Exhibit 10.26
Lease between
Sobrato Development Companies #850 and DURECT Corporation
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Section.............................................................................................Page #
Parties..................................................................................................1
Premises.................................................................................................1
Use......................................................................................................1
Permitted Uses........................................................................................1
Uses Prohibited.......................................................................................1
Advertisements and Signs..............................................................................1
Covenants, Conditions and Restrictions................................................................2
Term and Rental..........................................................................................2
Base Monthly Rent.....................................................................................2
Late Charges..........................................................................................2
Security Deposit......................................................................................3
Conditional Security Deposit Reduction................................................................3
Construction.............................................................................................3
Acceptance of Possession and Covenants to Surrender......................................................3
Delivery and Acceptance...............................................................................3
Early Access..........................................................................................4
Condition Upon Surrender..............................................................................4
Failure to Surrender..................................................................................4
Alterations and Additions................................................................................5
Tenant's Alterations..................................................................................5
Free From Liens.......................................................................................5
Compliance With Governmental Regulations..............................................................5
Maintenance of Premises..................................................................................6
Landlord's Obligations................................................................................6
Tenant's Obligations..................................................................................6
Waiver of Liability...................................................................................6
Hazard Insurance.........................................................................................7
Tenant's Use..........................................................................................7
Landlord's Insurance..................................................................................7
Tenant's Insurance....................................................................................7
Waiver................................................................................................8
Taxes....................................................................................................8
Utilities................................................................................................8
Toxic Waste and Environmental Damage.....................................................................9
Use of Hazardous Material.............................................................................9
Tenant's Indemnity Regarding Hazardous Material.......................................................9
Notice of Release or Violation.......................................................................10
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Remediation Obligations..............................................................................10
Environmental Monitoring.............................................................................11
Environmental Monitoring.............................................................................11
Tenant's Default........................................................................................11
Remedies.............................................................................................11
Right to Re-enter....................................................................................12
Abandonment..........................................................................................12
No Termination.......................................................................................12
Non-Waiver...........................................................................................13
Performance by Landlord..............................................................................13
Habitual Default.....................................................................................13
Landlord's Liability...................................................................................13
Limitation on Landlord's Liability...................................................................13
Limitation on Tenant's Recourse......................................................................14
Indemnification of Landlord..........................................................................14
Destruction of Premises.................................................................................14
Landlord's Obligation to Restore.....................................................................14
Limitations on Landlord's Restoration Obligation.....................................................14
Condemnation............................................................................................15
Assignment or Sublease..................................................................................15
Consent by Landlord..................................................................................15
Assignment or Subletting Consideration...............................................................16
No Release...........................................................................................16
Reorganization of Tenant.............................................................................16
Permitted Transfers..................................................................................17
Effect of Default....................................................................................17
Effects of Conveyance................................................................................17
Successors and Assigns...............................................................................17
Option to Extend the Lease Term.........................................................................17
Grant and Exercise of Option.........................................................................17
Determination of Fair Market Rental..................................................................18
Resolution of a Disagreement over the Fair Market Rental.............................................18
Personal to Tenant...................................................................................19
General Provisions......................................................................................19
Attorney's Fees......................................................................................19
Authority of Parties.................................................................................19
Brokers..............................................................................................19
Choice of Law........................................................................................19
Dispute Resolution...................................................................................20
Entire Agreement.....................................................................................21
Entry by Landlord....................................................................................21
Estoppel Certificates................................................................................21
Exhibits.............................................................................................21
Interest.............................................................................................21
Modifications Required by Lender.....................................................................22
No Presumption Against Drafter.......................................................................22
Notices..............................................................................................22
Rent.................................................................................................22
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Representations......................................................................................22
Rights and Remedies..................................................................................22
Severability.........................................................................................22
Submission of Lease..................................................................................22
Subordination........................................................................................23
Survival of Indemnities..............................................................................23
Time.................................................................................................23
Transportation Demand Management Programs............................................................23
Waiver of Right to Jury Trial........................................................................23
Right of First Offer to Lease...........................................................................23
EXHIBIT A - Premises & Building.........................................................................26
EXHIBIT B - Draft Letter of Credit......................................................................27
EXHIBIT C - Hazardous Materials List....................................................................28
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1. Parties: THIS LEASE, is entered into on this 22nd day of March 2001,
("Effective Date") between Sobrato Development Companies #850 a California
Limited Partnership, whose address is 10600 North De Anza Boulevard, Suite 200,
Cupertino, CA 95014 and DURECT Corporation, a Delaware Corporation, whose
address is 10240 Bubb Road, Cupertino, California, 95014 hereinafter called
respectively Landlord and Tenant.
2. Premises: Landlord hereby leases to Tenant, and Tenant hires from Landlord
those certain Premises with the appurtenances, situated in the City of
Cupertino, County of Santa Clara, State of California, commonly known and
designated as 10261 Bubb Road, consisting of 19,600 rentable square feet
("Building") including parking for approximately 59 cars as outlined in red on
Exhibit "A" and all improvements located therein including but not limited to
parking areas, landscaping, loading docks, sidewalks, service areas and other
facilities.
3. Use:
A. Permitted Uses: Tenant shall use the Premises as permitted under
applicable zoning laws only for the following purposes and shall not change the
use of the Premises without the prior written consent of Landlord: Office,
research and development, marketing, light manufacturing, ancillary storage and
other incidental uses. Tenant shall use only the number of parking spaces
allocated to Tenant under this Lease. All commercial trucks and delivery
vehicles shall (i) be parked at the rear of the Building, (ii) loaded and
unloaded in a manner which does not interfere with the businesses of other
occupants of the Project, and (iii) permitted to remain within the Project only
so long as is reasonably necessary to complete the loading and unloading.
Landlord makes no representation or warranty that any specific use of the
Premises desired by Tenant is permitted pursuant to any Laws.
B. Uses Prohibited: Tenant shall not commit or suffer to be committed
on the Premises any waste, nuisance, or other act or thing which may disturb the
quiet enjoyment of any other tenant in or around the Premises, nor allow any
sale by auction or any other use of the Premises for an unlawful purpose. Tenant
shall not (i) damage or overload the electrical, mechanical or plumbing systems
of the Premises, (ii) attach, hang or suspend anything from the ceiling, walls
or columns of the building or set any load on the floor in excess of the load
limits for which such floors are designed, or (iii) generate dust, fumes or
waste products which create a fire or health hazard or damage the Premises or
any portion of the Project, including without limitation the soils or ground
water in or around the Project. No materials, supplies, equipment, finished
products or semi-finished products, raw materials or articles of any nature, or
any waste materials, refuse, scrap or debris, shall be stored upon or permitted
to remain on any portion of the Premises outside of the Building without
Landlord's prior approval, which approval may be withheld in its sole
discretion.
C. Advertisements and Signs: Tenant will not place or permit to be placed,
in, upon or about the Premises any signs not approved by the city and other
governing authority having jurisdiction. Tenant will not place or permit to be
placed upon the Premises any signs, advertisements or notices without the
written consent of Landlord as to type, size, design, lettering, coloring and
location, which consent will not be unreasonably withheld. Any sign placed on
the Premises shall be removed by Tenant, at its sole cost, prior to the
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Expiration Date or promptly following the earlier termination of the Lease, and
Tenant shall repair, at its sole cost, any damage or injury to the Premises
caused thereby, and if not so removed, then Landlord may have same so removed at
Tenant's expense.
D. Covenants, Conditions and Restrictions: This Lease is subject to the
effect of (i) any covenants, conditions, restrictions, easements, mortgages or
deeds of trust, ground leases, rights of way of record and any other matters or
documents of record; and (ii) any zoning laws of the city, county and state
where the Building is situated (collectively referred to herein as
"Restrictions") and Tenant will conform to and will not violate the terms of any
such Restrictions.
4. Term and Rental:
A. Base M0onthly Rent: The term ("Lease Term") shall be for sixty (60)
months, commencing on June 1, 2001 (the "Commencement Date") and ending on May
31, 2006 ("Expiration Date"). Notwithstanding the Parties agreement that the
Lease Term begins on the Commencement Date, this Lease and all of the
obligations of Landlord and Tenant shall be binding and in full force and effect
from and after the Effective Date. In addition to all other sums payable by
Tenant under this Lease, Tenant shall pay base monthly rent ("Base Monthly
Rent") for the Premises starting on the Commencement Date according to the
following schedule:
Mos. 01-12: $101,920.00 per month
Mos. 13-24: $105,997.00 per month
Mos. 25-36: $110,237.00 per month
Mos. 37-48: $114,646.00 per month
Mos. 49-60: $119,232.00 per month
Base Monthly Rent shall be due in advance on or before the first day of each
calendar month during the Lease Term. All sums payable by Tenant under this
Lease shall be paid to Landlord in lawful money of the United States of America,
without offset or deduction and without prior notice or demand, at the address
specified in Section 1 of this Lease or at such place or places as may be
designated in writing by Landlord during the Lease Term. Base Monthly Rent for
any period less than a calendar month shall be a pro rata portion of the monthly
installment. Concurrently with Tenant's execution of this Lease, Tenant shall
pay to Landlord the sum of One Hundred Five Thousand Eight Hundred Forty Dollars
($101,920.00) as prepaid rent for the first month of the Lease.
B. Late Charges: Tenant hereby acknowledges that late payment by Tenant to
Landlord of Base Monthly Rent and other sums due hereunder will cause Landlord
to incur costs not contemplated by this Lease, the exact amount of which is
extremely difficult to ascertain. Such costs include but are not limited to:
administrative, processing, accounting, and late charges which may be imposed on
Landlord by the terms of any contract, revolving credit, mortgage, or trust deed
covering the Premises. Accordingly, if any installment of Base Monthly Rent or
other sum due from Tenant shall not be received by Landlord or its designee
within five (5) business days after the rent is due, Tenant shall pay to
Landlord a late charge equal to five (5%) percent of such overdue amount, which
late charge shall be due and payable on the same date that the overdue amount
was due. The parties agree that such late charge represents a fair and
reasonable estimate of the costs Landlord will incur by reason of late payment
by Tenant, excluding interest and attorneys fees and costs. If any rent or other
sum due from Tenant remains delinquent for a period in excess of thirty (30)
days then, in addition to such late charge, Tenant shall pay to Landlord
interest on any rent that is not paid when due at the Agreed Interest Rate
specified in Section 19.J following the date such amount became due until paid.
Acceptance by Landlord of such late charge shall not constitute a waiver of
Tenant's default with respect to such overdue amount nor prevent Landlord from
exercising any of the other rights and remedies granted hereunder. In the event
that a late charge is
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payable hereunder, whether or not collected, for three (3) consecutive
installments of Base Monthly Rent, then the Base Monthly Rent shall
automatically become due and payable quarterly in advance, rather than monthly,
notwithstanding any provision of this Lease to the contrary.
