Build-to-suit Lease

BUILD-TO-SUIT LEASE


BY AND BETWEEN


INHALE 201 INDUSTRIAL ROAD, L.P.


A CALIFORNIA LIMITED PARTNERSHIP, AS


LANDLORD


AND


INHALE THERAPEUTIC SYSTEMS INC.,


A DELAWARE CORPORATION, AS


TENANT


201 INDUSTRIAL ROAD
SAN CARLOS, CA 94070


BUILD-TO-SUIT LEASE


THIS BUILD-TO-SUIT LEASE ("LEASE") is made and entered into as of September __, 2000 by and between INHALE 201 INDUSTRIAL ROAD, L.P., a California limited partnership ("LANDLORD"), and INHALE THERAPEUTIC SYSTEMS INC., a Delaware corporation ("TENANT").


RECITALS


A. CONTRIBUTION AGREEMENT. Tenant and Landlord entered into that certain Contribution Agreement dated as of September __, 2000 (the "Contribution Agreement") pursuant to which, among other things: (i) Tenant agreed to contribute, and Landlord agreed to accept, inter alia, that certain real property situated at 201 Industrial Road, San Carlos, California, as partially improved by Tenant (the "REAL PROPERTY"); and (ii) the parties agreed to enter into this Lease as of the date of closing under the Contribution Agreement. The Real Property is more particularly described in EXHIBIT A attached hereto and incorporated herein by this reference.


B. BUILD-TO-SUIT. Pursuant to this Lease and the plans, specifications, and other documents required hereby, Landlord will construct and/or complete certain improvements on the Real Property, including (i) two connected four-story buildings containing an aggregate of approximately 390,000 square feet, consisting of approximately 171,965 square feet of rentable area and two lower stories primarily of parking for the foregoing buildings as well as for adjacent property currently leased and occupied by Contributor located at 150 Industrial Road; (ii) site improvements; and (iii) certain other improvements.


C. DEFINITIONS. Unless the context otherwise specifies or requires for the purpose of this Lease, all words and phrases having their initial letters capitalized herein shall have the meanings set forth below:


AFFILIATE OF TENANT: shall have the meaning assigned in
Section 13.1(b).


APPROVED PLANS: shall have the meaning assigned in Section
1(a) in the Work Letter.


BASE BUILDING WORK: Base Building Work for Building 1, as
defined in Section 1(h) of the Work Letter, and Base
Building Work for Building 2, as defined in Section 1(i)
of the Work Letter.


BUILDING CORES: shall have the meaning assigned in Section
1(j) of the Work Letter.


BUILDING COST: shall have the meaning assigned in Section
18.2.


BUILDING SHELLS: shall have the meaning assigned in Section
1(k) of the Work Letter.


1.


BUILDING 1: shall have the meaning assigned in Section
1.1(a)(ii).


BUILDING 2: shall have the meaning assigned in Section
1.1(a)(ii).


BUILDING 2 SUBSTANTIAL COMPLETION: shall mean the date of
Tenant's receipt of the Certificate of Substantial Completion
of the Base Building Work for Building 2.


BUILDINGS: shall have the meaning assigned in Section 1.1(a).


CERTIFICATE OF SUBSTANTIAL COMPLETION: shall have the meaning
assigned in Section 1(l) of the Work Letter.


COMMON AREAS: shall mean the Interior and Exterior Common
Areas, collectively, as indicated in Section 1.1(a)(x).


COSMETIC ALTERATIONS: shall have the meaning assigned in
Section 9.1.


DATE OF SUBSTANTIAL COMPLETION: shall have the meaning
assigned in Section 1(o) of the Work Letter.


EFFECTIVE DATE: shall have the meaning assigned in Section
2.1.


EXTERIOR COMMON AREAS: shall have the meaning assigned in
Section 1.1(a)(viii).


FAIR MARKET RENTAL: shall have the meaning assigned in Section
3.1(d).


