amortization expense [Abstract]
Total	62,528
Developed technologies [Member]
Definite lived intangible assets [Abstract]
Beginning Carrying Value Of Finite-Lived Intangible Assets	17,653
Finite-Lived Intangible Assets Acquired	59,161
Ending Carrying Value Of Finite-Lived Intangible Assets	76,814
Finite-Lived Intangible Assets, Accumulated Amortization	(13,179)
Amortization of Intangible Assets	(5,310)
Finite-Lived Intangible Assets, Accumulated Amortization	(18,489)
Finite-Lived Intangible Assets, Net, Beginning Balance	4,474
Finite-Lived Intangible Assets, Net, Ending Balance	58,325
Weighted Average Useful Life	12 years
Expected future annual amortization expense [Abstract]
Total	58,325
Trademarks and tradenames [Member]
Definite lived intangible assets [Abstract]
Beginning Carrying Value Of Finite-Lived Intangible Assets	2,300
Finite-Lived Intangible Assets Acquired	15,518
Ending Carrying Value Of Finite-Lived Intangible Assets	17,818
Finite-Lived Intangible Assets, Accumulated Amortization	(1,126)
Amortization of Intangible Assets	(1,883)
Finite-Lived Intangible Assets, Accumulated Amortization	(3,009)
Finite-Lived Intangible Assets, Net, Beginning Balance	1,174
Finite-Lived Intangible Assets, Net, Ending Balance	14,809
Weighted Average Useful Life	5 years
Expected future annual amortization expense [Abstract]
Total	14,809
Other contractual agreements [Member]
Definite lived intangible assets [Abstract]
Beginning Carrying Value Of Finite-Lived Intangible Assets	0
Finite-Lived Intangible Assets Acquired	3,055
Ending Carrying Value Of Finite-Lived Intangible Assets	3,055
Finite-Lived Intangible Assets, Accumulated Amortization	0
Amortization of Intangible Assets	(785)
Finite-Lived Intangible Assets, Accumulated Amortization	(785)
Finite-Lived Intangible Assets, Net, Beginning Balance	0
Finite-Lived Intangible Assets, Net, Ending Balance	2,270
Weighted Average Useful Life	2 years
Expected future annual amortization expense [Abstract]
Total	2,270
Licenses [Member]
Definite lived intangible assets [Abstract]
Beginning Carrying Value Of Finite-Lived Intangible Assets	79,142
Finite-Lived Intangible Assets Acquired	2,014
Ending Carrying Value Of Finite-Lived Intangible Assets	81,156
Finite-Lived Intangible Assets, Accumulated Amortization	(60,355)
Amortization of Intangible Assets	(6,015)
Finite-Lived Intangible Assets, Accumulated Amortization	(66,370)
Finite-Lived Intangible Assets, Net, Beginning Balance	18,787
Finite-Lived Intangible Assets, Net, Ending Balance	14,786
Expected future annual amortization expense [Abstract]
Total	$ 14,786

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FAIR VALUE MEASUREMENTS (Tables)

12 Months Ended

Dec. 31, 2012

FAIR VALUE MEASUREMENTS [Abstract]

Financial assets and liabilities measured at fair value on a recurring basis

The following table represents the Company's fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2012 and 2011 (in thousands):

			Significant
	Quoted Prices		Other
	In Active		Observable
	Markets		Inputs
	(Level 1)		(Level 2)		Total
December 31, 2012
Assets:
U.S. government obligations and agency securities	$	-	$	6,829	$	6,829
U.S. corporate debt		-		664		664
Foreign corporate debt and equity securities		-		1,873		1,873
Total	$	-	$	9,366	$	9,366
Derivative assets	$	-	$	842	$	842
Liabilities:
Derivative liabilities	$	-	$	829	$	829
December 31, 2011:
Assets:
U.S. government obligations and agency securities	$	-	$	19,598	$	19,598
U.S. corporate debt		-		25,100		25,100
Foreign government obligations and agency securities		-		2,810		2,810
Foreign corporate debt and equity securities		105		14,825		14,930
Total	$	105	$	62,333	$	62,438
Derivative assets	$	-	$	940	$	940
Liabilities:
Derivative liabilities	$	-	$	217	$	217

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ACQUISITION, Part IV (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended		24 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Mar. 01, 2013	Jun. 25, 2012
ACQUISITION [Abstract]
Purchase price placed into escrow for indemnification obligations					$ 25,200
Amount of indemnification released from escrow				2,345
Business Acquisition, Cost of Acquired Entity, Transaction Costs Duration	6,145	2,936	9,081
Debt Issuance Cost	8,538
Business Acquisition, Cost of Acquired Entity, Acceleration of Stock Options	$ 8,265		$ 8,265		$ 8,265

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STOCKHOLDERS' EQUITY AND SHARE-BASED COMPENSATION EXPENSE

12 Months Ended

Dec. 31, 2012

Stockholders Equity And Share Based Compensation Expense [Abstract]

STOCKHOLDERS' EQUITY AND SHARE-BASED COMPENSATION EXPENSE

NOTE 14—STOCKHOLDERS' EQUITY AND SHARE-BASED COMPENSATION EXPENSE

Convertible Preferred Stock

The Company's Board of Directors has authorized 5.0 million shares of convertible preferred stock, $0.01 par value. At December 31, 2012 and 2011, there were no such shares issued or outstanding.

Share-based Compensation Plans

The Company has a share-based compensation program that provides the Board of Directors broad discretion in creating equity incentives for employees, officers, directors and consultants. This program includes incentive and non-qualified stock options and RSAs, granted under various stock plans. Stock options are issued at a price of at least 100% of the fair value of the Company's common stock on the date of grant (110% in certain circumstances), as determined by the Board of Directors. Options generally expire 7 to 10 years from the grant date and may be granted with different vesting terms from time to time as determined by the Board of Directors, usually over a period of four years on each anniversary of the grant date. In general, RSAs vest on an annual basis over a period of four years on each anniversary of the grant date, are subject to the employees' continued employment and are paid upon vesting in shares of the Company's common stock on a one-for-one basis. As of December 31, 2012, the Company had approximately 5.3 million shares of common stock reserved for future issuance under its share-based compensation plans. A more detailed description of the Company's current share-based compensation plans follows below:

In 1998, the Board of Directors adopted the Affymetrix 1998 Stock Incentive Plan (the "1998 Stock Plan") under which nonqualified stock options and restricted stock may be granted to employees and outside consultants, except that members of the Board of Directors and individuals who are considered officers of the Company under the rules of the National Association of Securities Dealers shall not be eligible. Options granted under the 1998 Stock Plan expire no later than ten years from the date of grant. A total of 3.6 million shares of common stock are authorized for issuance under the 1998 Stock Plan.