C. Security Deposit: Concurrently with Tenant's execution of this Lease,
Tenant has deposited with Landlord the sum of One Million Dollars
($1,000,000.00) ("Security "Deposit"). Landlord shall not be deemed a trustee of
the Security Deposit, may use the Security Deposit in business, and shall not be
required to segregate it from its general accounts. Tenant shall not be entitled
to interest on the Security Deposit. If Tenant defaults with respect to any
provisions of the Lease, including but not limited to the provisions relating to
payment of Base Monthly Rent or other charges, Landlord may, to the extent
reasonably necessary to remedy Tenant's default, use any or all of the Security
Deposit towards payment of the following: (i) Base Monthly Rent or other charges
in default; (ii) any other amount which Landlord may spend or become obligated
to spend by reason of Tenant's default including, but not limited to Tenant's
failure to restore or clean the Premises following vacation thereof. If any
portion of the Security Deposit is so used or applied, Tenant shall, within ten
(10) days after written demand from Landlord, deposit cash with Landlord in an
amount sufficient to restore the Security Deposit to its full original amount,
and shall pay to Landlord such other sums as necessary to reimburse Landlord for
any sums paid by Landlord. If Tenant shall have a monetary default more than
three (3) times in any twelve (12) month period, irrespective of whether or not
such default is cured, then the Security Deposit shall, within ten (10) days
after demand by Landlord, be increased by Tenant to an amount equal to three (3)
times the Base Monthly Rent. Tenant may not assign or encumber the Security
Deposit without the consent of Landlord. Any attempt to do so shall be void and
shall not be binding on Landlord. The Security Deposit shall be returned to
Tenant within thirty (30) days after the Expiration Date and surrender of the
Premises to Landlord, less any amount deducted in accordance with this Section,
together with Landlord's written notice itemizing the amounts and purposes for
such deduction.
Landlord agrees that in lieu of a cash Security Deposit, Tenant may deposit a
letter of credit ("Letter of Credit") substantially in the form attached hereto
as Exhibit "B". Landlord shall be entitled to draw against the Letter of Credit
at any time provided only that Landlord certifies to the issuer of the Letter of
Credit that Tenant is in default under the Lease. Tenant shall keep the letter
of credit in effect during the entire Lease Term, as the same may be extended,
plus a period of four (4) weeks after expiration of the Lease Term. At least
thirty (30) days prior to expiration of any Letter of Credit, the term thereof
shall be renewed or extended for a period of at least one (1) year. Tenant's
failure to so renew or extend the Letter of Credit shall be a material default
of this Lease by Tenant. In the event Landlord draws against the Letter of
Credit, Tenant shall replenish the existing Letter of Credit or cause a new
Letter of Credit to be issued such that the aggregate amount of letters of
credit available to Landlord at all times during the Lease Term is the amount of
the Security Deposit originally required.
E. Conditional Security Deposit Reduction: Provided Tenant has not been in
default under the Lease, then at the commencement of the 13th month of the Lease
Term and every 12 months thereafter during the initial Lease Term, , Tenant
shall be allowed to reduce the amount of the cash Security Deposit or Letter of
Credit by $200,000.00.
5. Construction: This section has been intentionally omitted as Landlord is
performing no construction work for Tenant pursuant to the terms of this
Lease.
6. Acceptance of Possession and Covenants to Surrender:
A. Delivery and Acceptance: On the Commencement Date, Landlord shall deliver
and Tenant shall accept possession of the Premises and enter into occupancy of
the Premises on the Commencement Date. Tenant acknowledges that it has had an
opportunity to conduct, and has conducted, such inspections of
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the Premises as it deems necessary to evaluate its condition. Except as
otherwise specifically provided herein, Tenant agrees to accept possession of
the Premises in its then existing condition, subject to all Restrictions and
without representation or warranty by Landlord.
B. Early Access: Tenant shall be allowed early access and occupancy of the
Premises from April 1, 2001 until the Commencement Date ("Early Access Period").
Tenant shall be subject to all the terms and conditions of the Lease during the
Early Access Period except that no Base Monthly Rent or other expenses shall be
due or payable.
C. Condition Upon Surrender: Tenant further agrees on the Expiration Date or
on the sooner termination of this Lease, to surrender the Premises to Landlord
in good condition and repair, normal wear and tear, casualty and condemnation
excepted. In this regard, "normal wear and tear" shall be construed to mean wear
and tear caused to the Premises by the natural aging process which occurs in
spite of prudent application of the best standards for maintenance, repair
replacement, and janitorial practices, and does not include items of neglected
or deferred maintenance. In any event, Tenant shall cause the following to be
done prior to the Expiration Date or sooner termination of this Lease: (i) all
interior walls shall be patched, cleaned, and made paint-ready, (ii) all tiled
floors shall be cleaned and waxed, (iii) all carpets shall be cleaned and
shampooed, (iv) all broken, marred, stained or nonconforming acoustical ceiling
tiles shall be replaced, (v) all cabling placed above the ceiling by Tenant or
Tenant's contractors shall be removed, (vi) all windows shall be washed; (vii)
the HVAC system shall be serviced by a reputable and licensed service firm and
left in "good operating condition and repair" as so certified by such firm,
(viii) the plumbing and electrical systems and lighting shall be placed in good
order and repair (including replacement of any burned out, discolored or broken
light bulbs, ballasts, or lenses. On or before the Expiration Date or sooner
termination of this Lease, Tenant shall remove all its personal property and
trade fixtures from the Premises. All property and fixtures not so removed shall
be deemed as abandoned by Tenant. Tenant shall ascertain from Landlord within
ninety (90) days before the Expiration Date whether Landlord desires to have any
Alterations made by Tenant (as defined in Section 7) removed and the Premises or
any parts thereof restored to a standard open office plan with materials and
finishes consistent with the other open office areas with the Premises, or to
cause Tenant to surrender all Alterations in place to Landlord. If Landlord
shall so desire, Tenant shall, at Tenant's sole cost and expense, remove such
Alterations as Landlord requires and shall repair and restore said Premises or
such parts thereof before the Expiration Date. Such repair and restoration shall
include causing the Premises to be brought into compliance with all applicable
building codes and laws in effect at the time of the removal to the extent such
compliance is necessitated by the repair and restoration work.
D. Failure to Surrender: If the Premises are not surrendered at the
Expiration Date or sooner termination of this Lease in the condition required by
this Section 6, Tenant shall be deemed in a holdover tenancy pursuant to this
Section 6.C and Tenant shall indemnify, defend, and hold Landlord harmless
against loss or liability resulting from delay by Tenant in so surrendering the
Premises provided, however, that Landlord shall be required to give Tenant
thirty (30) days' advance notice of any potential loss or liability of which
Landlord is aware resulting from such delay including, without limitation, any
claims made by any succeeding tenant founded on such delay and costs incurred by
Landlord in returning the Premises to the required condition, plus interest at
the Agreed Interest Rate. If Tenant remains in possession of the Premises after
the Expiration Date or sooner termination of this Lease without Landlord's
consent, Tenant's continued possession shall be on the basis of a tenancy at
sufferance and Tenant shall pay as rent during the holdover period an amount
equal to one hundred fifty percent (150%) of the Base Monthly Rent due in the
month preceding the termination or Expiration Date, plus all other amounts
payable by Tenant under this Lease. Any holding over shall otherwise be on the
terms and conditions herein specified, except those provisions relating to the
Lease Term and any options to extend or renew, which provisions shall be of no
further force and effect following the expiration of the applicable exercise
period. This provision shall survive the termination or expiration of the Lease.
Page 4
7. Alterations and Additions:
A. Tenant's Alterations: Tenant shall not make, or suffer to be made, any
alteration or addition to the Premises ("Alterations"), or any part thereof,
without obtaining Landlord's prior written consent, which shall not be
unreasonably withheld or delayed, and delivering to Landlord the proposed
architectural and structural plans for all such Alterations at least fifteen
(15) days prior to the start of construction. If such Alterations affect the
structure of the Building, Tenant additionally agrees to reimburse Landlord its
reasonable out-of-pocket costs incurred in reviewing Tenant's plans. After
obtaining Landlord's consent, which consent shall state whether or not Landlord
will require Tenant to remove such Alteration at the expiration or earlier
termination of this Lease, Tenant shall not proceed to make such Alterations
until Tenant has obtained all required governmental approvals and permits, and
provides Landlord reasonable security, in form reasonably approved by Landlord,
to protect Landlord against mechanics' lien claims. Tenant agrees to provide
Landlord (i) written notice of the anticipated and actual start-date of the
work, (ii) a complete set of half-size (15" X 21") vellum as-built drawings, and
(iii) a certificate of occupancy for the work upon completion of the
Alterations. All Alterations shall be constructed in compliance with all
applicable building codes and laws including, without limitation, the Americans
with Disabilities Act of 1990 as amended from time to time. Upon the Expiration
Date, all Alterations, except movable furniture and trade fixtures, shall become
a part of the realty and belong to Landlord but shall nevertheless be subject to
removal by Tenant as provided in Section 6 above. Alterations which are not
deemed as trade fixtures include heating, lighting, electrical systems, air
conditioning, walls, carpeting, or any other installation which has become an
integral part of the Premises. All Alterations shall be maintained, replaced or
repaired by Tenant at its sole cost and expense.
Notwithstanding the foregoing, Tenant shall be entitled, without obtaining
Landlord's consent, to make Alterations which do not affect the structure of the
Building or which do not cost more than Twenty Five Thousand Dollars
($25,000.00) per Alteration nor an aggregate of Fifty Thousand Dollars
($50,000.00) in any twelve (12) month period ("Permitted Alterations");
provided, however, that: (i) Tenant shall still be required to comply with all
other provisions of this paragraph; and (ii) such Permitted Alterations are
subject to removal by Tenant at Landlord's election pursuant to Section 6.B.
above at the expiration or earlier termination of the Lease.
B. Free From Liens: Tenant shall keep the Premises free from all liens
arising out of work performed, materials furnished, or obligations incurred by
Tenant or claimed to have been performed for Tenant. In the event Tenant fails
to discharge any such lien within thirty (30) days after receiving notice of the
filing, Landlord shall immediately be entitled to discharge the lien at Tenant's
expense and all resulting costs incurred by Landlord, including attorney's fees
shall be due from Tenant as additional rent.
C. Compliance With Governmental Regulations: The term Laws or Governmental
Regulations shall include all federal, state, county, city or governmental
agency laws, statutes, ordinances, standards, rules, requirements, or orders now
in force or hereafter enacted, promulgated, or issued. The term also includes
government measures regulating or enforcing public access, traffic mitigation,
occupational, health, or safety standards for employers, employees, landlords,
or tenants. Tenant, at Tenant's sole expense will compy with all such
Governmental Regulatons and shall make all repairs, replacements, alterations,
or improvements necessary to comply with all Governmental Regulations. The
judgment of any court of competent jurisdiction or the admission of Tenant in
any action or proceeding against Tenant (whether Landlord be a party thereto or
not) that Tenant has violated any such law, regulation or other requirement in
its use of the Premises shall be conclusive of that fact as between Landlord and
Tenant. All costs associated with compliance with this Section 7.C. shall be
borne by Tenant if the requirement for compliance is triggered by: (i) Tenant's
specific use or change of use of the Premises; (ii) Tenant's application for any
permit or governmental approval; or (iii) Tenant's construction, installation,
or
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removal of any Alterations or trade fixtures. If a capital improvement or
replacement to the Premises is required for any other reason, then within ten
(10) business days after Tenant delivers evidence reasonably satisfactory to
Landlord substantiating Tenant's payment of such capital improvement, Landlord
shall reimburse Tenant for the cost of the improvement or replacement less that
portion of the cost equal to the product of such total cost multiplied by a
fraction, the numerator of which is the number of years remaining in the Lease
Term, the denominator of which is the useful life (in years) of the capital
improvement, as reasonably determined by Landlord in accordance with generally
accepted accounting principles. If the capital improvement is made during the
initial Lease Term, Tenant's share shall initially be based on the initial Lease
Term and if Tenant thereafter exercises its renewal option, then upon the
commencement of the Option term, an adjustment shall be made so that during the
Option Term Tenant shall pay its share determined by multiplying the cost of the
capital improvement by a fraction, the numerator of which is the sum of the
Lease Term remaining at the time the capital expenditure was made and the Option
Term and the denominator of which is the useful life of the capital improvement.