HAZARDOUS MATERIALS: shall have the meaning assigned in
Section 11.4(a).


HVAC: shall have the meaning assigned in Section 7.2(a).


IMPROVEMENTS: shall have the meaning assigned in Section
1.1(a)(vii).


INTERIOR COMMON AREAS: shall have the meaning assigned in
Section 1.1(a)(ix).


LANDLORD: shall have the meaning assigned in the Introduction.


LEASE YEAR: shall have the meaning assigned in Section 7.3.


LEASE: shall have the meaning assigned in the Introduction.


MINIMUM RENTAL: shall have the meaning assigned in Section
3.1(c).


OPERATING EXPENSES: shall have the meaning assigned in Section
7.2(a).


PARKING LEASE: shall have the meaning assigned in Section
1.1(a).


PERMITTED TRANSFER: shall have the meaning assigned in Section
13.1(b).


2.


PHASE 1A: shall have the meaning assigned in Section
1.1(a)(iii).


PHASE 1B: shall have the meaning assigned in Section
1.1(a)(iv).


PHASE 2A: shall have the meaning assigned in Section
1.1(a)(v).


PHASE 2B: shall have the meaning assigned in Section
1.1(a)(vi).


PHASE 1 RENT COMMENCEMENT DATE: shall have the meaning
assigned in Section 3.1(a).


PHASE 2A RENT COMMENCEMENT DATE: shall have the meaning
assigned in Section 3.1(b).


PHASE 2B RENT COMMENCEMENT DATE: shall have the meaning
assigned in Section 3.1(b).


PHASE 2B EXPANSION OPTION: shall have the meaning assigned in
Section 1.2.


PREMISES: shall have the meaning assigned in Section 1.1(a).


PREVAILING PARTY: shall have the meaning assigned in Section
19.5.


PROJECT: shall have the meaning assigned in Section
1.1(a)(vii).


REAL PROPERTY: shall have the meaning assigned in Recital A.


RENT COMMENCEMENT DATE: shall mean any of the Phase 1 Rent
Commencement Date, Phase 2A Rent Commencement Date or Phase 2B
Rent Commencement Date, all as defined in Section 3.1.


REQUESTING PARTY: shall have the meaning assigned in Section
17.3.


REQUIREMENTS: shall have the meaning assigned in Section 11.3.


RESPONDING PARTY: shall have the meaning assigned in Section
17.3.


SECURITY DEPOSIT: shall have the meaning assigned in Section
18.1.


SHELL FINAL: shall have the meaning in Section 1(u) of the
Work Letter.


SITE PLAN: shall have the meaning assigned in Section
1.1(a)(ii).


SUBSTANTIAL COMPLETION OF BASE BUILDING WORK: shall have the
meaning assigned in Section 1(w) of the Work Letter.


TENANT: shall have the meaning assigned in the Introduction.


TENANT IMPROVEMENTS: shall have the meaning assigned in
Section 1(y) of the


3.


Work Letter.


TENANT IMPROVEMENT ALLOWANCE: shall have the meaning assigned
in Section 4(b) of the Work Letter.


TENANT'S OPERATING COST SHARE: shall refer, collectively, to
Tenant's Building 1 Operating Cost Share, Tenant's Exterior
Common Area Cost Share and Tenant's Building 2 Operating Cost
Share, as described in Section 7.1(a)(iv).


TENANT'S BUILDING 1 OPERATING COST SHARE: shall have the
meaning assigned in Section 7.1(a)(i).


TENANT'S EXTERIOR COMMON AREA OPERATING COST SHARE: shall have
the meaning assigned in Section 7.1(a)(i).


TENANT'S BUILDING 2 OPERATING COST SHARE: shall have the
meaning assigned in Section 7.1(a)(ii).


TENANT'S WORK: shall have the meaning assigned in Section
1(aa) of the Work Letter.


TERM: shall have the meaning assigned in Section 2.1.