In 2000, the Board of Directors adopted the Amended and Restated 2000 Equity Incentive Plan (the "2000 Stock Plan"), which was amended and restated in 2001, under which RSAs, stock options, performance-based shares and stock appreciation rights may be granted to employees, outside directors and consultants. In the second quarter of 2010, 4.5 million shares of common stock were added under the 2000 Stock Plan bringing the total shares of common stock authorized for issuance under the 2000 Stock Plan to 16.2 million.

In June 2012, the Board of Directors adopted the 2012 Inducement Plan (the "2012 Inducement Plan"), under which RSAs, stock options, performance-based shares and stock appreciation rights may be granted to employees. A total of 2.0 million shares of common stock is authorized for issuance under the 2012 Inducement Plan.

The following table sets forth the total share-based compensation expense resulting from stock options and RSAs included in the accompanying Consolidated Statements of Operations (in thousands):

	Year Ended December 31,
	2012		2011		2010
Costs of product sales	$	1,554	$	1,143	$	994
Research and development		1,337		1,850		2,136
Selling, general and administrative (1)		14,316		5,778		6,780
Total share-based compensation expense	$	17,207	$	8,771	$	9,910

(1) Includes $8.3 million of share-based compensation expense related to the acceleration of unvested stock options in connection with the Acquisition during the year ended December 31, 2012

As of December 31, 2012, $14.4 million of total unrecognized share-based compensation expense related to non-vested awards is expected to be recognized over the respective vesting terms of each award through 2016. The weighted‑average term of the unrecognized share-based compensation expense is 2.6 years.

Stock Options

The fair value of options was estimated at the date of grant using the BSM option pricing model with the following weighted‑average assumptions:

	Year Ended December 31,
	2012			2011			2010
Risk free interest rate		0.6	%		1.5	%		1.1	%
Expected dividend yield		0.0	%		0.0	%		0.0	%
Expected volatility		67	%		67	%		76	%
Expected option term (in years)		4.6			4.5			4.1

The risk free interest rate for periods within the contractual life of the Company's stock options is based on the U.S. Treasury yield curve in effect at the time of grant. The expected term is derived from an analysis of the Company's historical exercise trends over ten years. The expected volatility for the years ended December 31, 2012 and 2011 is based on a blend of historical and market‑based implied volatility. Using the assumptions above, the weighted‑average grant date fair value of options granted during the years ended December 31, 2012, 2011 and 2010 was $2.14, $2.86 and $2.66, respectively.

Activity under the Company's stock plans for the year ended December 31, 2012 is as follows (in thousands, except per share amounts):

				Weighted-Average		Weighted-Average		Aggregate
				Exercise Price		Remaining		Intrinsic
	Shares			Per Share		Contractual Terms		Value
						(in years)
Outstanding at December 31, 2011		6,276		$	9.41
Grants		1,159			4.03
Exercises		(109	)		3.51
Forfeitures or expirations		(1,225	)		13.08
Outstanding at December 31, 2012		6,101		$	7.75		4.42	$	85,529
Exercisable at December 31, 2012		3,175		$	10.52		3.30	$	70,079
Vested and expected to vest at December 31, 2012		5,616		$	8.03		4.27	$	85,444

The following table summarizes information concerning currently outstanding and exercisable options at December 31, 2012:

Range of Exercise Prices				Options Outstanding						Options Exercisable
						Weighted-Average		Weighted-Average				Weighted-Average
						Remaining		Exercise Price				Exercise Price
Lower		Upper		Number		Contractual Life		Per Share		Number		Per Share
				(in thousands)		(in years)				(in thousands)
$	2.63	$	3.22		393		3.57	$	2.95		253	$	2.89
$	3.32	$	4.16		954		6.44	$	3.92		54	$	3.85
$	4.21	$	4.22		848		4.64	$	4.22		409	$	4.22
$	4.26	$	4.85		797		5.66	$	4.73		202	$	4.75
$	4.88	$	5.74		803		4.73	$	5.37		362	$	5.41
$	5.78	$	8.29		1,027		4.47	$	7.33		616	$	7.45
$	8.71	$	19.92		822		2.37	$	12.52		822	$	12.52
$	20.90	$	57.08		457		1.32	$	28.29		457	$	28.29
Total					6,101		4.42	$	7.75		3,175	$	10.52

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (i.e., the difference between the Company's closing stock price on the last trading day of its fourth quarter of 2012 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2012. The amount changes based on the fair market value of the Company's common stock. For the years ended December 31, 2012, 2011 and 2010, total intrinsic value of options exercised was $0.1 million, $0.4 million and $0.2 million, respectively.

Reserved Shares

At December 31, 2012, the Company has shares reserved for future issuance as follows (in thousands):

Options outstanding	6,101
Options available for future grants	5,262
Convertible notes	17,985
Total at December 31, 2012	29,348

Restricted Stock

The following table summarizes the Company's RSAs activity for the year ended December 31, 2012 (in thousands, except per share amounts):

	Number			Weighted-Average
	of Shares			Grant Date Fair Value
Restricted stock awards
Outstanding at December 31, 2011		540		$	7.32
Granted		-			-
Vested		(310	)		8.22
Forfeited		(63	)		6.64
Outstanding at December 31, 2012		167		$	5.89
Restricted stock units
Outstanding at December 31, 2011		2,057		$	4.74
Granted		1,451			4.09
Vested		(515	)		5.20
Forfeited		(302	)		4.69
Outstanding at December 31, 2012		2,691		$	4.31

For the years ended December 31, 2012 and 2011, total fair value of RSAs vested was $16.2 million and $14.6 million, respectively.

Performance-Based Awards

In 2011, the Compensation Committee of the Company's Board of Directors approved a grant of performance-based restricted stock units ("PRSUs") under the Plan to the Company's Chief Executive Officer ("CEO") that is earned annually in four equal tranches based on his performance in the applicable fiscal year (the "Performance Period"). The PRSUs entitle the CEO to receive a certain number of shares of the Company's common stock based on the Company's satisfaction of certain financial and strategic performance goals as set and approved by the Board of Directors annually during the first quarter of the Company's fiscal year. Based on the achievement of the performance conditions during each Performance Period, the final settlement of the PRSU award will vest twelve months following the end of each Performance Period. The PRSU award will be forfeited if the performance goals are not met or if the executive officer is no longer employed at the vest date.

