Industrial Build-to-suit Lease

CHESTNUT BAY LLC,
a California limited liability company


and


HEARTPORT, INC.,
a Delaware corporation


INDUSTRIAL BUILD-TO-SUIT LEASE


Dated


September 19, 1997


INDUSTRIAL BUILD-TO-SUIT LEASE


Schedule of Exhibits and Exhibit Document ................................ ii Basic Lease Information .................................................. iii Section 1. Premises ..................................................... 1 Section 2. Term ......................................................... 1 Section 3. Rent ......................................................... 5 Section 4. Utilities .................................................... 5 Section 5. Taxes ........................................................ 6 Section 6. Net Lease; Common Areas; Audit Rights ........................ 8 Section 7. Insurance and Indemnity ...................................... 11 Section 8. Repairs and Maintenance ...................................... 14 Section 9. Alterations .................................................. 16 Section 10. Use .......................................................... 18 Section 11. Environmental Provisions ..................................... 19 Section 12. Damage and Destruction ....................................... 27 Section 13. Eminent Domain ............................................... 29 Section 14. Default ...................................................... 30 Section 15. Assignment and Subletting .................................... 32 Section 16. Estoppel ..................................................... 34 Section 17. Attornment ................................................... 34 Section 18. Subordination ................................................ 34 Section 19. Entry ........................................................ 35 Section 20. Late Charges and Interest .................................... 35 Section 21. Security ..................................................... 35 Section 22. Entire Agreement ............................................. 36 Section 23. Time of Essence .............................................. 36 Section 24. Attorney Fees ................................................ 36 Section 25. Severable .................................................... 37 Section 26. Governing Law ................................................ 37 Section 27. No Option .................................................... 37 Section 28. Successors and Assigns ....................................... 37 Section 29. No Third-Party Beneficiaries ................................. 37 Section 30. Memorandum of Lease and Quitclaim ............................ 37 Section 31. No Agency, Partnership, or Joint Venture ..................... 38 Section 32. No Merger .................................................... 38 Section 33. Signs ........................................................ 38 Section 34. No Waiver .................................................... 38 Section 35. Financial Statements ......................................... 39 Section 36. Limitation of Liability ...................................... 39 Section 37. Notices ...................................................... 39 Section 38. Brokerage Commission ......................................... 40 Section 39. Authorization ................................................ 40 Section 40. Extension Option ............................................. 40 Section 41. Holding Over ................................................. 43 Section 42. Tenant Right to Terminate .................................... 43 Section 43. Surrender .................................................... 43 Section 44. Mortgagee Protection ......................................... 43 Section 45. Right of First Lease Offer ................................... 44 Section 46. Joint and Several ............................................ 45 Section 47. Covenants and Conditions ..................................... 45


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Schedule of Exhibits and Exhibit Document


The Exhibits listed below are set forth in the document entitled "CHESTNUT BAY LLC, a California limited liability company and HEARTPORT, INC., a Delaware corporation INDUSTRIAL BUILD-TO-SUIT LEASE EXHIBIT DOCUMENT", (the "Exhibit Document") of even date herewith, which Exhibit Document is incorporated into this Lease as though permanently attached hereto and any interpretation of any term of this Lease referencing any one or more of the Exhibits listed below shall reference the documents attached to the Exhibit Document.


Schedule of Exhibits


Exhibit A. Real Property Description, Adjacent Real Property Description,
Common Areas, Roadway Easement Exhibit B. Site Plan Exhibit C. Work Letter Exhibit D. Commencement Date Memorandum Exhibit G. Schedule of Known Contaminants Exhibit I. Environmental Documents Exhibit I-1. R&H Landlord Redacted Purchase Agreement Exhibit I-2 R&H Access Agreement Exhibit J. Estoppel Certificate Exhibit J-1. R&H SAND Exhibit K. Landlord's Completion Certificate Exhibit L. Short Form Memorandum


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Basic Lease Information


Effective Date: September 19, 1997


Landlord: Chestnut Bay LLC, a California limited liability company


Landlord's Address For Notice ("Landlord's Address"): c/o The Nicholson Company, 75 Cristich Lane, Campbell, CA 95008 Attn: Michael Newbro


Tenant: Heartport, Inc., a Delaware corporation


Tenant's Address For Notice ("Tenant's Address"): Heartport Building, Woodside Technology Center, 800 Chestnut Street, Redwood City, CA 94063


Real Property ("Real Property"): the approximately 5.98 acre parcel of land situated in the City of Redwood City, County of San Mateo, State of California, described in attached Exhibit A which shows the intended lot line adjustment between the Real Property and Adjacent Real Property. In the event the lot line adjustment is not accomplished prior to the Commencement Date, the Real Property will be considered to be fifty-one and four tenths percent (51.4%) of the total square footage of the combined 11.64 acres of the combined Real Property and Adjacent Real Property parcels (as shown in Exhibit A) until such time as the lot line adjustment is accomplished in substantial accordance with Exhibit A.