8. Maintenance of Premises:
A. Landlord's Obligations: Landlord at its sole cost and expense, shall
maintain in good condition, order, and repair, and replace as and when
necessary, the foundation, exterior load bearing walls and roof structure of the
Building Shell. Landlord shall deliver the Premises to Tenant on the
Commencement Date in good operating condition and repair, and shall warrant: (i)
the Building operating systems for the first two months of the Lease Term; and
(ii) the roof membrane for the first nine months of the Lease Term. Such
warranty shall exclude (i) routine maintenance, (ii) damage caused by the
negligence or misuse by Tenant and (iii) acts of God.
B. Tenant's Obligations: Tenant shall clean, maintain, repair and replace
when necessary the Premises and every part thereof through regular inspections
and servicing, including but not limited to: (i) all plumbing and sewage
facilities, (ii) all heating ventilating and air conditioning facilities and
equipment, (iii) all fixtures, interior walls floors, carpets and ceilings, (iv)
all windows, door entrances, plate glass and glazing systems including caulking,
(v) all electrical facilities and equipment, (vi) all automatic fire
extinguisher equipment, (vii) the parking lot and all underground utility
facilities servicing the Premises, (viii) the roof membrane system, and (ix) all
landscaping and shrubbery. All wall surfaces and floor tile are to be maintained
in an as good a condition as when Tenant took possession free of holes, gouges,
or defacements. With respect to items (ii) and (viii) above, Tenant shall
provide Landlord a copy of a service contract between Tenant and a licensed
service contractor providing for periodic maintenance of all such systems or
equipment in conformance with the manufacturer's recommendations. Tenant shall
provide Landlord a copy of such preventive maintenance contracts and paid
invoices for the recommended work if requested by Landlord. If as a part of
Tenant's fulfilment of its maintenance obligations under this Section 8.B.
during the last three (3) years of the Lease Term, a roof replacement to the
Premises is paid for by Tenant, Landlord shall reimburse Tenant for the cost of
the replacement less the sum of (i) Twenty Thousand Dollars ($20,000.00) plus
(ii) that portion of the cost over $20,000.00 equal to the product of such cost
multiplied by a fraction, the numerator of which is the number of years
remaining in the Lease Term, the denominator of which is the useful life (in
years) of the roof replacement. If the roof replacement is made during the
initial Lease Term, Tenant's share shall initially be based on the initial Lease
Term and if Tenant thereafter exercises its renewal option, then upon the
commencement of the Option term, an adjustment shall be made so that during the
Option Term Tenant shall reimburse Landlord an amount determined by multiplying
the cost of the roof replacement by a fraction, the numerator of which is the
sum of the Lease Term remaining at the time the replacement was made and the
Option Term and the denominator of which is the useful life of the new roof.
C. Waiver of Liability: Failure by Landlord to perform any defined services,
or any cessation thereof, when such failure is caused by accident, breakage,
repairs, strikes, lockout or other labor disturbances or labor disputes of any
character or by any other cause, similar or dissimilar, unless due to
Page 6
the active negligence or willful misconduct of Landlord, shall not render
Landlord liable to Tenant in any respect, including damages to either person or
property, nor be construed as an eviction of Tenant, nor cause an abatement of
rent, nor relieve Tenant from fulfillment of any covenant or agreement hereof.
Should any equipment or machinery utilized in supplying the services listed
herein break down or for any cause cease to function properly, upon receipt of
written notice from Tenant of any deficiency or failure of any services,
Landlord shall use reasonable diligence to repair the same promptly, but Tenant
shall have no right to terminate this Lease and shall have no claim for rebate
of rent or damages on account of any interruptions in service occasioned thereby
or resulting therefrom. Tenant waives the provisions of California Civil Code
Sections 1941 and 1942 concerning the Landlord's obligation of tenantability and
Tenant's right to make repairs and deduct the cost of such repairs from the
rent. Landlord shall not be liable for a loss of or injury to person or
property, however occurring, through or in connection with or incidental to
furnishing, or its failure to furnish, any of the foregoing, unless due to the
active negligence or willful misconduct.
9. Hazard Insurance:
A. Tenant's Use: Tenant shall not use or permit the Premises, or any part
thereof, to be used for any purpose other than that for which the Premises are
hereby leased; and no use of the Premises shall be made or permitted, nor acts
done, which will cause an increase in premiums or a cancellation of any
insurance policy covering the Premises or any part thereof, nor shall Tenant
sell or permit to be sold, kept, or used in or about the Premises, any article
prohibited by the standard form of fire insurance policies. Tenant shall, at its
sole cost, comply with all requirements of any insurance company or organization
necessary for the maintenance of reasonable fire and public liability insurance
covering the Premises and appurtenances.
B. Landlord's Insurance: Landlord agrees to purchase and keep in force All
Risk and fire insurance in an amount equal to the replacement cost of the
Building (not including any Alterations paid for by Tenant) as determined by
Landlord's insurance company's appraisers. At Landlord's election, such fire and
property damage insurance may be endorsed to cover loss caused by such
additional perils against which Landlord may elect to insure, including
earthquake and/or flood, and shall contain reasonable deductibles. Additionally
Landlord may maintain a policy of (i) commercial general liability insurance
insuring Landlord (and such others designated by Landlord) against liability for
personal injury, bodily injury, death and damage to property occurring or
resulting from an occurrence in, on or about the Premises or Project in an
amount as Landlord determines is reasonably necessary for its protection, and
(ii) rental lost insurance covering a twelve (12) month period. Tenant agrees to
pay Landlord as additional rent, on demand, the full cost of said insurance as
evidenced by insurance billings to Landlord, and in the event of damage covered
by said insurance, the amount of any deductible under such policy. Payment shall
be due to Landlord within ten (10) days after written invoice to Tenant. It is
understood and agreed that Tenant's obligation under this Section will be
prorated to reflect the Lease Commencement and Expiration Dates. In the event
Landlord obtains earthquake insurance pursuant to this paragraph, Landlord
agrees that the cost to Tenant shall not exceed ten cents ($.10) per square foot
of the Premises per month, compounded each year during the Lease term at three
percent (3%). If the premium due for such insurance exceeds the foregoing
amount, Landlord can elect to continue such insurance and pay the excess portion
of the premium or to terminate earthquake coverage upon ten (10) days' prior
written notice to Tenant, unless Tenant notifies Landlord in writing within such
ten (10) day period that Tenant will pay the entire cost of the insurance
premium due for that year. The parties shall review the earthquake coverage and
premiums due annually during the Lease term in accordance with the foregoing.
C. Tenant's Insurance: Tenant agrees, at its sole cost, to insure its
personal property and Alterations against damage for their full replacement
value (without depreciation). Said insurance shall provide All Risk and fire
coverage equal to the replacement cost of said property. The property casualty
Page 7
insurance provided by Tenant as required by this paragraph shall be carried in
favor of Landlord and Tenant as their respective interests may appear and shall
provide that any loss to Tenant Improvements shall be adjusted with and be
payable to both Landlord and Tenant. Tenant shall deliver a copy of the policy
and renewal certificate to Landlord. Tenant agrees, at its sole cost, and to
obtain worker's compensation and Commercial General Liability insurance for
occurrences within the Premises with a combined single limit of not less than
Five Million Dollars ($5,000,000.00). Tenant's liability insurance shall be
primary insurance containing a cross-liability endorsement, and shall provide
coverage on an "occurrence" rather than on a "claims made" basis. All such
insurance shall provide for severability of interests; shall provide that an act
or omission of one of the named (additional) insureds shall not reduce or avoid
coverage to the other named (additional insureds). Tenant shall name Landlord
and Landlord's lender as an additional insured and shall deliver a copy of the
policies and renewal certificates to Landlord. All insurance policies required
under this section shall provide for thirty (30) days' prior written notice to
Landlord of any cancellation, termination, or reduction in coverage.
Notwithstanding the above, Landlord retains the right to have Tenant provide
other forms of insurance which may be reasonably required to cover future risks.
D. Waiver: Landlord and Tenant hereby waive all tort, contract or other
rights each may have against the other on account of any loss or damage
sustained by Landlord or Tenant, as the case may be, or to the Premises or its
contents, which may arise from any risk covered by their respective insurance
policies (or which would have been covered had such insurance policies been
maintained in accordance with this Lease) as set forth above. The Parties shall
each obtain from their respective insurance companies a waiver of any right of
subrogation which said insurance company may have against Landlord or Tenant, as
the case may be.
10. Taxes: Tenant shall be liable for and shall pay as additional rental, prior
to delinquency, the following: (i) all taxes and assessments levied against
Tenant's personal property and trade or business fixtures; (ii) all real estate
taxes and assessment installments or other impositions or charges which may be
levied on the Premises or upon the occupancy of the Premises, including any
substitute or additional charges which may be imposed applicable to the Lease
Term; and (iii) real estate tax increases due to an increase in assessed value
resulting from a sale, transfer or other change of ownership of the Premises as
it appears on the City and County tax bills during the Lease Term. All real
estate taxes shall be prorated to reflect the Lease Commencement and Expiration
Dates. If, at any time during the Lease Term a tax, excise on rents, business
license tax or any other tax, however described, is levied or assessed against
Landlord as a substitute or addition, in whole or in part, for taxes assessed or
imposed on land or Buildings, Tenant shall pay and discharge its pro rata share
of such tax or excise on rents or other tax before it becomes delinquent; except
that this provision is not intended to cover net income taxes, city or county
transfer taxes, inheritance, gift or estate tax imposed upon Landlord. In the
event that a tax is placed, levied, or assessed against Landlord and the taxing
authority takes the position that Tenant cannot pay and discharge its pro rata
share of such tax on behalf of Landlord, then at Landlord's sole election,
Landlord may increase the Base Monthly Rent by the exact amount of such tax and
Tenant shall pay such increase. If by virtue of any application or proceeding
brought by Landlord, there results a reduction in the assessed value of the
Premises during the Lease Term, Tenant agrees to pay Landlord a fee consistent
with the fees charged by a third party appeal firm for such services. Tenant at
its cost shall have the right, at any time, to seek a reduction in the assessed
valuation of the Premises or to contest any real property taxes that are to be
paid by Tenant. Landlord shall not be required to join in any such proceeding or
contest unless the provisions of any law require that the proceeding or contest
be brought by or in the name of the owner of the Premises. In such event,
Landlord shall join in the proceeding or contest or permit it to be brought in
Landlord's name, provided that Landlord is not required to bear any cost in
connection therewith.
11. Utilities: Tenant shall pay directly to the providing utility all water,
gas, electric, telephone, and other utilities supplied to the Premises.
Landlord shall not be liable for loss of or injury to person or
Page 8
property, however occurring, through or in connection with or incidental to
furnishing or the utility company's failure to furnish utilities to the
Premises, and in such event Tenant shall not be entitled to abatement or
reduction of any portion of Base Monthly Rent or any other amount payable under
this Lease.