The number of shares underlying the PRSUs that were granted to the CEO during 2011 totaled 240,000 shares. As of December 31, 2012, performance conditions pertaining to 60,000 shares of the PRSUs with a grant date fair value of $6.71 per PRSU, and relating to a Performance Period ending December 31, 2011 were achieved. The Company expects that an additional 15,000 shares of the PRSUs, with a grant date fair value of $4.63 per PRSU, will vest with respect to the Performance Period ending December 31, 2012 and the fair value of such PRSU's is being amortized on a straight-line basis over the related service period. The total compensation cost related to PRSUs granted but not yet recognized was less than $0.1 million as of December 31, 2012.

During July 2012, the Compensation Committee granted certain PRSUs following the acquisition of eBioscience referred to as an Acquisition Performance Share Program (the "Program"). The purpose of the Program is to align key management and senior leadership with stockholders' interests and to retain key employees. The measurement periods for the Program are the twelve month periods ended June 30, 2013 and June 30, 2014, respectively. Members of eBioscience management and other key employees are participating in the Program. Awards granted under the Program are granted in the form of performance shares pursuant to the terms of our 2012 Inducement Plan. If pre-determined eBioscience specific performance goals are met, shares of stock will be granted to the recipient, vesting one month following the performance period representing the date of certification of achievement, contingent upon the recipient's continued service to the Company.

For the year ended December 31, 2012, the Company awarded 916,500 PRSUs under the Program at a grant date fair value of $4.16 per PRSU and expects 78% of the PRSUs will vest. The fair value of the PRSUs is being amortized on a straight-line basis over the related service period. The total compensation cost related to PRSUs granted but not yet recognized was approximately $1.6 million as of December 31, 2012.

Employee Stock Purchase Plan

In August 2011, the Company's Board of Directors adopted the 2011 Employee Stock Purchase Plan ("ESPP") that was approved by the Company's stockholders on May 11, 2012. The ESPP reserved a total of 7.0 million shares of the Company's common stock for issuance under the plan and permits eligible employees to purchase common stock at a discount through payroll deductions.

The price at which stock is purchased under the ESPP is equal to 85% of the fair market value of the common stock on the first day of the offering period or the last day of the purchase period, whichever is lower. The offering periods are twelve months and include two six month purchase periods that result in a look-back for determining the purchase price of up to 12 months. Employees can invest up to 15% of their gross compensation through payroll deductions. In no event would an employee be permitted to purchase more than 750 shares of common stock during any six-month purchase period. The initial offering period commenced in November 2011. As of December 31, 2012, there were 347 participants in the plan and approximately 0.3 million shares were issued under the ESPP during the period at an average subscription date fair value of $3.37 per share. Included in total share-based compensation cost for the year ended December 31, 2012 was $0.6 million, related to the ESPP.

During the years ended December 31, 2012 and 2011, the fair value of shares under the ESPP was estimated using the following assumptions:

	2012			2011
Risk free interest rate		0.1	%		0.1	%
Expected dividend yield		0.0	%		0.0	%
Expected volatility		64	%		67	%
Expected term (in years)		0.7			0.7

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RELATED PARTY TRANSACTIONS

12 Months Ended

Dec. 31, 2012

RELATED PARTY TRANSACTIONS [Abstract]

RELATED PARTY TRANSACTIONS

NOTE 19—RELATED PARTY TRANSACTIONS

In December 2011, the Company entered into an agreement under which it assigned one patent application and related know-how to Cellular Research, Inc. ("Cellular Research"), a company founded by the Company's Chairman, Dr. Stephen P.A. Fodor. Dr. Fodor also owns a majority of the shares of Cellular Research. Pursuant to the agreement, Cellular Research shall pay single digit royalties to Affymetrix on sales of products covered by the assigned technology, and starting in December 2015, an annual minimum fee of $100,000. Affymetrix shall also have a right of first refusal to collaborate with Cellular Research for the development of certain new products and to supply arrays to Cellular Research under certain terms and conditions. As of December 31, 2012, no royalties were earned pertaining to this agreement.

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ACQUISITION, Part II (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Jun. 25, 2012
Business Acquisition [Line Items]
Goodwill		$ 157,113
Business Acquisition, Cost of Acquired Entity, Purchase Price		306,626
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Net [Abstract]
Business Combination Recognized Identifiable Assets Acquired And Liabilities Assumed Intangibles Adjustment		22,155
Income Tax Benefit Provision Acquisition Adjustment	7,242	7,600
Inventory, Step Up Adjustment	19,543	28,987
Determination of Fair Value of Acquired Assets and Assumed Liabilities - Initial [Member]
Business Acquisition [Line Items]
Cash and Cash Equivalents Acquired		7,095
Accounts Receivable, Net Acquired		9,488
Inventories, Net Acquired		52,060
Prepaid Expenses and Other Assets Acquired		7,844
Plant, Property and Equipment Net Acquired		5,969
Intangible Assets Net Acquired		159,755
Other Noncurrent Assets Acquired		1,769
Identifiable Assets Acquired		243,980
Accounts Payable and Accrued Liabilities Acquired		(18,681)
Deferred Tax Liability		(55,542)
Other Noncurrent Liabilities Acquired		(3,241)
Identifiable Liabilities Acquired		(77,464)
Goodwill		140,325
Business Acquisition, Cost of Acquired Entity, Purchase Price		306,841
Measurement Period Adjustments for Purchase Accounting [Member]
Business Acquisition [Line Items]
Cash and Cash Equivalents Acquired		0
Accounts Receivable, Net Acquired		(8)
Inventories, Net Acquired		(1,380)
Prepaid Expenses and Other Assets Acquired		575
Plant, Property and Equipment Net Acquired		551
Intangible Assets Net Acquired		(22,155)
Other Noncurrent Assets Acquired		(328)
Identifiable Assets Acquired		(22,745)
Accounts Payable and Accrued Liabilities Acquired		(2,691)
Deferred Tax Liability		8,658
Other Noncurrent Liabilities Acquired		(225)
Identifiable Liabilities Acquired		5,742
Goodwill		16,788
Business Acquisition, Cost of Acquired Entity, Purchase Price		(215)
Determination of Fair Value of Acquired Assets and Assumed Liabilities- Final [Member]
Business Acquisition [Line Items]
Cash and Cash Equivalents Acquired		7,095
Accounts Receivable, Net Acquired		9,480
Inventories, Net Acquired		50,680
Prepaid Expenses and Other Assets Acquired		8,419
Plant, Property and Equipment Net Acquired		6,520
Intangible Assets Net Acquired		137,600
Other Noncurrent Assets Acquired		1,441
Identifiable Assets Acquired		221,235
Accounts Payable and Accrued Liabilities Acquired		(21,372)
Deferred Tax Liability		(46,884)
Other Noncurrent Liabilities Acquired		(3,466)
Identifiable Liabilities Acquired		(71,722)
Goodwill		157,113
Business Acquisition, Cost of Acquired Entity, Purchase Price		$ 306,626