Adjacent Real Property ("Adjacent Real Property"): the approximately 5.66 acre parcel of land situated adjacent to the Real Property in the City of Redwood City, County of San Mateo, State of California, described in attached Exhibit A. which shows the intended lot line adjustment between the Real Property and Adjacent Real Property. In the event the lot line adjustment is not accomplished prior to the Commencement Date, the Adjacent Real Property will be considered to be forty-eight and six tenths percent (48.6%) of the total square footage of the combined 11.64 acres of the combined Real Property and Adjacent Real Property parcels (as shown in Exhibit A) until such time as the lot line adjustment is accomplished in substantial accordance with Exhibit A.


Premises ("Premises"): all that rentable area contained within and including the Shell Improvements, together with Tenant's rights under this Lease to use and enjoy the parking, landscaping and facilities on the Common Area.


Approved Reciprocal Easement Agreement ("AREA"): Any agreement(s) placed upon the Real Property and the Adjacent Property and approved in writing by Tenant (which approval shall not be unreasonably withheld or delayed), and any amendments, additions or supplements thereto so approved, which provides for reciprocal easements and/or covenants, conditions and restrictions pertaining to the common areas located on the Real Property and the Adjacent Real Property, which agreements shall not materially interfere with Tenant's rights under this Lease or with Tenant's access to the Premises (collectively "AREA"). If a conflict between any such AREA and this Lease occurs, the provisions of the AREA shall prevail provided that the AREA is


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recorded in the Official Records of the County of San Mateo and is binding upon the Adjacent Real Property as well as the Real Property.


Common Area ("Common Area"): The area shown on Exhibit A hereto, located on the Real Property to be improved by Landlord for parking and landscaping purposes including without limitation parking areas which include the minimum number of parking spaces required by the City of Redwood City for Tenant's use of the Premises. The terms of any AREA may modify the Common Area to include areas covered by the AREA, in which event Tenant shall be entitled to the greater of a) the minimum number of parking spaces required by the City of Redwood City for Tenant's use of the Premises, or (b) a share of the total parking spaces in the Common Area proportionate to the minimum number of parking spaces required by the City of Redwood City for each tenant's use of the Project. Until execution of an AREA, the Common Area shall include the Roadway Easement.


Exhibit Document ("Exhibit Document"): The document of Exhibits listed in the Schedule of Exhibits above, of even date herewith, which with each Exhibit attached thereto is incorporated into this Lease by this reference.


Project ("Project"): Woodside Technology Center located on the Real Property and the Adjacent Real Property.


Shell Improvements ("Shell Improvements"): a two story office and light industrial building shell, to be constructed by Landlord as provided in this Lease, and to contain approximately 132,726 rentable square feet and other improvements as shown on the Site Plan attached as Exhibit B.


Roadway Easement ("Roadway Easement"): a ten foot (10') wide strip of land located along the eastern border of the Real Property and contained within the Adjacent Real Property for the non-exclusive ingress and egress of Tenant for the Term of this Lease as shown in Exhibit A.


Term ("Term"): Twelve (12) years, subject to extension as provided in this Lease.


Estimated Shell Substantial Completion Date ("Estimated Shell Substantial Completion Date"): July 15, 1998


Initial Base Rent Per Month ("Base Rent"): $1.56 per rentable square foot per month.


Security Deposit ("Security Deposit"): Two Hundred Eighty-Six Thousand Dollars ($286,000.00).


Security ("Security"): Additional collateral in the form of: a cash deposit to be held in an escrow account under instructions affording Landlord the absolute right to withdraw funds on Landlord's sworn statement of, and in the amount of, any Tenant default; or if required by Landlord's senior lender for the loan selected by Landlord, an irrevocable letter of credit issued by a bank reasonably acceptable to Landlord and Landlord's lender and naming Landlord as beneficiary.


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The maximum amount of the Security and an agreement for reductions in such amount upon Tenant's achievement of certain financial milestones, is set forth in that certain confidential letter agreement ("Confidential Letter Agreement") executed between Landlord and Tenant of even date herewith and incorporated herein by reference.