12. Toxic Waste and Environmental Damage:
A. Use of Hazardous Material: Without the prior written consent of Landlord,
Tenant or Tenant's agents, employees, contractors, subtenants or invitees
("Tenant's Agents") shall not cause or permit any Hazardous Material, as defined
below, to be generated, brought onto, used, stored, created, released or
disposed of in or about the Premises, except that Tenant may use and store small
quantities of common household cleaners and office supplies on the Premises
provided such use and storage is in strict compliance with all Environmental
Laws, as defined below. As used herein, the term "Hazardous Material" shall mean
any substance, material or waste (whether liquid, solid or gaseous), which is a
pollutant or contaminant, or which is hazardous, toxic, ignitable, reactive,
corrosive, dangerous, harmful or injurious, or which presents a risk to public
health or the environment, or which is or may become regulated by or under the
authority of any Environmental Laws, as defined below, including, without
limitation, asbestos or asbestos containing materials, petroleum products,
pesticides, polychlorinated biphenyls, flammable explosives, radioactive
materials and urea formaldehyde. As used herein, the term "Environmental Laws"
shall mean any present or future federal, state or local law, whether common
law, statute, rule, regulation or ordinance, judgment, order, or other
governmental restriction, guideline, listing or requirement, relating to the
environment or any Hazardous Material, including without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
42 U.S.C. ss.9601 et seq., the Resource Conservation and Recovery Act of 1976,
42 U.S.C. ss.6901 et seq., and applicable provisions of the California Health
and Safety Code and the California Water Code, all as heretofore or hereafter
may be amended from time to time. In order to obtain consent, Tenant shall
deliver to Landlord its written proposal describing the Hazardous Material to be
brought onto the Premises, measures to be taken for storage and disposal
thereof, and safety measures to be employed to prevent pollution or
contamination of the air, soil, surface and ground water. Landlord's approval
may be withheld in its reasonable judgment. In the event Landlord consents to
Tenant's use of Hazardous Materials on the Premises or such consent is not
required, Tenant represents and warrants that it shall comply with all
Governmental Regulations applicable to Hazardous Material including doing the
following: (i) adhere to all reporting and inspection requirements imposed by
Federal, State, County or Municipal laws, ordinances or regulations and provide
Landlord a copy of any such reports or agency inspections; (ii) obtain and
provide Landlord copies of all necessary permits required for the use and
handling of Hazardous Material on the Premises; (iii) enforce Hazardous Material
handling and disposal practices consistent with industry standards; (iv)
surrender the Premises free from any Hazardous Materials arising from Tenant's
generating, bringing, using, storing, creating, releasing, or disposing of
Hazardous Material; and (v) properly close the facility with regard to Hazardous
Material including the removal or decontamination of any process piping,
mechanical ducting, storage tanks, containers, or trenches which have come into
contact with Hazardous Material and obtaining a closure certificate from the
local administering agency prior to the Expiration Date.
B. Tenant's Indemnity Regarding Hazardous Material: Tenant shall, at its
sole cost and expense and with counsel reasonably acceptable to Landlord,
indemnify, defend and hold harmless Landlord and Landlord's trustees,
shareholders, directors, officers, employees, partners, affiliates, agents,
successors and assigns from, and against any and all claims, liabilities,
obligations, penalties, fines, actions, costs or expenses incurred or suffered
arising from generating, bringing, using, storing, creating, releasing or
disposing of Hazardous Material by Tenant or Tenant's Agents in or about the
Premises, or the violation of any Governmental Regulation or Environmental Laws
by Tenant or Tenant's Agents. This indemnification applies whether or not the
concentrations of any such Hazardous Material exceed applicable maximum
contaminant or action levels or any governmental agency has issued a cleanup
Page 9
order. Tenant's indemnification, defense, and hold harmless obligations include,
without limitation, the following: (i) claims, liabilities, costs or expenses
resulting from or based upon administrative, judicial (civil or criminal) or
other action, legal or equitable, brought by any private or public person under
present or future laws, including Environmental Laws; (ii) claims, liabilities,
costs or expenses pertaining to the identification, monitoring, cleanup,
containment, or removal of Hazardous Material from soils, riverbeds or aquifers
including the provision of an alternative public drinking water source; (iii)
losses attributable to diminution in the value of the Premises or the Building
(iv) loss or restriction of use of rentable space in the Building; (v) adverse
effect on the marketing of any space in the Building; and (vi) all other
liabilities, obligations, penalties, fines, claims, actions (including remedial
or enforcement actions of any kind and administrative or judicial proceedings,
orders or judgments), damages (including consequential and punitive damages),
and costs (including attorney, consultant, and expert fees and expenses)
resulting from the release or violation. This Section 12.B shall survive the
expiration or termination o this Lease.
C. Notice of Release or Violation: If, during the Lease Term (including any
extensions), Tenant becomes aware of (i) any actual or threatened release of a
Hazardous Material on, under or about the Premises or (ii) any inquiry,
investigation, proceeding, claim, notice or order by any private or public
person or entity regarding the presence of Hazardous Material on, under or about
the Premises, including alleged violations of Environmental Laws by Tenant or
Tenant's Agents., Tenant shall give Landlord written notice of the release or
investigation within five (5) days after learning of it and shall simultaneously
and thereafter furnish Landlord with copies of any claims, notices of violation,
reports, or other writings received by Tenant concerning the release or
investigation. In the event of an actual release of Hazardous Materials, Tenant
shall also give Landlord immediate verbal notice of such release.
In the event of any release on or into the Premises or into the soil or ground
water under the Premises, the Building or the Project of any Hazardous Materials
used, treated, stored or disposed of by Tenant or Tenant's Agents, Tenant agrees
to comply, at its sole cost, with all laws, regulations, ordinances and orders
of any federal, state or local agency relating to the monitoring or remediation
of such Hazardous Materials. In the event of any such release of Hazardous
Materials Tenant shall immediately give verbal and follow-up written notice of
the release to Landlord, and Tenant agrees to meet and confer with Landlord and
its Lender to attempt to eliminate and mitigate any financial exposure to such
Lender and resultant exposure to Landlord under California Code of Civil
Procedure Section 736(b) as a result of such release, and promptly to take
reasonable monitoring, cleanup and remedial steps given, inter alia, the
historical uses to which the Property has and continues to be used, the risks to
public health posed by the release, the then available technology and the costs
of remediation, cleanup and monitoring, consistent with acceptable customary
practices for the type and severity of such contamination and all applicable
laws. Nothing in the preceding sentence shall eliminate, modify or reduce the
obligation of Tenant under 12.B of this Lease to indemnify, defend and hold
Landlord harmless from any claims liabilities, costs or expenses incurred or
suffered by Landlord. Tenant shall provide Landlord prompt written notice of
Tenant's monitoring, cleanup and remedial steps.
In the absence of an order of any federal, state or local governmental or
quasi-governmental agency relating to the cleanup, remediation or other response
action required by applicable law, any dispute arising between Landlord and
Tenant concerning Tenant's obligation to Landlord under this Section 12.C
concerning the level, method, and manner of cleanup, remediation or response
action required in connection with such a release of Hazardous Materials shall
be resolved by mediation and/or arbitration pursuant to this Lease.
D. Remediation Obligations: In the event of any release on, under or about
the Premises of any Hazardous Material generated, brought onto, used, stored,
created or disposed of by Tenant or Tenant's Agents, Tenant shall, at its sole
cost, promptly take all necessary and appropriate actions, in compliance with
applicable Environmental Laws, to remove or remediate such Hazardous Material,
whether or not
Page 10
any governmental agency has issued a cleanup order, so as to return the Premises
to the condition that existed before the introduction of such Hazardous
Material. Tenant shall obtain Landlord's written consent prior to implementing
any proposed removal or remedial action, provided, however, that Tenant shall be
entitled to respond immediately to an emergency without first obtaining
Landlord's written consent. Nothing in the preceding sentence shall in any way
eliminate, modify or reduce the obligation of Tenant under 12.B of this Lease to
indemnify, defend and hold Landlord harmless from any claims, liabilities, costs
or expenses incurred or suffered by Landlord.
E. Environmental Monitoring: Landlord and its agents shall have the right to
inspect, investigate, sample and monitor the Premises, including any air, soil,
water, ground water, or to conduct any other sampling or testing, digging,
drilling or analysis, to determine whether Tenant is complying with the terms of
this Section 12. If Landlord discovers that Tenant is not in compliance with the
terms of this Section 12, any costs incurred by Landlord in determining Tenant's
non- compliance, including attorneys', consultants' and experts' fees, shall be
due and payable by Tenant to Landlord within five (5) days following Landlord's
written demand therefor.
F. Landlord Representations: Notwithstanding anything to the contrary
contained in this Lease, Landlord hereby represents and warrants to Tenant that
to the best of Landlord's knowledge, as of the Commencement Date there do not
exist any Hazardous Materials on the Premises. Except to the extent that the
Hazardous Material in question was released, emitted, used, stored,
manufactured, transported or discharged by Tenant or its agents, employees or
contractors, Tenant shall not be responsible for, and hereby is released from,
any and all losses, costs (including reasonable attorneys' fees), expenses,
damages, claims, suits, actions and causes of action with respect to any
Hazardous Material present on the Premises as of the Lease Commencement Date.
Provided Tenant complies with all provisions of this Section 12, Landlord
approves of Tenant's Hazardous Materials list attached as Exhibit "C".
13. Tenant's Default: The occurrence of any of the following shall constitute a
material default and breach of this Lease by Tenant: (i) Tenant's failure to pay
the Base Monthly Rent including additional rent or any other payment due under
this Lease by the date such amount is due, and such failure continues after
three (3) days' written notice from Landlord, (ii) the abandonment or vacation
of the Premises by Tenant; (iii) Tenant's failure to observe and perform any
other required provision of this Lease, where such failure continues for thirty
(30) days after written notice from Landlord provided, however, that if the
nature of the default is such that it cannot reasonably be cured within the
30-day period, Tenant shall not be deemed in default if it commences within such
period to cure, and thereafter diligently prosecutes the same to completion;
(iv) Tenant's making of any general assignment for the benefit of creditors; (v)
the filing by or against Tenant of a petition to have Tenant adjudged a bankrupt
or of a petition for reorganization or arrangement under any law relating to
bankruptcy (unless, in the case of a petition filed against Tenant, the same is
dismissed after the filing); (vi) the appointment of a trustee or receiver to
take possession of substantially all of Tenant's assets located at the Premises
or of Tenant's interest in this Lease, where possession is not restored to
Tenant within thirty (30) days; (vii) the attachment, execution or other
judicial seizure of substantially all of Tenant's assets located at the Premises
or of Tenant's interest in this Lease, where such seizure is not discharged
within thirty (30) days; or (viii) the occurrence of any other event described
as a default elsewhere in this Lease or any amendment thereto regardless of
whether such event is defined as a material default and breach of this Lease in
this Paragraph 13.