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WARRANTIES (Tables)

12 Months Ended

Dec. 31, 2012

WARRANTIES [Abstract]

Changes in entity's product warranty liability

The Company provides for anticipated warranty costs at the time the associated revenue is recognized. Product warranty costs are estimated based upon the Company's historical experience and the warranty period. The Company periodically reviews the adequacy of its warranty reserve and adjusts, if necessary, the warranty percentage and accrual based on actual experience and estimated costs to be incurred. Information regarding the changes in the Company's product warranty liability for the years ended December 31, 2012 and 2011 is as follows (in thousands):

	Amount
Balance at December 31, 2010	$	1,493
Additions charged to cost of product sales		879
Repairs and replacements		(872	)
Balance at December 31, 2011	$	1,500
Additions charged to cost of product sales		611
Repairs and replacements		(1,309	)
Balance at December 31, 2012	$	802

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Net loss	$ (10,696)	$ (28,161)	$ (10,233)
Other comprehensive income (loss), net of tax [Abstract]
Foreign currency translation adjustment	4,553	79	415
Unrealized (losses) gains on available-for-sale and non-marketable securities	(486)	2,271	(4,093)
Reclassification adjustment for realized gains (losses) recognized in net loss	537	(2,060)	1,003
Unrealized (losses) gains on cash flow hedges	(2,020)	826	0
Reclassification adjustment for realized gains on cash flow hedges recognized into income	1,226	0	0
Net change in other comprehensive income (loss), net of tax	3,810	1,116	(2,675)
Comprehensive loss	$ (6,886)	$ (27,045)	$ (12,908)

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RESTRUCTURING (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012
RESTRUCTURING [Abstract]
Restructuring and Related Cost, Number of Positions Eliminated	100
Restructuring and Related Cost, Expected Cost	$ 6,823
Restructuring and Related Cost, Cost Incurred to Date	1,809
Restructuring and Related Cost, Incurred Cost	$ 1,809

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ACQUISITION

12 Months Ended

Dec. 31, 2012

ACQUISITION [Abstract]

ACQUISITION

NOTE 3—ACQUISITION

On June 25, 2012 (the "Acquisition Date"), pursuant to the terms of an Amended and Restated Agreement and Plan of Merger (the "Acquisition Agreement"), a wholly-owned subsidiary of the Company merged with and into eBioscience, with eBioscience surviving as a wholly-owned subsidiary of the Company (the "Acquisition"). eBioscience specializes in the development, manufacturing, marketing and distribution of research tools in the areas of flow cytometry, immunoassays, microscopic imaging and other protein-based analyses.

At the Acquisition Date, each share of eBioscience issued and outstanding common stock immediately prior to the Acquisition Date was cancelled and converted into the right to receive cash of $38.18 per each such previously issued and outstanding common share. Further, all options to purchase shares of eBioscience common stock that were outstanding immediately prior to the Acquisition Date became exercisable to the extent not fully vested and were cancelled and retired immediately prior to the Acquisition Date in exchange for cash of $38.18 per each such previously outstanding option, less the exercise price of such option.

The Acquisition was accounted for using the acquisition method of accounting. Under the acquisition method of accounting, the tangible and identifiable intangible assets and liabilities of eBioscience were recorded at their respective fair values as of the Acquisition Date, including an amount for goodwill representing the difference between the Acquisition consideration and the fair value of the identifiable net assets.

At June 30, 2012, the Company had provisionally estimated fair values for the assets acquired and liabilities assumed at the Acquisition Date. The amounts reported were considered provisional as the Company was completing the valuation work to determine the fair value of assets acquired and liabilities assumed and finalize the working capital adjustments as required by the Acquisition Agreement. With the help of third-party specialists, the valuation was finished during the fourth quarter of 2012 and the determination of the fair value of acquired inventory, property and equipment, and intangible assets was completed. In addition, the Company's review of tax accounts was also completed during the fourth quarter of 2012. This resulted in adjustments to the determination of the fair value of assets acquired and liabilities assumed (also referred to as "measurement period adjustments") to the accompanying Condensed Consolidated Financial Statements as of and for the six months ended June 30, 2012. Under US GAAP, changes to the fair value of the assets acquired and liabilities assumed during the measurement period are recognized as of the date of acquisition. The Company considers the fair value analysis to be final as of December 31, 2012.

The results of operations of the acquired eBioscience business and the fair values of the assets acquired and liabilities assumed have been included in the accompanying Consolidated Financial Statements since the Acquisition. For the year ended December 31, 2012, the Company recorded $37.0 million in revenue and recognized a net loss of $8.9 million from eBioscience.

Purchase price

The total purchase price for the Acquisition was $314.9 million, of which $8.3 million was accounted for as share-based compensation expense as a result of the accelerated vesting of certain eBioscience employee options immediately prior to the Acquisition and has been recognized in the accompanying Consolidated Statement of Operations under Selling, general and administrative expenses. The remaining $306.6 million was related to the fair value of the net assets acquired from eBioscience. The Acquisition was financed through a combination of cash on hand, the liquidation of available-for-sale securities, proceeds from third-party financing (the "Term Loan") and the issuance of 4.00% Convertible Senior Notes (the "4.00% Notes"). Refer to Note 13. "Long-Term Debt Obligations" for further information.