Broker ("Broker"): CB Commercial Real Estate Group, Inc.


Lease Year ("Lease Year"): During the Term, each period of approximately 365 days. The first period will commence on the Commencement Date and end on the day prior to the first anniversary of that period and each successive period, unless Landlord and Tenant agree to some other period.


Permitted Use ("Permitted Use"): Uses typical to a high technology research and development light industrial park and related ancillary office uses. No other uses are permitted without the Landlord's prior written consent, which shall not be unreasonably withheld, delayed or conditioned.


The terms and provisions in the Basic Lease Information above and the incorporated Exhibit Document and the Confidential Letter Agreement") are a part of the following Lease. The definitions in the Basic Lease Information apply to all references in this Lease to those terms and provisions. If this Lease and the Basic Lease Information contain conflicting definitions, the Basic Lease Information definition will control.


Landlord (______landlord's initials) and Tenant (______tenant's initials) agree.


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LEASE


This Industrial Build-to-Suit Lease ("Lease") dated as of September 19, 1997, is entered into between Chestnut Bay LLC, a California limited liability company ("Landlord") and Heartport, Inc., a Delaware corporation ("Tenant").


Section 1. Premises.


Landlord leases to Tenant the Premises. The Real Property will be improved with the Shell Improvements to be constructed by Landlord. The Shell Improvements are described in the Work Letter, attached as Exhibit C. The building rentable area within and the Shell Improvements shall be determined by Landlord's architect as of the Commencement Date and provided to Tenant in writing (including the detail of Landlord's architects calculations) within ten (10) days of the Commencement Date. The term "Building Rentable Area" shall mean the floor area with measurements from the line identified in Exhibit A along the outside of the exterior walls of the Shell Improvements as the "Building Rentable Area Boundary" and shall include Tenant's exclusive covered loading dock bays. Tenant shall have the right for thirty (30) days after the receipt of Landlord's architects calculations, to have Tenant's architect measure the square footage of the Building Rentable Area within the Premises and to confirm Landlord's architects calculations. If Tenant elects to measure the Premises and delivers to Landlord a notice stating that Tenant disagrees with Landlord's architect's measurement of the Building Rentable Area of the Premises, Landlord and Tenant and their architects shall meet within ten (10) days following Landlord's receipt of such notice and attempt to resolve the dispute. If the parties are unable to resolve such dispute within such ten (10) day period, Landlord's and Tenant's architects shall select a neutral architect, not previously employed in any capacity by either party or their respective architects, who is qualified and licensed to make such measurement and calculation, which neutral architect shall be mutually acceptable to Landlord and Tenant, in their reasonable judgment and Landlord and Tenant shall make available to the neutral architect all information, including without limitation CAD drawings, requested by the neutral architect, and shall cause such neutral architect to measure the Building Rentable Area of the Premises, measured as set forth above, as soon as practicable. Such neutral architect's measurement shall be the final determination of the Building Rentable Area of the Premises. The cost of the measurement by the neutral architect shall be shared equally by the parties, unless either party's initial measurement differs from the final measurement by more than five percent (5%) of the final measurement, in which event such cost shall be paid by the party whose initial measurement is furthest from the final measurement.


Section 2. Term.


(a) Commencement Date. The Term of this Lease will commence ("Commencement Date") on the earliest of the following dates: (i) the date of Shell Substantial Completion (defined in Exhibit C); or (ii) the date which would have been the date of Shell Substantial Completion but for Tenant Delays (defined in Exhibit C). The Term of the Lease will continue for the period of


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time specified as the Term or until this Lease is terminated as otherwise provided for in the Lease.


(b) Rental Commencement Date: The payment of Rent shall commence ("Rental Commencement Date") on the earliest of the following dates: (i) One Hundred Twenty (120) days following the Commencement Date, plus any Landlord Delay as defined in Exhibit C (the "Outside Rental Commencement Date"); or (ii) the date Tenant occupies the Premises for the conduct of business. Determination of the Rental Commencement Date shall not affect the parties' rights to Rent or Rent credit pursuant to 2(d) below.


(c) Commencement Date Memorandum. Following the Rental Commencement Date, Tenant will execute and deliver to Landlord a memorandum of the Commencement Date and Rental Commencement Date in the form of attached Exhibit D ("Commencement Date Memorandum"). The Commencement Date Memorandum must acknowledge: (i) the Commencement Date; (ii) the Rental Commencement Date; (iii) the final square footage of the Premises; and (iv) Tenant's acceptance of the Premises subject to completion of any punch list items.