A. Remedies: In the event of any such default by Tenant, then in addition to
other remedies available to Landlord at law or in equity, Landlord shall have
the immediate option to terminate this Lease and all rights of Tenant hereunder
by giving written notice of such intention to terminate. In the
Page 11
event Landlord elects to so terminate this Lease, Landlord may recover from
Tenant all the following: (i) the worth at time of award of any unpaid rent
which had been earned at the time of such termination; (ii) the worth at 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 for
the same period that Tenant proves could have been reasonably avoided; (iii) the
worth at 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 be reasonably avoided; (iv) any other amount necessary
to compensate Landlord for all detriment proximately caused by Tenant's failure
to perform its obligations under this Lease, or which in the ordinary course of
things would be likely to result therefrom; including the following: (x)
expenses for repairing, altering or remodeling the Premises for purposes of
reletting, (y) broker's fees, advertising costs or other expenses of reletting
the Premises, and (z) costs of carrying the Premises such as taxes, insurance
premiums, utilities and security precautions; and (v) at Landlord's election,
such other amounts in addition to or in lieu of the foregoing as may be
permitted by applicable California law. The term "rent", as used herein, is
defined as the minimum monthly installments of Base Monthly Rent and all other
sums required to be paid by Tenant pursuant to this Lease, all such other sums
being deemed as additional rent due hereunder. As used in (i) and (ii) above,
"worth at the time of award" shall be computed by allowing interest at a rate
equal to the discount rate of the Federal Reserve Bank of San Francisco plus
five (5%) percent per annum. As used in (iii) above, "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 (1%)
percent.
B. Right to Re-enter: In the event of any such default by Tenant, Landlord
shall have the right, after terminating this Lease, to re-enter the Premises and
remove all persons and property. Such property may be removed and stored in a
public warehouse or elsewhere at the cost of and for the account of Tenant, and
disposed of by Landlord in any manner permitted by law.
C. Abandonment: If Landlord does not elect to terminate this Lease as
provided in Section 13.A or 13.B above, then the provisions of California Civil
Code Section 1951.4, (Landlord may continue the lease in effect after Tenant's
breach and abandonment and recover rent as it becomes due if Tenant has a right
to sublet and assign, subject only to reasonable limitations) as amended from
time to time, shall apply and Landlord may from time to time, without
terminating this Lease, either recover all rental as it becomes due or relet the
Premises or any part thereof for such term or terms and at such rental or
rentals and upon such other terms and conditions as Landlord in its sole
discretion may deem advisable, with the right to make alterations and repairs to
the Premises. In the event that Landlord elects to so relet, rentals received by
Landlord from such reletting shall be applied in the following order to: (i) the
payment of any indebtedness other than Base Monthly Rent due hereunder from
Tenant to Landlord; (ii) the payment of any cost of such reletting; (iii) the
payment of the cost of any alterations and repairs to the Premises; and (iv) the
payment of Base Monthly Rent and other sums due and unpaid hereunder. The
residual rentals, if any, shall be held by Landlord and applied in payment of
future Base Monthly Rent as the same may become due and payable hereunder.
Landlord shall the obligation to market the space but shall have no obligation
to relet the Premises following a default if Landlord has other comparable
available space within the Building or Project. In the event the portion of
rentals received from such reletting which is applied to the payment of rent
hereunder during any month be less than the rent payable during that month by
Tenant hereunder, then Tenant shall pay such deficiency to Landlord immediately
upon demand. Such deficiency shall be calculated and paid monthly. Tenant shall
also pay to Landlord, as soon as ascertained, any costs and expenses incurred by
Landlord in such reletting or in making such alterations and repairs not covered
by the rentals received from such reletting.
D. No Termination: Landlord's re-entry or taking possession of the Premises
pursuant to 13.B or 13.C shall not be construed as an election to terminate this
Lease unless written notice of such intention is given to Tenant or unless the
termination is decreed by a court of competent jurisdiction. Notwithstanding any
reletting without termination by Landlord because of any default by Tenant,
Page 12
Landlord may at any time after such reletting elect to terminate this Lease for
any such default.
E. Non-Waiver: Landlord may accept Tenant's payments without waiving any
rights under this Lease, including rights under a previously served notice of
default. No payment by Tenant or receipt by Landlord of a lesser amount than any
installment of rent due shall be deemed as other than payment on account of the
amount due. If Landlord accepts payments after serving a notice of default,
Landlord may nevertheless commence and pursue an action to enforce rights and
remedies under the previously served notice of default without giving Tenant any
further notice or demand. Furthermore, the Landlord's acceptance of rent from
the Tenant when the Tenant is holding over without express written consent does
not convert Tenant's Tenancy from a tenancy at sufferance to a month to month
tenancy. No waiver of any provision of this Lease shall be implied by any
failure of Landlord to enforce any remedy for the violation of that provision,
even if that violation continues or is repeated. Any waiver by Landlord of any
provision of this Lease must be in writing. Such waiver shall affect only the
provision specified and only for the time and in the manner stated in the
writing. No delay or omission in the exercise of any right or remedy by Landlord
shall impair such right or remedy or be construed as a waiver thereof by
Landlord. No act or conduct of Landlord, including, without limitation, the
acceptance of keys to the Premises, shall constitute acceptance of the surrender
of the Premises by Tenant before the Expiration Date. Only written notice from
Landlord to Tenant of acceptance shall constitute such acceptance of surrender
of the Premises. Landlord's consent to or approval of any act by Tenant which
requires Landlord's consent or approvals shall not be deemed to waive or render
unnecessary Landlord's consent to or approval of any subsequent act by Tenant.
F. Performance by Landlord: If Tenant fails to perform any obligation
required under this Lease or by law or governmental regulation, and such failure
continues beyond applicable notice and cure periods, Landlord in its sole
discretion may, after three days' notice, without waiving any rights or remedies
and without releasing Tenant from its obligations hereunder, perform such
obligation, in which event Tenant shall pay Landlord as additional rent all sums
paid by Landlord in connection with such substitute performance, including
interest at the Agreed Interest Rate (as defined in Section 19.J) within ten
(10) days of Landlord's written notice for such payment.
G. Habitual Default: The provisions of Section 13 notwithstanding, the
Parties agree that if Tenant shall have materially defaulted in the performance
of any (but not necessarily the same) term or condition of this Lease for four
or more times during any twelve (12) month period during the Lease Term, then
such conduct shall, at the election of the Landlord, represent a separate event
of default which cannot be cured by Tenant. Tenant acknowledges that the purpose
of this provision is to prevent repetitive defaults by Tenant, which work a
hardship upon Landlord and deprive Landlord of Tenant's timely performance under
this Lease.
13. Landlord's Liability:
A. Limitation on Landlord's Liability: In the event of Landlord's failure to
perform any of its covenants or agreements under this Lease, Tenant shall give
Landlord written notice of such failure and shall give Landlord thirty (30) days
to cure or commence to cure such failure prior to any claim for breach or
resultant damages, provided, however, that if the nature of the default is such
that it cannot reasonably be cured within the 30-day period, Landlord shall not
be deemed in default if it commences within such period to cure, and thereafter
diligently prosecutes the same to completion. In addition, upon any such failure
by Landlord, Tenant shall give notice by registered or certified mail to any
person or entity with a security interest in the Premises ("Mortgagee") that has
provided Tenant with notice of its interest in the Premises, and shall provide
Mortgagee a reasonable opportunity to cure such failure, including such time to
obtain possession of the Premises by power of sale or judicial foreclosure, if
such should prove necessary to effectuate a cure. Tenant agrees that each of the
Mortgagees to whom this Lease has been
Page 13
assigned is an expressed third-party beneficiary hereof. Tenant waives any right
under California Civil Code Section 1950.7 or any other present or future law to
the collection of any payment or deposit from Mortgagee or any purchaser at a
foreclosure sale of Mortgagee's interest unless Mortgagee or such purchaser
shall have actually received and not refunded the applicable payment or deposit.
Tenant Further waives any right to terminate this Lease and to vacate the
Premises on Landlord's default under this Lease. Tenant's sole remedy on
Landlord's default is an action for damages or injunctive or declaratory relief.
B. Limitation on Tenant's Recourse: If Landlord is a corporation, trust,
partnership, joint venture, unincorporated association or other form of business
entity, then (i) the obligations of Landlord shall not constitute personal
obligations of the officers, directors, trustees, partners, joint venturers,
members, owners, stockholders, or other principals or representatives except to
the extent of their interest in the Premises. Tenant shall have recourse only to
the interest of Landlord in the Premises (excluding the Security Deposit) or for
the satisfaction of the obligations of Landlord and shall not have recourse to
any other assets of Landlord for the satisfaction of such obligations.
C. Indemnification of Landlord: Except to the extent due to the negligence
or willful misconduct of Landlord, as a material part of the consideration
rendered to Landlord, Tenant hereby waives all claims against Landlord for
damages to goods, wares and merchandise, and all other personal property in,
upon or about said Premises and for injuries to persons in or about said
Premises, from any cause arising at any time to the fullest extent permitted by
law, and Tenant shall indemnify, defend with counsel reasonably acceptable to
Landlord and hold Landlord, and their shareholders, directors, officers,
trustees, employees, partners, affiliates and agents from any claims,
liabilities, costs or expenses incurred or suffered arising from the use of
occupancy of the Premises or any part of the Project by Tenant or Tenant's
Agents, the acts or omissions of Tenant or Tenant's Agents, Tenant's breach of
this Lease, or any damage or injury to person or property from any cause, or
from the failure of Tenant to keep the Premises in good condition and repair as
herein provided,. Further, in the event Landlord is made party to any litigation
due to the acts or omission of Tenant or Tenant's Agents, Tenant will indemnify,
defend (with counsel reasonably acceptable to Landlord) and hold Landlord
harmless from any such claim or liability including Landlord's costs and
expenses and reasonable attorney's fees incurred in defending such claims.
14. Destruction of Premises:
A. Landlord's Obligation to Restore: In the event of a destruction of the
Premises during the Lease Term Landlord shall repair the same to a similar
condition to that which existed prior to such destruction. Such destruction
shall not annul or void this Lease; however, Tenant shall be entitled to a
proportionate reduction of Base Monthly Rent while repairs are being made, such
proportionate reduction to be based upon the extent to which the repairs
interfere with Tenant's business in the Premises, as reasonably determined by
Landlord. In no event shall Landlord be required to replace or restore
Alterations or Tenant's fixtures or personal property.
B. Limitations on Landlord's Restoration Obligation: Notwithstanding the
provisions of Section 15.A, Landlord shall have no obligation to repair, or
restore the Premises if any of the following occur: (i) if the repairs cannot be
made in one hundred eighty (180) days from the date of receipt of all
governmental approvals necessary under the laws and regulations of State,
Federal, County or Municipal authorities, as reasonably determined by Landlord,
(ii) if the holder of the first deed of trust or mortgage encumbering the
Building elects not to permit the insurance proceeds payable upon damage or
destruction to be used for such repair or restoration, (iii) the damage or
destruction is not fully covered by the insurance maintained by Landlord
(excluding deductible amounts), (iv) the damage or destruction occurs in the
last eighteen (18) months of the Lease Term (unless Tenant has exercised or
exercises, within ten (10) business days of the damage or destruction, an
exercisable option as defined in Section 18 below
Page 14
to extend the Lease Term), (v) Tenant is in default pursuant to the provisions
of Section 13, or (vi) Tenant has vacated the Premises for more than ninety (90)
days prior to such destruction. In any such event Landlord may elect either to
complete the repair or restoration, or terminate this Lease by providing Tenant
written notice of its election within sixty (60) days following the damage or
destruction. In the event Landlord elects to terminate, Tenant shall not be
required to pay the insurance deductibles otherwise required under this Lease.
Tenant shall also have the right to terminate this Lease in the event of either
(i) or (iv) above, by providing Landlord with written notice of its election to
do so within sixty (60) days following the damage or destruction.