The following table summarizes the accounting treatment of the purchase price paid (in thousands):

	Before					After
	Adjustment					Adjustment
	of Final		Measurement			of Final
	Determination		Period			Determination
	of Fair Value		Adjustments			of Fair Value
Purchase consideration	$	306,841	$	(215	)	$	306,626
Share-based compensation expense		8,265		-			8,265
Total purchase price	$	315,106	$	(215	)	$	314,891

Fair value of assets acquired and liabilities assumed

The following table summarizes the fair values of assets acquired, liabilities assumed and goodwill (in thousands), as well as retrospective measurement period adjustments made during the year ended December 31, 2012:

	Before						After
	Adjustment						Adjustment
	of Final			Measurement			of Final
	Determination			Period			Determination
	of Fair Value(1)			Adjustments(2)			of Fair Value
Cash and cash equivalents	$	7,095		$	-		$	7,095
Accounts receivable, net		9,488			(8	)		9,480
Inventories		52,060			(1,380	)		50,680
Prepaid expenses and other assets		7,844			575			8,419
Property and equipment		5,969			551			6,520
Intangible assets		159,755			(22,155	)		137,600
Other non-current assets		1,769			(328	)		1,441
Identifiable assets acquired		243,980			(22,745	)		221,235
Accounts payable and accrued liabilities		(18,681	)		(2,691	)		(21,372	)
Deferred tax liability		(55,542	)		8,658			(46,884	)
Other non-current liabilities		(3,241	)		(225	)		(3,466	)
Identifiable liabilities acquired		(77,464	)		5,742			(71,722	)
Goodwill		140,325			16,788			157,113
Purchase consideration	$	306,841		$	(215	)	$	306,626

(1) As previously reported in the notes to the Condensed Consolidated Financial Statements included in the Company's Quarterly Report on Form 10-Q as of June 30, 2012 and for the three and six months then ended.

(2) During the second half of 2012, the Company finalized the valuations of the fair value of certain asset and liabilities included in the Acquisition resulting in the measurement period adjustments detailed above, including reducing the fair  value of certain intangible assets by $22.2 million to better reflect market participant assumptions about the facts and circumstances existing as of the Acquisition Date.

The above change in domestic deferred tax liabilities resulted in a $7.6 million increase in the Company's domestic deferred tax asset valuation allowance. Adjustments to valuation allowances are further discussed in Note 16. "Income Taxes."

The above measurement period adjustments did not result from events that occurred after the Acquisition Date.

Inventories

The inventories acquired include an adjusted step-up in basis of approximately $29.0 million, which represents the fair value of the inventory less a reasonable profit margin on costs to complete and sell. The step-up in basis will be recognized as the inventory is sold, which is expected to be over a period of 12 to 23 months from the Acquisition Date.

Intangible Assets

The following table summarizes the fair value of definite-lived intangible assets acquired at the Acquisition Date and their estimated useful lives (in thousands, except for estimated useful lives):

				Estimated
	Fair Value			Useful Life
Purchased intangible assets:
Customer base		$	61,100	12 years
Developed technologies			58,000	12 years
Trademarks and tradenames			15,500	5 years
Other contractual agreements			3,000	2 years
Total		$	137,600

Purchased intangible assets were recorded at fair value determined using an income approach, which recognizes that the fair value of an asset is premised upon the expected receipt of future economic benefits such as earnings and cash inflows based on current sales projections and estimated direct costs. Indications of value are developed by discounting these benefits to their present worth at a discount rate that reflects the current return requirements of market participants.

Purchased intangible assets are finite-lived intangible assets and are being amortized over their estimated useful lives.

Deferred tax liabilities

Deferred tax liabilities assumed are primarily comprised of the tax impact of the temporary difference between the fair values of assets acquired and the historical tax basis of those assets. These temporary differences will reverse as the assets are amortized.

Goodwill

The excess of Acquisition consideration over the fair value of assets acquired and liabilities assumed represents goodwill. The Company believes the factors that contributed to goodwill include synergies that are specific to the Company's consolidated business, and not available to market participants, and the acquisition of a talented workforce that expands the Company's expertise in business development and the commercialization of cell and protein analysis products. The Company does not expect any portion of this goodwill to be deductible for tax purposes.

Liabilities

The above determination of fair value excludes amounts related to certain litigation in which eBioscience is currently involved. The Acquisition Agreement provides that eBioscience security holders shall, subject to certain limitations, indemnify Affymetrix against damages arising out of or resulting from intellectual property litigation brought against eBioscience by Life Technologies Corporation. The net assets acquired and results of operations do not reflect the outcome of this litigation, which was unable to be estimated at December 31, 2012. Under the terms of the Acquisition Agreement, $25.2 million of the purchase price was placed into escrow to secure eBioscience security holders' indemnification obligations to the Company. During January 2013, the litigation was settled and $2.3 million was reimbursed to the Company out of escrow.

Transaction costs

The Company cumulatively incurred approximately $9.1 million of Acquisition-related costs that are recognized as Selling, general and administrative expense in the accompanying Consolidated Statements of Operations, of which $6.2 million and $2.9 million was recognized during the years ended December 31, 2012 and 2011, respectively.

Total underwriting and financing fees of approximately $8.5 million associated with the Term Loan and 4.00% Notes were also incurred and are discussed in Note 13. "Long-Term Debt Obligations."

Share-based compensation costs

The share-based compensation expense of $8.3 million recognized for the accelerated vesting of certain eBioscience options immediately vested prior to the Acquisition was recognized in the accompanying Consolidated Statements of Operations as Selling, general and administrative expense in during the year ended December 31, 2012.

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information presents the combined results of operations for the years ended December 31, 2012 and 2011 as if the Acquisition had been completed on January 1, 2011, with adjustments to give effect to pro forma events that are directly attributable to the Acquisition. The unaudited pro forma results do not reflect any operating efficiencies or potential cost savings that may result from the consolidation of the operations of the Company and eBioscience. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the Acquisition had occurred at the beginning of the period presented, nor are they indicative of future results of operations (in thousands, except per share data):

	Years Ended December 31,
	2012			2011
Revenue	$	331,370		$	338,416
Net loss		(35,500	)		(24,529	)
Basic and diluted net loss per share		(0.50	)		(0.35	)

The unaudited pro forma financial information exclude non-recurring share-based compensation expense of $8.3 million recognized for the accelerated vesting of certain eBioscience stock options immediately prior to the Acquisition, and an income tax benefit of $37.1 million for the years ended December 31, 2012 and 2011.