(d) Delays. If Shell Substantial Completion has not occurred on the Estimated Shell Substantial Completion Date, as it may be extended by any Unavoidable Delays (defined in Exhibit C) and Tenant Delays, this Lease will not terminate but Tenant shall receive a Rent credit of one day free rent for each day of delay until the earlier to occur of: thirty (30) days following the Estimated Shell Substantial Completion Date; or the Shell Substantial Completion Date. If Shell Substantial Completion has not occurred for thirty (30) days after the Estimated Shell Substantial Completion Date, as it may be extended by any Unavoidable Delays and Tenant Delays, this Lease will not terminate but Tenant shall receive a Rent credit of two days free rent for each day of delay following the thirtieth day of delay until Shell Substantial Completion. The Rent credits provided in this Section 2(d) and Tenant's rights under Section 2(f) shall serve as Tenant's sole and exclusive remedy for any delay of Shell Substantial Completion.


(e) Early Entry. With the prior written consent of Landlord, not to be unreasonably withheld, delayed or conditioned, Tenant may, at Tenant's own risk, enter the Shell Improvements prior to the date of Shell Substantial Completion. The entry may be made solely to install the Tenant Improvements, Tenant's trade fixtures and equipment and shall be subject to the following terms and conditions: (i) Tenant's early entry may not interfere with the construction of any Shell Improvements or cause labor difficulties; (ii) Tenant's early entry must be on all the terms and conditions of this Lease, other than the obligation to pay Base Rent; (iii) Tenant must provide evidence of insurance that is satisfactory to Landlord; (iv) Tenant must indemnify, defend, and hold harmless Landlord and Landlord's agents, employees, and contractors against all claims, liability, and damages arising from the early entry; (v) Tenant's early entry does not constitute the commencement of the Lease; and (vi) Tenant must pay utility charges reasonably allocated by Landlord. The date which Tenant enters the Premises for the commencement of construction of Tenant Improvements (other than work relating to utilities or other matters under or affecting the slab to be installed by Landlord) shall be identified in Landlord's approval as the "Early Entry Date."


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(f) Outside Shell Completion Date and Tenant Purchase Option. Notwithstanding anything to the contrary in this Lease, if Shell Substantial Completion has not occurred by April 30, 1999, plus any delays that are Tenant Delays, either Landlord or Tenant shall have the right by written notice to the other party, with a copy to Landlord's construction lender, within thirty (30) days thereafter to terminate this Lease and this Lease shall thereupon terminate, provided, however, that notice terminating this Lease shall be ineffective if within thirty (30) days after such termination notice Landlord's construction lender gives Tenant written notice that Landlord's construction lender elects in writing to cause the construction of the Shell Improvements to be completed, by foreclosure on the Real Property or otherwise, and thereafter promptly proceeds with such completion and Shell Substantial Completion occurs no later than July 31, 1999, plus any delays that are Unavoidable Delays or Tenant Delays.


(i) In the event of a Landlord election to terminate this Lease pursuant to this subsection 2(f), Tenant shall have the right, for a period of thirty (30) days following Landlord's termination notice, to purchase the Real Property and completed Common Area improvements and Shell Improvements (the "Option Property") at their then Fair Market Purchase Price (defined herein). Tenant shall exercise such right by delivering to Landlord during said thirty day period Tenant's proposed purchase contract which shall include reasonable and customary terms for the acquisition of similarly situated real property and improvements (which at a minimum shall provide for close of escrow no later than forty-five days following the date of execution of the agreement and shall relieve Landlord of all liability with respect to the Option Property following close of escrow) (the "Purchase Agreement") and shall state Tenant's proposed Fair Market Value Purchase Price (collectively, "Tenant's Purchase Notice"). As used in this Section, "Fair Market Purchase Price" shall be deemed to mean the arm's length purchase price between parties of equal bargaining position for real property and improvements of a similar type, design, and quality as the Real Property, Common Area improvements and Shell Improvements, in the same or similar-quality geographic area in the mid Peninsula, Highway 101 corridor market area in which the Premises are situated under market conditions existing at that time in the mid Peninsula, Highway 101 corridor market area. In determining the Fair Market Purchase Price the parties or their appraiser(s) shall consider cost replacement analysis, income analysis as well as sales of comparable real property and improvements analysis for light industrial and office purposes comparable in size, location, and type of building, age, quality, layout and condition of the Shell Improvements and Real Property, with comparable parking rights and landscaping. Sales of comparable property that are not arms-length negotiated transactions (as with a tenant that owns equity in a building) shall not be considered in determining the Fair Market Purchase Price. The Fair Market Purchase Price shall not include any amount attributable to Tenant's Tenant Improvements, Tenant's Alterations (defined herein), or other improvements made or paid for by Tenant (whether by amortization during the initial Lease Term or otherwise), and the Fair Market Purchase Price shall take into account whether there is any brokerage commission payable by Landlord upon sale. If the parties cannot agree on the Fair Market Purchase Price of the Option Property within thirty (30) days of Tenant's purchase notice, each party, at its cost and by giving notice to the other party, shall, within ten (10) days thereafter, appoint a real estate appraiser with at least five (5) years' full-time commercial appraisal experience in the geographic area in which the Option Property is located, to appraise and determine the then Fair Market Purchase Price and the Fair Market Purchase Price shall be conclusively determined as