TERMINATION DATE: shall have the meaning assigned in Section
2.1.


USEABLE SQUARE FEET: shall have the meaning in Section 1(cc)
of the Work Letter.


WORK LETTER: shall have the meaning assigned in Section
5.1(a).


THE PARTIES AGREE AS FOLLOWS:


1. PROPERTY.


1.1 LEASE OF PREMISES.


(a) BUILDINGS, PROPERTY, IMPROVEMENTS. Subject to the Parking Lease dated as of September ____, 2000 (the "PARKING LEASE") by and between Landlord and Tenant, Landlord leases to Tenant and Tenant leases from Landlord, on the terms, covenants and conditions hereinafter set forth, Phase 1A, Phase 1B, and Phase 2A (all as defined below and referred to collectively herein as the "PREMISES"). The Premises, together with Phase 2B, are to be constructed by Landlord in accordance with Article 5 hereof and EXHIBIT C attached hereto; and will be located in two connected four-story buildings containing an aggregate of approximately 390,000 square feet, consisting of approximately 171,965 square feet of rentable area for office and laboratory research and development and two lower stories primarily of parking (collectively, the "BUILDINGS" and each a "BUILDING"). The Buildings are being constructed or will be constructed on the Real Property in connection with the Project.


4.


(i) The Real Property is located at 201 Industrial Road in the City of San Carlos, County of San Mateo, State of California.


(ii) The location of the Real Property is, and the location of the Buildings on the Real Property is intended to be, substantially as shown on the site plans attached hereto as EXHIBIT B (the "SITE PLAN"); the first BUILDING to be constructed ("BUILDING 1") is being constructed on the Real Property in the location depicted on the Site Plan, and the second BUILDING to be constructed ("BUILDING 2") shall be constructed on the Real Property in the location depicted on the Site Plan.


(iii) The term "PHASE 1A" shall refer to that portion of Building 1 consisting of approximately 39,077 rentable square feet (37,703 usable square feet) located on the fourth floor and the approximately 964 rentable square feet (930 usable square feet) located on the second floor and shown on the Site Plan.


(iv) The term "PHASE 1B" shall refer to that portion of Building 1 consisting of approximately 39,876 rentable square feet (38,474 usable square feet) located on the third floor and shown on the Site Plan.


(v) The term "PHASE 2A" shall refer to that portion of Building 2 consisting of approximately 45,574 rentable square feet (43,972 useable square feet) located on the third floor and shown on the Site Plan.


(vi) The term "PHASE 2B" shall refer to that portion of Building 2 consisting of approximately 46,474 rentable square feet (44,840 useable square feet) located on the fourth floor and shown on the Site Plan.


(vii) The Buildings and the other improvements to be constructed on the Real Property in connection with the Project, including the Common Areas (defined below), are sometimes referred to collectively herein as the "IMPROVEMENTS." The "PROJECT," when completed, will consist of the Real Property and the Improvements.


(viii) The parking areas (whether inside or outside the Buildings), courtyard, driveways, sidewalks, landscaped areas and other portions of the Project, including any areas leased under the Parking Lease, that lie outside the exterior walls of the Buildings to be constructed on the Real Property, as depicted in the Site Plan and as hereafter modified by Landlord from time to time in accordance with the provisions of this Lease, are sometimes referred to herein as the "EXTERIOR COMMON AREAS."


(ix) The term "INTERIOR COMMON AREAS" shall refer to the interior lobby, elevators, stairwells, utility risers, and any mechanical rooms located outside any tenant's premises in the Buildings.