The unaudited pro forma financial information for the year ended December 31, 2012 exclude non-recurring Acquisition-related transaction costs incurred by the Company of $6.2 million and by eBioscience of $5.5 million. For the year ended December 31, 2011, excluded non-recurring Acquisition costs incurred by the Company was $2.9 million and by eBioscience was $0.6 million.

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FINANCIAL INSTRUMENTS, Derivative Instruments (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
FINANCIAL INSTRUMENTS [Abstract]
Maximum existing foreign currency forward exchange contracts maturity period	12 months
Maximum expected period to recognized deferred amount into earnings	12 months
Expected deferred amount to be recognized in OCI	$ 32	$ 826
Gain (Loss) on Discontinuation of Cash Flow Hedge Due to Forecasted Transaction Probable of Not Occurring, Net	0	0
Description of Interest Rate Derivative Instruments Not Designated as Hedging Instruments Activities	Accordingly, the Company has entered into an interest rate swap (the "Interest Rate Swap") for which the notional amount was originally set at $27.5 million, with quarterly reduction to the notional amount consistent with the mandatory amortization schedule of the Term Loan. The Interest Rate Swap calls for fixed rate quarterly payments of 1.70% of the notional amount in exchange for a variable rate quarterly receipt equal to a 3 month LIBOR rate with a floor of 1.50%. The Interest Rate Swap terminates on June 25, 2015.
Notional Amount of Interest Rate Derivative Instruments Not Designated as Hedging Instruments	27,519
Interest Rate Derivative Instruments Not Designated as Hedging Instruments, Liability at Fair Value	77
Notional values of the Company's foreign currency forward contracts [Abstract]
Contracts Qualifying as Hedges	59,272	23,318
Other Current Assets [Member] | Foreign Exchange Contract [Member]
Derivative Assets [Abstract]
Derivative Asset, Fair Value, Gross Asset	842	940
Accrued expenses [Member] | Foreign Exchange Contract [Member]
Derivative Liabilities [Abstract]
Derivative Liability, Fair Value, Gross Liability	752	217
Accrued expenses [Member] | Interest Rate Swap [Member]
Derivative Liabilities [Abstract]
Derivative Liability, Fair Value, Gross Liability	77	0
Euro [Member}
Notional values of the Company's foreign currency forward contracts [Abstract]
Contracts Qualifying as Hedges	16,933	11,851
Japanese yen [Member]
Notional values of the Company's foreign currency forward contracts [Abstract]
Contracts Qualifying as Hedges	10,542	7,008
British pound [Member]
Notional values of the Company's foreign currency forward contracts [Abstract]
Contracts Qualifying as Hedges	4,278	4,459
Swap [Member]
Notional values of the Company's foreign currency forward contracts [Abstract]
Contracts Qualifying as Hedges	$ 27,519	$ 0

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SEGMENT AND GEOGRAPHIC INFORMATION, Reconciliation of Segment Revenue and Income (Loss) from Operations to Consolidated Financial Statements (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Income (loss) from operations segment reconciliation	$ (39,091)	$ (16,641)
Segment Reporting, Revenue Reconciling Item [Line Items]
Revenues	295,623	267,474	310,746
Total revenue from reportable operating segments [Member]
Segment Reporting, Revenue Reconciling Item [Line Items]
Revenues	272,116	242,307
Unallocated revenue to segment [Member]
Segment Reporting, Revenue Reconciling Item [Line Items]
Revenues	23,507	25,167
Total income (loss) from operations from reportable operating segments [Member]
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Income (loss) from operations segment reconciliation	26,438	55,659
Unallocated income (loss) from operations to segment [Member]
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Income (loss) from operations segment reconciliation	$ (65,529)	$ (72,300)

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LONG-TERM DEBT OBLIGATIONS, Convertible Senior Notes (Details) (USD $) In Thousands, except Share data, unless otherwise specified	2 Months Ended	12 Months Ended
	Mar. 01, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Jun. 25, 2012
LONG-TERM DEBT OBLIGATIONS [Abstract]
4.00% Convertible Senior Notes Aggregate Principal Amount		$ 105,000			$ 105,000
Debt Issuance Cost Four Notes		3,900
Net proceeds from 4.00% convertible senior notes		101,062	0	0
4.00%, Interest Rate, Stated Percentage					4.00%
Amortization period for debt issuance cost related to convertible notes		7 years
Debt Instrument, Convertible, Shares per $1,000 principal amount of 4.00% Convertible Senior Notes					170
Maximum number of shares upon conversion of the 4.00% Notes					17,857,143
Conversion price of convertible debt					$ 5.88
Date on which convertible notes will become redeemable					Jul. 01, 2017
Percentage of common stock above conversion price (in hundredths)					130.00%
Number of consecutive trading days within measurement period					20
Number of consecutive trading days on which trading price is examined for triggering of conversion					30
Number of trading days to trigger measurement period within date company provides notice of redemption					5
Percentage of Principal Amount That The Redemption Price Will Be Equal To					100.00%
Debt Instrument, 4.00% Convertible, Interest Expense		2,461
Aggregate principal amount of senior convertible notes repurchased		91,614
Repurchase of Convertible Debt, including accrued interest	3,922	92,059
Debt Instrument, 3.50% Convertible, Interest Expense Paid With Repurchase	67	445
Financing costs		262
3.50% Senior Convertible Notes Aggregate Principal Amount		$ 3,855

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UNAUDITED QUARTERLY FINANCIAL INFORMATION

12 Months Ended

Dec. 31, 2012

UNAUDITED QUARTERLY FINANCIAL INFORMATION [Abstract]

UNAUDITED QUARTERLY FINANCIAL INFORMATION

NOTE 20—UNAUDITED QUARTERLY FINANCIAL INFORMATION

	2012											2011
	Fourth			Third			Second		First			Fourth			Third			Second			First
	Quarter			Quarter			Quarter (1)		Quarter			Quarter			Quarter			Quarter			Quarter
	(in thousands, except per share amounts)
Total revenue	$	84,349		$	79,624		$	66,403	$	65,247		$	65,104		$	63,987		$	64,659		$	73,724
Total cost of goods sold		39,171			37,938			27,682		27,344			30,412			27,648			25,793			27,099
Net (loss) income		(12,269	)		(17,859	)		23,649		(4,217	)		(14,739	)		(9,789	)		(3,672	)		39
Basic net (loss) income per common share		(0.17	)		(0.25	)		0.34		(0.06	)		(0.21	)		(0.14	)		(0.05	)		0.00
Diluted net (loss) income per common share		(0.17	)		(0.25	)		0.33		(0.06	)		(0.21	)		(0.14	)		(0.05	)		0.00

(1) During the third quarter of 2012, the Company recast its income tax benefit for the second quarter of 2012, lowering it by $7.2 million from net $44.3 million to net $37.1 million with a corresponding increase in valuation allowance as a result of the retrospective adjustments related to the determination of the fair value of assets acquired and liabilities assumed and related income tax valuation adjustments.