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follows:


(ii) If one party does not appoint an appraiser within the time period in Section 2(f)(i), the appraiser appointed by the other party shall be the sole appraiser and shall determine the Fair Market Purchase Price. Notwithstanding this Section, either party shall have the right to appoint a replacement appraiser if the appraiser originally selected becomes unable to perform as required hereunder.


(iii) If the two (2) appraisers are so appointed by the parties, they shall meet promptly and attempt to appraise and determine the Fair Market Purchase Price. If they are unable to agree within thirty (30) days after the second appraiser has been appointed, they shall attempt to select a third appraiser who meets the qualifications stated in Section 2(f)(i) within ten (10) days after the last day the two appraisers are given to determine the Fair Market Purchase Price. If they are unable to agree on a third appraiser, either of the parties to this Lease, by giving ten (10) days' notice to the other party, can apply to the presiding judge of the Superior Court for the county in which the Premises are located for the selection of a third appraiser who meets the qualifications stated in Section 2(f)(i). Each of the parties shall bear one-half (1/2) of the cost of appointing the third appraiser and of the third appraiser's fee. The third appraiser, however selected, shall be a person who has not previously acted in any capacity for either party.


(iv) Within twenty (20) days after appointment of the third appraiser, each party's appraiser shall submit to the third appraiser a written statement of such appraisers determination of the Fair Market Purchase Price of the Option Property, determined as provided in this Lease, together with written information relating to comparable transactions and adjustments, replacement cost estimates, income analysis and other relevant information used in making such determination, and a copy of such submission shall be provided to the other party. Within five (5) days thereafter , each party shall have the right to submit a response to the other party's submission. Within ten (10) days after the last of such responses are received, the third appraiser shall select either the Fair Market Purchase Price determined by Landlord's appraiser or the Fair Market Purchase Price determined by Tenant's appraiser as the Fair Market Purchase. If the third party appraiser considers information not submitted by either party in making such determination, the third party appraiser shall advise each of the parties' appraisers and permit them to comment on such information before making such determination. The third appraiser may not determine a Fair Market Purchase Price other than a Fair Market Purchase Price submitted by one of the parties. The Fair Market Purchase Price chosen by the third appraiser shall be the Fair Market Price for the sale of the Real Property and Shell Improvements to Tenant.


(g) After the Fair Market Price is determined, Landlord and Tenant shall execute a Purchase Agreement reflecting the Fair Market Purchase Price. If the parties cannot agree on the terms of the Purchase Agreement within one hundred sixty (160) days of Tenant's Purchase Notice despite diligent good faith efforts at negotiating such contract and the determination of a Fair Market Purchase Price, Landlord shall provide Tenant with Landlord's good faith final counter offer which may be rejected or accepted by Tenant within ten (10) days' of receipt from Landlord. In the event Tenant rejects or fails to respond to Landlord's final counter offer within


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said ten day period this Lease shall terminate and the parties shall have no further obligation to each other hereunder except as specifically set forth herein.


Section 3. Rent.


(a) Initial Base Rent. Tenant will pay to Landlord, at any address that Landlord may designate in writing to Tenant (which, on request of Tenant, shall be a bank account to which Tenant may make wire transfers), the Base Rent. The rent must be paid, without the need for notice, demand, offset, or deduction, commencing on the Rent Commencement Date and continuing thereafter on the first day of each calendar month during the Term. If the Term commences or ends on a date other than the first or last day of a month, Tenant must pay on the Rent Commencement Date or the first day of the last month a Base Rent prorated on a per diem basis with respect to the portion of the month within the Term. All sums other than Base Rent that Tenant is obligated to pay under this Lease will be deemed to be additional rent due, regardless of whether those sums are designated as "additional rent." ...