(x) The term "COMMON AREAS" shall refer collectively to the Exterior Common Areas and the Interior Common Areas


(b) USE OF COMMON AREAS. As an appurtenance to Tenant's leasing of the Premises pursuant to Section 1.1(a), Landlord hereby grants to Tenant, for the benefit of Tenant


5.


and its employees, suppliers, shippers, customers and invitees, during the Term of this Lease, the non-exclusive right to use, in common with others entitled to such use, (i) those portions of the Common Areas improved from time to time for use as parking areas, driveways, courtyard, sidewalks, landscaped areas, lobbies, elevators, stairwells, utility risers, any mechanical rooms located outside any tenant's premises, or for other common purposes, and (ii) all access easements and similar rights and privileges relating to or appurtenant to the Property and created or existing from time to time under any access easement agreements, declarations of covenants, conditions and restrictions, or other written agreements now or hereafter of record with respect to the Property, subject however to the rights granted under the Parking Lease and any limitations applicable to such rights and privileges under applicable law, under this Lease and/or under the written agreements creating such rights and privileges.


1.2 PHASE 2B EXPANSION OPTION. So long as Inhale Therapeutic Systems, Inc. (or a transferee of a Permitted Transfer) is the Tenant hereunder as of its exercise of the option granted herein, Tenant shall have the option to lease Phase 2B from Landlord (the "PHASE 2B EXPANSION OPTION") upon the terms and conditions set forth in this Lease, subject to the following conditions:


(a) The Phase 2B Expansion Option shall be exercised by written notice of its irrevocable election to exercise the Phase 2B Expansion Option ("EXERCISE NOTICE") given to Landlord by Tenant at any time prior to, but no later than, three (3) business days following the date of Building 2 Substantial Completion. Upon Tenant's giving of the Exercise Notice, Phase 2B shall be deemed added to the Premises.


(b) In the event that Tenant shall not have given the Exercise Notice by Substantial Completion of the Base Building Work, Landlord may lease Phase 2B to a third party for a term not to exceed three years and not later than six (6) months prior to the end of the term of such third party lease, Landlord shall notify Tenant of the availability of Phase 2B. Tenant may exercise the Phase 2B Expansion Option, at any time prior to, but no later than, thirty days following its receipt of Landlord's notice of availability, by giving the Exercise Notice; provided that the Minimum Rental for Phase 2B in such event shall be the lower of (i) $3.60 per rentable square foot per month, which amount shall be subject to a two percent (2%) annual increase on each anniversary of the date of Building 2 Substantial Completion, commencing in 2001, or (ii) the then Fair Market Rental (as determined pursuant to the mechanism described in Section 3.1(d). In such event, Landlord shall have no obligation to provide any tenant improvement allowance.


(c) Notwithstanding anything to the contrary contained herein, if Tenant is in default beyond any applicable notice and cure periods, under any obligation to pay amounts when due and/or any of the other material terms, covenants or conditions of this Lease at the time Tenant exercises the Phase 2B Expansion Option, Landlord shall have, in addition to all of Landlord's other rights and remedies provided in this Lease, the right to terminate such Phase 2B Expansion Option upon written notice to Tenant, and Landlord shall be free to lease Phase 2B to any other third party or parties for any term and condition.


6.


2. TERM.


2.1 TERM. The term of this Lease (as it may be extended from time to time, the "TERM") shall commence upon mutual execution of this Lease by Landlord and Tenant (the "EFFECTIVE DATE") and shall terminate on the date that is one day prior to the sixteenth anniversary of the Phase 1 Rent Commencement Date (as it may be extended pursuant to Section 2.6, below, the "TERMINATION DATE").


2.2 EARLY POSSESSION. Provided Tenant's activities do not unduly interfere with or delay the Base Building Work, Tenant shall have the non-exclusive right to enter the Property from and after the date hereof for the purposes of performing Tenant's Work. Such entry shall be subject to and upon all of the terms and conditions of this Lease and of the Work Letter attached hereto as EXHIBIT C (including, but not limited to, conditions relating to the maintenance of required insurance), except that Tenant shall have no obligation to pay Minimum Rental or Operating Expenses for any period prior to the applicable Rent Commencement Date as determined under Section 3.1; such early possession shall not advance or otherwise affect the applicable Rent Commencement Date. Upon Substantial Completion of the Base Building Work for each Phase, Tenant shall be entitled to the exclusive possession of the Premises.