16. Condemnation: If any part of the Premises shall be taken for any public or
quasi-public use, under any statute or by right of eminent domain or private
purchase in lieu thereof, and only a part thereof remains which is susceptible
of occupation hereunder, this Lease shall, as to the part so taken, terminate as
of the day before title vests in the condemnor or purchaser ("Vesting Date") and
Base Monthly Rent payable hereunder shall be adjusted so that Tenant is required
to pay for the remainder of the Lease Term only such portion of Base Monthly
Rent as the value of the part remaining after such taking bears to the value of
the entire Premises prior to such taking. Further, in the event of such partial
taking, Landlord shall have the option to terminate this Lease as of the Vesting
Date. If all of the Premises or such part thereof be taken so that there does
not remain a portion susceptible for occupation hereunder, this Lease shall
terminate on the Vesting Date. If part or all of the Premises be taken, all
compensation awarded upon such taking shall go to Landlord, and Tenant shall
have no claim thereto; except Landlord shall cooperate with Tenant, without cost
to Landlord, to recover compensation for damage to or taking of any Alterations,
Tenant Improvements paid for by Tenant from sources other than the Work
Allowance, or for Tenant's moving costs. Tenant hereby waives the provisions of
California Code of Civil Procedures Section 1265.130 and any other similarly
enacted statue, and the provisions of this Section 16 shall govern in the case
of a taking.
Notwithstanding anything to the contrary in this Lease, if there is a taking
under the power of eminent domain (or a transfer in lieu thereof), Tenant shall
have the right to terminate the Lease if: (i) there is a taking of more than 25%
of the Building or more than 10% of the parking area; or (ii) there is a
temporary taking of more than 33-1/3% of the Building for one year or more. If
any part of the Premises is taken and this Lease is not terminated, then
Landlord shall, to the extent not prohibited by Law, repair any damage
occasioned thereby to the remainder thereof to a condition reasonably suitable
for Tenant's continued operations.
17. Assignment or Sublease:
A. Consent by Landlord: Except as specifically provided in this Section
17.E, Tenant may not assign, sublet, hypothecate, or allow a third party to use
the Premises without the express written consent of Landlord, which shall not be
unreasonably withheld or delayed, subject to the provisions of this Section 17.
In the event Tenant desires to assign this Lease or any interest herein or
sublet the Premises or any part thereof, Tenant shall deliver to Landlord (i)
executed counterparts of any agreement and of all ancillary agreements with the
proposed assignee/subtenant, (ii) current financial statements of the transferee
covering the preceding two years, (iii) the nature of the proposed transferee's
business to be carried on in the Premises, (iv) a statement outlining all
consideration to be given on account of the Transfer, and (v) a current
financial statement of Tenant. Landlord may condition its approval of any
Transfer on receipt of a certification from both Tenant and the proposed
transferee of all consideration to be paid to Tenant in connection with such
Transfer. At Landlord's request, Tenant shall also provide additional
information reasonably required by Landlord to determine whether it will consent
to the proposed assignment or sublease. Landlord shall have a fifteen (15) day
period following receipt of all the foregoing within which to notify Tenant in
writing that Landlord elects to: (i) terminate this Lease in the event the
proposed sublease or assignment is for substantially all of space in the
Premises and for substantially all of the remaining term; (ii) permit Tenant to
assign or sublet such space to the named
Page 15
assignee/subtenant on the terms and conditions set forth in the notice; or (iii)
refuse consent. If Landlord should fail to notify Tenant in writing of such
election within the 15-day period, Landlord shall be deemed to have elected
option (iii) above. In the event Landlord elects option (i) above, this Lease
shall expire with respect to such part of the Premises on the date upon which
the proposed sublease or transfer was to commence, and from such date forward,
Base Monthly Rent and Tenant's Allocable Share of all other costs and charges
shall be adjusted based upon the proportion that the rentable area of the
Premises remaining bears to the total rentable area of the Building. In the
event Landlord elects option (ii) above, Landlord's written consent to the
proposed assignment or sublease shall not be unreasonably withheld, provided and
upon the condition that: (i) the proposed assignee or subtenant is engaged in a
business that is limited to the use expressly permitted under this Lease; (ii)
the proposed assignment or sublease is in form reasonably satisfactory to
Landlord; (iii) the proposed sublease will not result in there being greater
than two (2) subtenants within the Premises at any time during the Lease Term;
and (iv) Tenant reimburses Landlord on demand for any reasonable costs that may
be incurred by Landlord in connection with said assignment or sublease,
including the costs of making investigations as to the acceptability of the
proposed assignee or subtenant and reasonable legal costs incurred in connection
with the granting of any requested consent. In the event all or any one of the
foregoing conditions are not satisfied, Landlord shall be considered to have
acted reasonably if it withholds its consent.
B. Assignment or Subletting Consideration: Landlord and Tenant hereby agree
that fifty percent (50%) of any rent or other economic consideration (i)
realized by Tenant under any sublease or assignment, or (ii) realized by any
subtenant under any sub-sublease of the Premises, in excess of the Base Monthly
Rent payable hereunder and reasonable subletting and assignment costs, shall be
paid to Landlord. Tenant's obligation to pay over Landlord's portion of the
consideration constitutes an obligation for additional rent hereunder. The above
provisions relating to Landlord's right to terminate the Lease and relating to
the allocation of excess rent are independently negotiated terms of the Lease
which constitute a material inducement for the Landlord to enter into the Lease,
and are agreed by the Parties to be commercially reasonable. No assignment or
subletting by Tenant shall relieve it of any obligation under this Lease. Any
assignment or subletting which conflicts with the provisions hereof shall be
void.
C. No Release: Any assignment or sublease shall be made only if and shall
not be effective until the assignee or subtenant shall execute, acknowledge, and
deliver to Landlord an agreement, in form and substance satisfactory to
Landlord, whereby the assignee or subtenant shall assume all the obligations of
this Lease on the part of Tenant to be performed or observed and shall be
subject to all the covenants, agreements, terms, provisions and conditions in
this Lease. Notwithstanding any such sublease or assignment and the acceptance
of rent by Landlord from any subtenant or assignee, Tenant and any guarantor
shall remain fully liable for the payment of Base Monthly Rent and additional
rent due, and to become due hereunder, for the performance of all the covenants,
agreements, terms, provisions and conditions contained in this Lease on the part
of Tenant to be performed and for all acts and omissions of any licensee,
subtenant, assignee or any other person claiming under or through any subtenant
or assignee that shall be in violation of any of the terms and conditions of
this Lease, and any such violation shall be deemed a violation by Tenant. Tenant
shall indemnify, defend and hold Landlord harmless from and against all losses,
liabilities, damages, costs and expenses (including reasonable attorney fees)
resulting from any claims that may be made against Landlord by the proposed
assignee or subtenant or by any real estate brokers or other persons claiming
compensation in connection with the proposed assignment or sublease.
D. Reorganization of Tenant: The provisions of this Section 17.D shall apply
if Tenant is a corporation and: (i) there is a dissolution, merger,
consolidation, or other reorganization of or affecting Tenant, where Tenant is
not the surviving corporation, or (ii) there is a sale or transfer to one person
or entity (or to any group of related persons or entities) of stock possessing
more than 50% of the total combined voting power of all classes of Tenant's
capital stock issued, outstanding and entitled to vote for
Page 16
the election of directors, and after such sale or transfer of stock Tenant's
stock is no longer publicly traded. In a transaction under clause (i) the
surviving corporation shall promptly execute and deliver to Landlord an
agreement in form reasonably satisfactory to Landlord under which such surviving
corporation assumes the obligations of Tenant hereunder, and in a transaction
under clause (ii) the acquiring entity shall promptly execute and deliver to
Landlord an agreement in form reasonably satisfactory to Landlord under which
such transferee or buyer assumes the obligations of Tenant under the Lease
(unless the acquiring entity is a subsidiary created for the acquisition in
which event the parent of the acquiring entity shall assume the obligations of
Tenant under this Lease).
E. Permitted Transfers: Notwithstanding anything contained in this Section
17, so long as Tenant otherwise complies with the provisions of this Article,
Tenant may enter into any of the following transfers (a "Permitted Transfer")
without Landlord's prior consent, and Landlord shall not be entitled to
terminate the Lease or to receive any part of any subrent resulting therefrom
that would otherwise be due pursuant to Sections 17.A and 17.B. Tenant may
sublease all or part of the Premises or assign its interest in this Lease to (i)
any corporation which controls, is controlled by, or is under common control
with the original Tenant to this Lease by means of an ownership interest of more
than 50%; (ii) a corporation which results from a merger, consolidation or other
reorganization in which Tenant is not the surviving corporation, so long as the
surviving corporation has a net worth at the time of such assignment that is
equal to or greater than the net worth of Tenant immediately prior to such
transaction; and (iii) a corporation which purchases or otherwise acquires all
or substantially all of the assets of Tenant so long as such acquiring
corporation has a net worth at the time of such assignment that is equal to or
greater than the net worth of Tenant immediately prior to such transaction.
F. Effect of Default: In the event of Tenant's default, Tenant hereby
assigns all rents due from any assignment or subletting to Landlord as security
for performance of its obligations under this Lease, and Landlord may collect
such rents as Tenant's Attorney-in-Fact, except that Tenant may collect such
rents unless a default occurs as described in Section 13 above. A termination of
the Lease due to Tenant's default shall not automatically terminate an
assignment or sublease then in existence; rather at Landlord's election, such
assignment or sublease shall survive the Lease termination, the assignee or
subtenant shall attorn to Landlord, and Landlord shall undertake the obligations
of Tenant under the sublease or assignment; except that Landlord shall not be
liable for prepaid rent, security deposits or other defaults of Tenant to the
subtenant or assignee, or for any acts or omissions of Tenant and Tenant's
Agents.
G. Conveyance by Landlord: As used in this Lease, the term "Landlord" is
defined only as the owner for the time being of the Premises, so that in the
event of any sale or other conveyance of the Premises or in the event of a
master lease of the Premises, Landlord shall be entirely freed and relieved of
all its covenants and obligations hereunder, and it shall be deemed and
construed, without further agreement between the Parties and the purchaser at
any such sale or the master tenant of the Premises, that the purchaser or master
tenant of the Premises has assumed and agreed to carry out any and all covenants
and obligations of Landlord hereunder. Such transferor shall transfer and
deliver Tenant's security deposit to the purchaser at any such sale or the
master tenant of the Premises, and thereupon the transferor shall be discharged
from any further liability in reference thereto.
H. Successors and Assigns: Subject to the provisions this Section 17, the
covenants and conditions of this Lease shall apply to and bind the heirs,
successors, executors, administrators and assigns of all Parties hereto; and all
Parties hereto comprising Tenant shall be jointly and severally liable
hereunder.