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STOCKHOLDERS' EQUITY AND SHARE-BASED COMPENSATION EXPENSE, Employee Stock Purchase Plan (Details) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Stockholders Equity And Share Based Compensation Expense [Abstract]
Shares reserve for issuance under Employee stock purchase plan (in shares)	7,000,000
ESPP purchase consideration as percentage of market value (in hundredths)	85.00%
ESPP offering period	12 months
ESPP number of purchase periods per offering period	2
Number of months in each purchase period	6 months
Look-back period for ESPP	12 months
Percentage of gross compensation through payroll deductions employees can invest (in hundredths)	15.00%
Number of shares of common stock employee permitted to purchase (in shares)	750
Number of participants in ESPP	347
Number of shares issued ESPP (in shares)	305,000
Share-based Compensation Arrangement by Share-based Payment Award, Per Share Weighted Average Price of Shares Purchased	$ 3.37
Allocated Share-based Compensation Expense	$ 617
Share Based Compensation Arrangement By Share Based Payment Award Fair Value Assumptions And Methodology ESPP [Abstract]
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate for ESPP	0.10%	0.10%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate for ESPP	0.00%	0.00%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate for ESPP	64.00%	67.00%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term for ESPP	8 months 12 days	8 months 12 days

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GOODWILL AND INTANGIBLE ASSETS (Tables)

12 Months Ended

Dec. 31, 2012

GOODWILL AND INTANGIBLE ASSETS [Abstract]

Definite lived intangible assets

The gross carrying amounts and net book values of the Company's definite-lived intangible assets are as follows (in thousands):

	Carrying Value, Gross						Accumulated Amortization									Intangible Assets, Net				Weighted
	December 31,				December 31,		December 31,						December 31,			December 31,		December 31,		Average
	2011		Additions		2012		2011			Additions			2012			2011		2012		Useful Life
Customer relationships	$	14,600	$	62,274	$	76,874	$	(9,510	)	$	(4,836	)	$	(14,346	)	$	5,090	$	62,528	12 years
Developed technologies		17,653		59,161		76,814		(13,179	)		(5,310	)		(18,489	)		4,474		58,325	12 years
Trademarks and tradenames		2,300		15,518		17,818		(1,126	)		(1,883	)		(3,009	)		1,174		14,809	5 years
Other contractual agreements		-		3,055		3,055		-			(785	)		(785	)		-		2,270	2 years
Licenses		79,142		2,014		81,156		(60,355	)		(6,015	)		(66,370	)		18,787		14,786	Variable
Total definite-lived intangible assets	$	113,695	$	142,022	$	255,717	$	(84,170	)	$	(18,829	)	$	(102,999	)	$	29,525	$	152,718

Expected future annual amortization expense

The expected future annual amortization expense of the Company's intangible assets is as follows (in thousands):

	Amortization
For the Year Ending December 31,	Expense
2013	$	23,600
2014		20,867
2015		14,715
2016		13,861
2017		12,186
Thereafter		67,489
Total	$	152,718

Schedule of Goodwill

The Company recognized goodwill of $157.1 million in connection with the Acquisition. Refer to Note 2. "Acquisition" for further details. Information in regards to changes in the Company's goodwill at December 31, 2012 is as follows (in thousands):

Balance at December 31, 2011	$	-
Additions:
Acquisition of eBioscience		157,113
Effects of foreign currency change		2,623
Balance at December 31, 2012	$	159,736

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LONG-TERM DEBT OBLIGATIONS

12 Months Ended

Dec. 31, 2012

LONG-TERM DEBT OBLIGATIONS [Abstract]

LONG-TERM DEBT OBLIGATIONS

NOTE 13—LONG-TERM DEBT OBLIGATIONS

Term Loan

On June 25, 2012, the Company entered into a credit agreement (the "Credit Agreement") by, and among, Affymetrix and its domestic subsidiaries, and General Electric Capital Corporation ("GE Capital"), Silicon Valley Bank and other financial institutions party thereto from time to time (collectively, the "Lenders"), as well as certain securities affiliates of the Lenders. The Credit Agreement provides for the Term Loan in an aggregate principal amount of $85.0 million and a revolving credit facility in an aggregate principal amount of $15.0 million (the "Revolving Credit Facility" and, together with the Term Loan, the "Senior Secured Credit Facility"), each with a term of five years. As of December 31, 2012, the Company borrowed a total of $85.0 million under the Term Loan which was used to finance a portion of the Acquisition.

At the option of the Company (subject to certain limitations), borrowings under the Credit Agreement bear interest at either a base rate or at the London Interbank Offered Rate ("LIBOR"), plus, in each case, an applicable margin. Under the Base Rate Option, interest will be at the base rate plus 4.00% per annum, calculated on the basis of the actual number of days elapsed in a year of 365 or 366 days (as applicable) and payable quarterly in arrears. The base rate will be equal to the greatest of (a) the rate last quoted by The Wall Street Journal (or another national publication selected by GE Capital) as the U.S. "Prime Rate," (b) the federal funds rate, plus 0.50% per annum and (c) LIBOR for an interest period of one month, plus 1.00% per annum. However, the base rate will not be less than a floor of 2.50% per annum. Under the LIBOR Option, interest will be determined based on interest periods to be selected by Affymetrix of one, two, three or six months (and, to the extent available to all relevant lenders, nine or 12 months) and will be equal to LIBOR, plus 5.00%, calculated based on the actual number of days elapsed in a 360-day year. However, LIBOR will be deemed not to be less than a floor of 1.50% per annum. Interest will be paid at the end of each interest period or, in the case of interest periods longer than three months, quarterly. During the year ended December 31, 2012, the Company entered into its Interest Rate Swap as required by the terms of the Credit Agreement with a third-party lending institution. Refer to Note 6. "Financial Instruments–Derivative Financial Instruments" for further information. At December 31, 2012, the applicable interest rate was approximately 6.50%.