2.3 DELAY IN POSSESSION. Except to the extent caused by a material default by Landlord of its obligations set forth in this Lease, Landlord shall not be liable for any damages caused by any delay in the completion of the Improvements, nor shall any such delay affect the validity of this Lease or the obligations of Tenant hereunder.


2.4 ACKNOWLEDGEMENT OF RENT COMMENCEMENT. Promptly following each of the Phase 1 Rent Commencement Date, the Phase 2A Rent Commencement Date and the Phase 2B Rent Commencement Date, Landlord and Tenant shall execute a written acknowledgement of the applicable Rent Commencement Date, Termination Date and related matters, substantially in the form attached hereto as EXHIBIT E (with appropriate insertions), which acknowledgement shall be deemed to be incorporated herein by this reference. Notwithstanding the foregoing requirement, the failure of either party to execute any such written acknowledgement shall not affect the determination of the applicable Rent Commencement Date, Termination Date and related matters in accordance with the provisions of this Lease.


2.5 HOLDING OVER. If Tenant holds possession of the Premises or any portion thereof after the Term of this Lease with Landlord's written consent, then except as otherwise specified in such consent, Tenant shall become a tenant from month to month at one hundred and two percent (102%) of the rental and otherwise upon the terms herein specified for the period immediately prior to such holding over and shall continue in such status until the tenancy is terminated by either party upon not less than one hundred twenty (120) days prior written notice. If Tenant holds possession of the Premises or any portion thereof after the Term of this Lease without Landlord's written consent, then Landlord in its sole discretion may elect (by written notice to Tenant) to have Tenant become a tenant either from month to month or at will, at one hundred fifty percent (150%) of the rental (prorated on a daily basis for an at-will tenancy, if applicable) and otherwise upon the terms herein specified for the period immediately prior to such holding over, or may elect to pursue any and all legal remedies available to Landlord under applicable law with respect to such holding over by Tenant. Tenant shall indemnify and


7.


hold Landlord harmless from any loss, damage, claim, liability, cost or expense (including reasonable attorneys' fees) resulting from any delay by Tenant in surrendering the Premises or any portion thereof (except to the extent such delay is with Landlord's prior written consent), including, but not limited to, any claims made by a succeeding tenant by reason of such delay. Acceptance of rent by Landlord following expiration or termination of this Lease shall not constitute a renewal of this Lease.


2.6 OPTIONS TO EXTEND TERM. Tenant shall have the option to extend the Term of this Lease, at the Minimum Rental set forth in Section 3.1(b) and (c), below, and otherwise upon all the terms and provisions set forth herein with respect to the initial term of this Lease, for up to two (2) additional periods of ten (10) years each, the first commencing upon the expiration of the initial term hereof and the second commencing upon the expiration of the first extended term, if any. Exercise of such option with respect to the first such extended term shall be by written notice to Landlord at least eighteen (18) months prior to the expiration of the initial term hereof, exercise of such option with respect to the second extended term, if the first extension option has been duly exercised, shall be by written notice to Landlord at least eighteen (18) months prior to the expiration of the first extended term hereof. If Tenant is in material default hereunder, beyond any applicable notice and cure periods, on the date of such notice or on the date any extended term is to commence, then the exercise of the option shall be of no force or effect, the extended term shall not commence and this Lease shall expire at the end of the then current term hereof (or at such earlier time as Landlord may elect pursuant to the default provisions of this Lease). If Tenant properly exercises one or more extension options under this Section, then all references in this Lease (other than in this Section 2.6) to the "term" of this Lease shall be construed to include the extension term(s) thus elected by Tenant. Except as expressly set forth in this Section 2.6, Tenant shall have no right to extend the Term of this Lease beyond its prescribed term.