18. Option to Extend the Lease Term:
A. Grant and Exercise of Option: Landlord grants to Tenant, subject to the
terms and conditions set forth in this Section 18.A, two (2) options (the
"Options") to extend the Lease Term for an additional
Page 17
term (the "Option Term"). The first Option Term shall be for a period of thirty
six (36) months the second Option Term shall be for a period of sixty (60)
months. The Options shall be exercised, if at all, by written notice to Landlord
no earlier than eighteen (18) months prior to the date the Lease Term would
expire but for such exercise but no later than nine (9) months prior to the date
the Lease Term would expire but for such exercise, time being of the essence for
the giving of such notice. If Tenant exercises the Option, all of the terms,
covenants and conditions of this Lease shall apply except for the grant of
additional Options pursuant to this Section, provided that Base Monthly Rent for
the Premises payable by Tenant during the Option Term shall be inety five
percent (95%) of the Fair Market Rental as hereinafter defined. Notwithstanding
anything herein to the contrary, (i) if Tenant is in monetary or material
non-monetary default under any of the terms, covenants or conditions of this
Lease either at the time Tenant exercises the Option or at any time thereafter
prior to the commencement date of the Option Term, or (ii) if the net worth of
Tenant as reported in Tenant's most recent financial statements is less than the
net worth of Tenant as of the date of execution of this Lease, then Landlord
shall have, in addition to all of Landlord's other rights and remedies provided
in this Lease, the right to terminate the Option upon notice to Tenant, in which
event the Lease Term shall not be extended pursuant to this Section 18.A. As
used herein, the term "Fair Market Rental" is defined as the rental and all
other monetary payments, including any escalations and adjustments thereto
(including without limitation Consumer Price Indexing) that Landlord could
obtain during the Option Term from a third party desiring to lease the Premises,
based upon the current use and other potential uses of the Premises, as
determined by the rents then obtainable for new leases of space comparable in
age and quality to the Premises in the same real estate submarket as the
Building. The appraisers shall be instructed that the foregoing five percent
(5.0%) discount is intended to offset comparable rents that include the
following costs which Landlord will not incur in the event Tenant exercises its
option (i) brokerage commissions, (ii) tenant improvement allowances, (iii)
building improvement costs, and (iv) vacancy costs.
B. Determination of Fair Market Rental: If Tenant exercises the Option,
Landlord shall send Tenant a notice setting forth the Fair Market Rental for the
Option Term within thirty (30) days following the Exercise Date. If Tenant
disputes Landlord's determination of Fair Market Rental for the Option Term,
Tenant shall, within thirty (30) days after the date of Landlord's notice
setting forth Fair Market Rental for the Option Term, send to Landlord a notice
stating that Tenant either elects to terminate its exercise of the Option, in
which event the Option shall lapse and this Lease shall terminate on the
Expiration Date, or that Tenant disagrees with Landlord's determination of Fair
Market Rental for the Option Term and elects to resolve the disagreement as
provided in Section 18.C below. If Tenant does not send Landlord a notice as
provided in the previous sentence, Landlord's determination of Fair Market
Rental shall be the Base Monthly Rent payable by Tenant during the Option Term.
If Tenant elects to resolve the disagreement as provided in Section 18.C and
such procedures are not concluded prior to the commencement date of the Option
Term, Tenant shall pay to Landlord as Base Monthly Rent the Fair Market Rental
as determined by Landlord in the manner provided above. If the Fair Market
Rental as finally determined pursuant to Section 18.C is greater than Landlord's
determination, Tenant shall pay Landlord the difference between the amount paid
by Tenant and the Fair Market Rental as so determined in Section 18.C within
thirty (30) days after such determination. If the Fair Market Rental as finally
determined in Section 18.C is less than Landlord's determination, the difference
between the amount paid by Tenant and the Fair Market Rental as so determined in
Section 18.C shall be credited against the next installments of Base Monthly
Rent due from Tenant to Landlord hereunder.
C. Resolution of a Disagreement over the Fair Market Rental: Any
disagreement regarding Fair Market Rental shall be resolved as follows:
1. Within thirty (30) days after Tenant's response to Landlord's notice
setting forth the Fair Market Rental, Landlord and Tenant shall meet at a
mutually agreeable time and place, in an attempt to resolve the disagreement.
Page 18
2. If within the 30-day period referred to above, Landlord and Tenant
cannot reach agreement as to Fair Market Rental, each party shall select one
appraiser to determine Fair Market Rental. Each such appraiser shall arrive at a
determination of Fair Market Rental and submit their conclusions to Landlord and
Tenant within thirty (30) days after the expiration of the 30-day consultation
period described above.
3. If only one appraisal is submitted within the requisite time period,
it shall be deemed as Fair Market Rental. If both appraisals are submitted
within such time period and the two appraisals so submitted differ by less than
ten percent (10%), the average of the two shall be deemed as Fair Market Rental.
If the two appraisals differ by more than 10%, the appraisers shall immediately
select a third appraiser who shall, within thirty (30) days after his selection,
make and submit to Landlord and Tenant a determination of Fair Market Rental.
This third appraisal will then be averaged with the closer of the two previous
appraisals and the result shall be Fair Market Rental.
4. All appraisers specified pursuant to this Section shall be members of
the American Institute of Real Estate Appraisers with not less than ten (10)
years experience appraising office and industrial properties in the Santa Clara
Valley. Each party shall pay the cost of the appraiser selected by such party
and one-half of the cost of the third appraiser.
D. Personal to Tenant: All Options provided to Tenant in this Lease are
personal and granted to DURECT Corporation or a permitted transferee pursuant to
Section 17.E. above and are not exercisable by any third party should Tenant
assign or sublet all or a portion of its rights under this Lease, unless
Landlord consents to permit exercise of any option by any assignee or subtenant,
in Landlord's sole and absolute discretion. In the event Tenant has multiple
options to extend this Lease, a later option to extend the Lease cannot be
exercised unless the prior option has been properly exercised.
19. General Provisions:
A. Attorney's Fees: In the event a suit or alternative form of dispute
resolution is brought for the possession of the Premises, for the recovery of
any sum due hereunder, to interpret the Lease, or because of the breach of any
other covenant herein; then the losing party shall pay to the prevailing party
reasonable attorney's fees including the expense of expert witnesses,
depositions and court testimony as part of its costs which shall be deemed to
have accrued on the commencement of such action. The prevailing party shall also
be entitled to recover all costs and expenses including reasonable attorney's
fees incurred in enforcing any judgment or award against the other party. The
foregoing provision relating to post-judgment costs is severable from all other
provisions of this Lease.
B. Authority of Parties: Tenant represents and warrants that it is duly
formed and in good standing, and is duly authorized to execute and deliver this
Lease on behalf of said corporation, in accordance with a duly adopted
resolution of the Board of Directors of said corporation or in accordance with
the by-laws of said corporation, and that this Lease is binding upon said
corporation in accordance with its terms. At Landlord's request, Tenant shall
provide Landlord with corporate resolutions or other proof in a form acceptable
to Landlord, authorizing the execution of the Lease.
C. Brokers: Tenant represents it has not utilized or contacted a real estate
broker or finder with respect to this Lease other than CB Richard Ellis and
Tenant agrees to indemnify, defend and hold Landlord harmless against any claim,
cost, liability or cause of action asserted by any other broker or finder
claiming through Tenant.
D. Choice of Law: This Lease shall be governed by and construed in
accordance with California law. Except as provided in Section 19.E, venue shall
be Santa Clara County.
Page 19
E. Dispute Resolution: Landlord and Tenant and any other party that may
become a party to this Lease or be deemed a party to this Lease including any
subtenants agree that, except for any claim by Landlord for unlawful detainer or
any claim within the jurisdiction of the small claims court (which small claims
court shall be the sole court of competent jurisdiction), any controversy,
dispute, or claim of whatever nature arising out of, in connection with or in
relation to the interpretation, performance or breach of this Lease, including
any claim based on contract, tort, or statute, shall be resolved at the request
of any party to this agreement through a two-step dispute resolution process
administered by J.A.M.S. or another judicial mediation service mutually
acceptable to the parties located in Santa Clara County, California. The dispute
resolution process shall involve first, mediation, followed, if necessary, by
final and binding arbitration administered by and in accordance with the then
existing rules and practices of J.A.M.S. or other judicial mediation service
selected. In the event of any dispute subject to this provision, either party
may initiate a request for mediation and the parties shall use reasonable
efforts to promptly select a J.A.M.S. mediator and commence the mediation. In
the event the parties are not able to agree on a mediator within thirty (30)
days, J. A. M. S. or another judicial mediation service mutually acceptable to
the parties shall appoint a mediator. The mediation shall be confidential and in
accordance with California Evidence Code ss. 1119 et. seq. The mediation shall
be held in Santa Clara County, California and in accordance with the existing
rules and practice of J. A. M. S. (or other judicial and mediation service
selected). The parties shall use reasonable efforts to conclude the mediation
within sixty (60) days of the date of either party's request for mediation. The
mediation shall be held prior to any arbitration or court action (other than a
claim by Landlord for unlawful detainer or any claim within the jurisdiction of
the small claims court which are not subject to this mediation/arbitration
provision and may be filed directly with a court of competent jurisdiction).
Should the prevailing party in any dispute subject to this Section 19.E attempt
an arbitration or a court action before attempting to mediate, the prevailing
party shall not be entitled to attorney's fees that might otherwise be available
to them in a court action or arbitration and in addition thereto, the party who
is determined by the arbitrator to have resisted mediation, shall be sanctioned
by the arbitrator or judge.
IF A MEDIATION IS CONDUCTED BUT IS UNSUCCESSFUL, IT SHALL BE FOLLOWED BY FINAL
AND BINDING ARBITRATION ADMINISTERED BY AND IN ACCORDANCE WITH THE THEN EXISTING
RULES AND PRACTICES OF J.A.M.S. OR THE OTHER JUDICIAL AND MEDIATION SERVICE
SELECTED, AND JUDGMENT UPON ANY AWARD RENDERED BY THE ARBITRATOR(S) MAY BE
ENTERED BY ANY STATE OR FEDERAL COURT HAVING JURISDICTION THEREOF AS PROVIDED BY
CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 1280 ET. SEQ, AS SAID STATUTES THEN
APPEAR, INCLUDING ANY AMENDMENTS TO SAID STATUTES OR SUCCESSORS TO SAID STATUTES
OR AMENDED STATUTES, EXCEPT THAT IN NO EVENT SHALL THE PARTIES BE ENTITLED TO
PROPOUND INTERROGATORIES OR REQUEST FOR ADMISSIONS DURING THE ARBITRATION
PROCESS. THE ARBITRATOR SHALL BE A RETIRED JUDGE OR A LICENSED CALIFORNIA
ATTORNEY. THE VENUE FOR ANY SUCH ARBITRATION OR MEDIATION SHALL BE IN SANTA
CLARA COUNTY, CALIFORNIA.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE
ARISING OUT OF THE MATTERS INCLUDED IN THE "MEDIATION AND ARBITRATION OF
DISPUTES" PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW
AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED
IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP
YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE
SPECIFICALLY INCLUDED IN THE "MEDIATION AND ARBITRATION OF DISPUTES" PROVISION.
IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY
BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL
PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.
Page 20
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING
OUT OF THE MATTERS INCLUDED IN THE "MEDIATION AND ARBITRATION OF DISPUTES"
PROVISION TO NEUTRAL ARBITRATION.
LANDLORD: ______ TENANT: _______
F. Entire Agreement: This Lease and the exhibits attached hereto contain all
of the agreements and conditions made between the Parties hereto and may not be
modified orally or in any other manner other than by written agreement signed by
all parties hereto or their respective successors in interest. This Lease
supersedes and revokes all previous negotiations, letters of intent, lease
proposals, brochures, agreements, representations, promises, warranties, and
understandings, whether oral or in writing, between the parties or their
respective representatives or any other person purporting to represent Landlord
or Tenant.