The loans and other obligations under the Senior Secured Credit Facility are (i) guaranteed by substantially all of the Company's domestic subsidiaries (subject to certain exceptions and limitations) and (ii) secured by substantially all of the assets of Affymetrix and each guarantor (subject to certain exceptions and limitations).

The Credit Agreement requires the Company to maintain a fixed charge coverage ratio of at least 1.5 to 1.0, a senior leverage multiple not exceeding initially 2.00 to 1.00 and stepping down to 1.50 to 1.00 and a total leverage multiple not exceeding initially 4.75 to 1.00 and stepping down to 3.50 to 1.00. The Credit Agreement also includes other covenants, including negative covenants that, subject to certain exceptions, limit Affymetrix', and that of certain of its subsidiaries', ability to, among other things: (i) incur additional debt, including guarantees by the Company or its subsidiaries, (ii) make investments, pay dividends on capital stock, redeem or repurchase capital stock, redeem or repurchase the Company's senior convertible notes or any subordinated obligations, (iii) create liens and negative pledges, (iv) make capital expenditures, (v) dispose of assets, (vi) make acquisitions, (vii) create or permit restrictions on the ability of Affymetrix' subsidiaries to pay dividends or make distributions to Affymetrix, (viii) engage in transactions with affiliates, (ix) engage in sale and leaseback transactions, (x) consolidate or merge with or into other companies or sell all or substantially all the Company's assets and (xi) change their nature of business, their organizational documents or their accounting policies. As of December 31, 2012, the Company was in compliance with these covenants.

The Company is required to make the following mandatory prepayments: (a) annual prepayments in an amount equal to 50% of excess cash flow (as defined in the Credit Agreement), subject to a leverage-based stepdown, (b) prepayments in an amount equal to 100% of the net cash proceeds of issuances or incurrences of debt obligations of Affymetrix and its subsidiaries (other than debt incurrences expressly permitted by the Credit Agreement), (c) prepayments in an amount equal to 100% of the net proceeds of asset sales in excess of $2.5 million annually (subject to certain reinvestment rights) and (d) prepayments in an amount equal to any indemnification payments or similar payments received under the Acquisition Agreement, subject to certain exclusions. During the year ended December 31, 2012, the Company was not obligated to make aforementioned mandatory prepayments.

The Credit Agreement also contains events of default, including payment defaults, breaches of representations and warranties, covenant defaults, cross-default and cross-acceleration to other indebtedness in excess of specified amounts, monetary judgment defaults in excess of specified amounts, bankruptcy or insolvency, actual or asserted invalidity or impairment of any part of the credit documentation (including the failure of any lien on a material portion of the collateral to remain perfected) and change of ownership or control defaults. In addition, the occurrence of a "fundamental change" under the indenture governing the 4.00% Notes would be an event of default under the Credit Agreement. As of December 31, 2012, there have been no events of default under the Credit Agreement.

Additionally, the proceeds from the Term Loan are net of debt issuance costs of approximately $4.5 million that are being amortized over the 5-year term of the Senior Secured Credit Facility beginning on June 25, 2012.

As of December 31, 2012, the Company had an outstanding principal balance of $73.3 million and incurred $3.6 million in interest under the Senior Secured Credit Facility for the year ended December 31, 2012.

The Term Loan will amortize in quarterly installments in amounts resulting in an annual amortization of 10% during the first year, 15% during the second year, 15% during the third year, 20% during the fourth year and 40% during the fifth year after June 25, 2012. The principal amount of unpaid maturities per the Credit Agreement is as follows (in thousands):

For the Year Ending December 31,
2013	$	-
2014		12,713
2015		13,813
2016		17,000
2017		29,750
Total	$	73,276

The Company paid $11.7 million of quarterly installments representing both fiscal 2012 and 2013 installments under the Credit Agreement. The Company intends to continue to make quarterly payments during fiscal 2013 and has classified $12.7 million as current on the accompanying Consolidated Balance Sheet for the year ended December 31, 2012.

4.00% Convertible Senior Notes

On June 25, 2012, the Company issued $105.0 million principal amount of 4.00% Convertible Senior Notes due July 1, 2019. The net proceeds, after debt issuance costs totaling $3.9 million from the 4.00% Notes offering, were $101.1 million. The 4.00% Notes bear interest of 4.00% per year payable semi-annually in arrears on January 1 and July 1 of each year, beginning on January 1, 2013 until the maturity date of July 1, 2019, unless converted, redeemed or repurchased earlier. The debt issuance costs are being amortized over the effective life of the 4.00% Notes, which is 7 years.

Holders of the 4.00% Notes may convert their 4.00% Notes into shares of the Company's stock at their option any time prior to the close of business on the business day immediately preceding the maturity date. The 4.00% Notes are initially convertible into approximately 170.0319 shares of the Company's common stock per $1,000 principal amount of notes, which equates to 17,857,143 shares of common stock, or an initial conversion price of $5.88 per share of common stock. The conversion rate is subject to certain customary anti-dilution adjustments. In addition, following certain corporate events that occur prior to the maturity date, the Company will increase the conversion rate for a holder who elects to convert its notes in connection with such a corporate event in certain circumstances. Holders may also require the Company to repurchase for cash their notes upon certain fundamental changes.

On or after July 1, 2017, the Company can redeem for cash all or part of the 4.00% Notes if the last reported sale price per share of the Company's common stock has been at least 130% of the conversion price then in effect for at least 20 trading days during any 30 consecutive trading day period ending within 5 trading days prior to the date on which the Company provides notice of redemption. The redemption price will be equal to 100% of the principal amount of the 4.00% Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

As of December 31, 2012, the outstanding balance on the 4.00% Notes was $105.0 million and interest incurred for the year ended December 31, 2012 was $2.5 million.

3.50% Senior Convertible Notes

During the first quarter of 2012, the Company repurchased approximately $91.6 million of aggregate principal amount of its 3.50% Notes in private transactions for total cash consideration of $92.1 million, including accrued interest of $0.5 million. Such notes were purchased at par and accelerated amortization of deferred financing costs of $0.3 million was recognized. The remaining $3.9 million aggregate principal amount of the 3.50% Notes was redeemed during the first quarter of 2013 as further discussed in Note 22. "Subsequent Events."