3. RENTAL.


Tenant shall cause payment of Minimum Rental and other rent or charges to be received by Landlord on the first calendar day of each month of the Term of this Lease in lawful money of the United States, without offset or deduction, except as specifically provided herein. All amounts payable by Tenant hereunder shall be deemed "Rent."


3.1 MINIMUM RENTAL.


(a) COMMENCEMENT OF RENTAL OBLIGATIONS FOR PHASE 1. Tenant's Minimum Rental and Operating Expense obligations with respect to Phase 1A and Phase 1B shall commence on September ___, 2000 ("PHASE 1 RENT COMMENCEMENT DATE") and shall end on the Termination Date, unless sooner terminated or extended as hereinafter provided.


(b) COMMENCEMENT OF RENTAL OBLIGATIONS FOR PHASES 2A AND 2B. Tenant's Minimum Rental and Operating Expense obligations with respect to Phase 2A shall commence on the earlier of occupancy or the day after the date of Building 2 Substantial Completion (the "PHASE 2A RENT COMMENCEMENT DATE") and shall end on the Termination Date, unless sooner terminated or extended as hereinafter provided. In the event Tenant exercises its option to lease Phase 2B, Tenant's Minimum Rental and Operating Expense obligations with respect to


8.


Phase 2B shall commence on the earlier of occupancy or the day after the date of Building 2 Substantial Completion (the "PHASE 2B RENT COMMENCEMENT DATE") and shall end on the Termination Date, unless sooner terminated or extended as hereinafter provided.


(c) RENTAL AMOUNTS FOR PHASE 1A, PHASE 1B, PHASE 2A, AND PHASE 2B: ANNUAL INCREASES. Tenant shall pay to Landlord as minimum rental for the following Phases, in advance, without deduction, offset, notice or demand, on or before the respective Rent Commencement Date and on or before the first day of each subsequent calendar month of the Term of this Lease, the following amounts per month, subject to adjustment in accordance with the terms of this Section 3.1 ("MINIMUM RENTAL"):


(i) PHASE 1A AND 1B. Beginning on the Phase 1 Rent Commencement Date, Tenant shall pay Minimum Rental for Phase 1 in an amount equal to $287,701.20 ($3.60 per sq. ft. multiplied by 79,917), provided that Tenant shall be entitled to a rent credit in the amount of $46,444 per month (to be prorated for partial months) until such time as Tenant shall have completed Tenant's Work in Phase 1B (but in any event not later than April 1, 2001), as defined in and in accordance with the terms and conditions of the Work Letter.


(ii) PHASE 2A. Beginning on the Phase 2A Rent Commencement Date, Tenant shall pay Minimum Rental for Phase 2A in an amount equal to $164,066.40 ($3.60 per sq. ft. multiplied by 45,574).


(iii) PHASE 2B. In the event that Tenant shall have exercised its Phase 2B Expansion Option, then beginning on the Phase 2B Rent Commencement Date, Tenant shall pay Minimum Rental for Phase 2B in an amount equal to $167,306.40 ($3.60 per sq. ft. multiplied by 46,474).


(iv) ANNUAL INCREASES. On the anniversary of each of the Phase 1 Rent Commencement Date, the Phase 2A Rent Commencement Date and the Phase 2B Rent Commencement Date (assuming Tenant exercises its Phase 2B Expansion Option), the then current Minimum Rental for the relevant Phase shall be increased by two percent (2%).


(v) PARTIAL MONTHS. If the obligation to pay Minimum Rental hereunder commences on other than the first day of a calendar month or if the Term of this Lease terminates on other than the last day of a calendar month, the Minimum Rental for such first or last month of the Term of this Lease, as the case may be, shall be prorated based on the number of days the Term of this Lease is in effect during such month. If an increase in Minimum Rental becomes effective on a day other than the first day of a calendar month, the Minimum Rental for that month shall be the sum of the two applicable rates, each prorated for the portion of the month during which such rate is in effect.


(d) RENTAL AMOUNTS DURING FIRST EXTENDED TERM. If ...