G. Entry by Landlord: Upon 24 hours prior written notice to Tenant (except
in case of emergency) and subject to Tenant's reasonable security regulations,
Tenant shall permit Landlord and his agents to enter into and upon the Premises
at all reasonable times and during normal hours, and without any rent abatement
or reduction or any liability to Tenant for any loss of occupation or quiet
enjoyment of the Premises thereby occasioned, for the following purposes: (i)
inspecting and maintaining the Premises; (ii) making repairs, alterations or
additions to the Premises; (iii) erecting additional building(s) and
improvements on the land where the Premises are situated or on adjacent land
owned by Landlord; (iv) performing any obligations of Landlord under the Lease
including remediation of Hazardous Materials if determined to be the
responsibility of Landlord, (v) posting and keeping posted thereon notices of
non-responsibility for any construction, alteration or repair thereof, as
required or permitted by any law, and (vi) showing the Premises to Landlord's or
the Master Landlord's existing or potential successors, purchaser, tenants and
lenders. Tenant shall permit Landlord and his agents, at any time within nine
(9) months prior to the Expiration Date (or at any time during the Lease if
Tenant is in default hereunder), to place upon the Premises "For Lease" signs
(provided such signs are reasonably placed so as to minimize disruption to
Tenant) and exhibit the Premises to real estate brokers and prospective tenants
at reasonable hours.
H. Estoppel Certificates: At any time during the Lease Term, Tenant shall,
within ten business (10) days following written notice from Landlord, execute
and deliver to Landlord a written statement certifying, if true, the following:
(i) that this Lease is unmodified and in full force and effect (or, if modified,
stating the nature of such modification); (ii) the date to which rent and other
charges are paid in advance, if any; (iii) acknowledging that there are not, to
Tenant's knowledge, any uncured defaults on Landlord's part hereunder (or
specifying such defaults if they are claimed); and (iv) such other information
as Landlord may reasonably request. Any such statement may be conclusively
relied upon by any prospective purchaser or encumbrancer of Landlord's interest
in the Premises. Tenant's failure to deliver such statement within such time
shall be conclusive upon the Tenant that this Lease is in full force and effect
without modification, except as may be represented by Landlord, and that there
are no uncured defaults in Landlord's performance. Tenant agrees to provide,
within five (5) business days of Landlord's request, Tenant's most recent three
(3) years of audited financial statements for Landlord's use in financing or
sale of the Premises or Landlord's interest therein.
I. Exhibits: All exhibits referred to are attached to this Lease and
incorporated by reference.
J. Interest: All rent due hereunder, if not paid when due, shall bear
interest at the rate of the Reference Rate published by Bank of America, San
Francisco Branch, plus two percent (2%) per annum from that date until paid in
full ("Agreed Interest Rate"). This provision shall survive the expiration or
sooner termination of the Lease. Despite any other provision of this Lease, the
total liability for interest payments shall not exceed the limits, if any,
imposed by the usury laws of the State of California. Any
Page 21
interest paid in excess of those limits shall be refunded to Tenant by
application of the amount of excess interest paid against any sums outstanding
in any order that Landlord requires. If the amount of excess interest paid
exceeds the sums outstanding, the portion exceeding those sums shall be refunded
in cash to Tenant by Landlord. To ascertain whether any interest payable exceeds
the limits imposed, any non-principal payment (including late charges) shall be
considered to the extent permitted by law to be an expense or a fee, premium, or
penalty rather than interest.
K. Modifications Required by Lender: If any lender of Landlord or ground
lessor of the Premises requires a modification of this Lease that will not
increase Tenant's cost or expense or materially or adversely change Tenant's
rights and obligations (including the Lease Term), this Lease shall be so
modified and Tenant shall execute whatever documents are required and deliver
them to Landlord within ten business(10) days after the request.
L. No Presumption Against Drafter: Landlord and Tenant understand, agree and
acknowledge that this Lease has been freely negotiated by both Parties; and that
in any controversy, dispute, or contest over the meaning, interpretation,
validity, or enforceability of this Lease or any of its terms or conditions,
there shall be no inference, presumption, or conclusion drawn whatsoever against
either party by virtue of that party having drafted this Lease or any portion
thereof.
M. Notices: All notices, demands, requests, or consents required to be given
under this Lease shall be sent in writing by U.S. certified mail, return receipt
requested, or by personal delivery or overnight courier addressed to the party
to be notified at the address for such party specified in Section 1 of this
Lease, or to such other place as the party to be notified may from time to time
designate by at least fifteen (15) days prior notice to the notifying party.
When this Lease requires service of a notice, that notice shall replace rather
than supplement any equivalent or similar statutory notice, including any
notices required by Code of Civil Procedure Section 1161 or any similar or
successor statute.
N. This section intentionally omitted.
O. Rent: All monetary sums due from Tenant to Landlord under this Lease,
including, without limitation those referred to as "additional rent", shall be
deemed as rent.
P. Representations: Tenant acknowledges that neither Landlord nor any of its
employees or agents have made any agreements, representations, warranties or
promises with respect to the Premises or with respect to present or future
rents, expenses, operations, tenancies or any other matter. Except as herein
expressly set forth herein, Tenant relied on no statement of Landlord or its
employees or agents for that purpose.
Q. Rights and Remedies: Subject to Section 14 above, All rights and remedies
hereunder are cumulative and not alternative to the extent permitted by law, and
are in addition to all other rights and remedies in law and in equity.
R. Severability: If any term or provision of this Lease is held
unenforceable or invalid by a court of competent jurisdiction, the remainder of
the Lease shall not be invalidated thereby but shall be enforceable in
accordance with its terms, omitting the invalid or unenforceable term.
S. Submission of Lease: Submission of this document for examination or
signature by the parties does not constitute an option or offer to lease the
Premises on the terms in this document or a reservation of the Premises in favor
of Tenant. This document is not effective as a lease or otherwise until executed
and delivered by both Landlord and Tenant.
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T. Subordination: This Lease is subject and subordinate to ground and
underlying leases, mortgages and deeds of trust (collectively "Encumbrances")
which may now affect the Premises, to any covenants, conditions or restrictions
of record, and to all renewals, modifications, consolidations, replacements and
extensions thereof; provided, however, if the holder or holders of any such
Encumbrance ("Holder") require that this Lease be prior and superior thereto,
within ten (10) business days after written request of Landlord to Tenant,
Tenant shall execute, have acknowledged and deliver all documents or
instruments, in the form presented to Tenant, which Landlord or Holder deems
necessary or desirable for such purposes. Landlord shall have the right to cause
this Lease to be and become and remain subject and subordinate to any and all
Encumbrances which are now or may hereafter be executed covering the Premises or
any renewals, modifications, consolidations, replacements or extensions thereof,
for the full amount of all advances made or to be made thereunder and without
regard to the time or character of such advances, together with interest thereon
and subject to all the terms and provisions thereof; provided only, that in the
event of termination of any such lease or upon the foreclosure of any such
mortgage or deed of trust, Holder agrees to recognize Tenant's rights under this
Lease as long as Tenant is not then in default and continues to pay Base Monthly
Rent and additional rent and observes and performs all required provisions of
this Lease. Within ten (10) business days after Landlord's written request,
Tenant shall execute any documents required by Landlord or the Holder to make
this Lease subordinate to any lien of the Encumbrance. If Tenant fails to do so,
then in addition to such failure constituting a default by Tenant, it shall be
deemed that this Lease is so subordinated to such Encumbrance. Notwithstanding
anything to the contrary in this Section, Tenant hereby attorns and agrees to
attorn to any entity purchasing or otherwise acquiring the Premises at any sale
or other proceeding or pursuant to the exercise of any other rights, powers or
remedies under such encumbrance.
U. Survival of Indemnities: All indemnification, defense, and hold harmless
obligations of Landlord and Tenant under this Lease shall survive the expiration
or sooner termination of the Lease.
V. Time: Time is of the essence hereunder.
W. Transportation Demand Management Programs: Should a government agency or
municipality require Landlord to institute TDM (Transportation Demand
Management) facilities and/or programs, Tenant agrees that the cost of TDM
imposed facilities and programs required on the Premises, including but not
limited to employee showers, lockers, cafeteria, or lunchroom facilities, shall
be paid by Tenant. Further, any ongoing costs or expenses associated with a TDM
program which are required for the Premises and not provided by Tenant, such as
an on-site TDM coordinator, shall be provided by Landlord with such costs being
included as additional rent and reimbursed to Landlord by Tenant within thirty
(30) days after demand. If TDM facilities and programs are instituted on a
Project wide basis, Tenant shall pay its proportionate share of such costs in
accordance with Section 8 above.
X. Waiver of Right to Jury Trial: Landlord and Tenant waive their respective
rights to trial by jury of any contract or tort claim, counterclaim,
cross-complaint, or cause of action in any action, proceeding, or hearing
brought by either party against the other on any matter arising out of or in any
way connected with this Lease, the relationship of Landlord and Tenant, or
Tenant's use or occupancy of the Premises, including any claim of injury or
damage or the enforcement of any remedy under any current or future law,
statute, regulation, code, or ordinance.
20. Right Of First Offering To Lease: Beginning on the first month following the
Commencement Date and terminating on May 31, 2004 , Landlord hereby grants
Tenant a right of first offering to lease the adjacent building of approximately
18,544 square feet located at 10231 Bubb Road ("Expansion Building"). Prior to
Landlord commiting to lease the Expansion Building to a third party, Landlord
shall give Tenant written notice of such desire and the terms and other
information under which Landlord intends to lease the Expansion Building.
Provided at the time of exercise, Tenant (i) is
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not in default and (ii) fully occupies the Premises, Tenant shall have the
option, which must be exercised, if at all, by written notice to Landlord within
ten (10) business days after Tenant's receipt of Landlord's notice, to lease the
Expansion Building at the rent and terms of lease specified in the notice. In
the event Tenant timely exercises such option to lease the Expansion Building,
Landlord shall lease the Expansion Building to Tenant, and Tenant shall lease
the Expansion Building from Landlord in accordance with the rent and terms
specified in Landlord's notice and otherwise upon the same terms and conditions
of this Lease. In the event (i) Tenant does not execute a lease for the
Expansion Building within seven (7) business days of receipt of a lease from
Landlord; or (ii) Tenant fails to exercise Tenant's option within said ten (10)
day period, Landlord shall have one hundred eighty (180) days thereafter to
lease the Expansion Building at no less than ninety percent (90%) of the rental
rate and upon the same or substantially the same other terms of lease as
specified in the notice to Tenant. In the event Landlord fails to lease the
Expansion Building within said one hundred eighty (180) day period or in the
event Landlord proposes to lease the Expansion Building at less than ninety
percent (90%) of the rental rate or on other material terms which are more
favorable to the prospective tenant than that proposed to Tenant, Landlord shall
be required to resubmit such offer to Tenant in accordance with this Right of
First Offering. Notwithstanding the foregoing, this Right of First Offering
shall automatically terminate, (i) upon the expiration or sooner termination of
the Lease, or (ii) in the event that Landlord transfers its interest in the
Premises or in the Expansion Building.
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the day and
year first above written.
Landlord: Sobrato Development Companies Tenant: DURECT Corporation,
#850 a California Limited Partnership a Delaware Corporation
By: /s/ John Sobrato * By: /s/ James E. Brown
------------------------------- ---------------------------
Its: General Partner Its: Chief Executive Officer
* By: /s/ Thomas A. Schreck
---------------------------
Its: Chief Financial Officer
* NOTE: 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 sign twice; once as one officer and
again as the other officer and in such event, Tenant must deliver to Landlord a
certified copy of a corporate resolution authorizing the signatory to execute
this Lease.
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Exhibit "A" - Premises & Building
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EXHIBIT "B" - Draft Letter of Credit
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EXHIBIT "C" - Hazardous Materials List
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