2. Reports on Form 8-K filed during the quarter ended June 30, 2001.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its be half by the undersigned thereunto duly authorized.

Dated: August 10, 2001

THIS COLLABORATION AGREEMENT (the "Agreement") is dated as of May 22, 2001 (the "Effective Date") by and between Exelixis, Inc., a Delaware corporation having its principal place of business at 170 Harbor Way, P.O. Box 511, South San Francisco, California 94083-0511 ("EXEL"), and Protein Design Labs, Inc., a Delaware corporation having its principal place of business at 34801 Campus Drive, Fremont, California 94555-3606 ("PDL"). EXEL and PDL are sometimes referred to herein individually as a "Party" and collectively as the "Parties."

A. PDL has expertise and capability in developing antibodies, in particular humanized antibodies, as pharmaceuticals.

B. EXEL has expertise and proprietary technology relating to drug discovery focused particularly on genetic model systems, genomics and computational biology and is applying such technology to discover and validate targets and products for drug discovery in a variety of disease areas.

C. PDL and EXEL desire to establish a collaboration to utilize the technology and expertise of PDL and EXEL to identify and characterize targets for the treatment of cancer and precancerous conditions, controlling cell growth, apoptosis, and proliferation, to generate antibodies directed against such targets, and to develop and commercialize novel antibody products for diagnostic, prophylactic and therapeutic uses.

Now, Therefore, the Parties agree as follows:

1. Definitions

The following terms shall have the following meanings as used in this Agreement:

1. "Affiliate" means, with respect to a particular Party, a person, corporation, partnership, or other entity that controls, is controlled by, or is under common control with such Party. For the purposes of the definition in this Section 1.1, the word "control" (including, with correlative meaning, the terms "controlled by" or "under the common control with") means the actual power, either directly or indirectly through one or more intermediaries, to direct or cause the direction of the management and policies of such entity, whether by the ownership of at least fifty percent (50%) of the voting stock of such entity, or by contract or otherwise.
2. "Antibody" means a Humanized Antibody or Precursor Antibody.
3. "Antibody Inventions" means an Invention directed to Antibodies, including without limitation, composition of matter, methods of manufacture, methods of use, formulations, dosing regimens, etc.
4. "Antibody Target" means [ * ].
5. "Antibody Target Candidate" means [ * ].
6. "BLA" means a Biologics License Application as defined in the current Federal Food, Drug and Cosmetic Act, and applicable regulations promulgated thereunder by the FDA or the equivalent application to the equivalent agency of any other regulatory jurisdiction, as amended from time to time during the term of this Agreement.
7. "Co-Funded Product" means a Product for which EXEL has made an effective election to co-fund pursuant to Section 5.1 and which has not ceased to be a Co-Funded Product pursuant to Section 5.9.
8. "Collaboration" means all of the research activities performed by, or on behalf of, EXEL or PDL during the Research Term pursuant to the Research Plan, through the stage of evaluation of Precursor Antibodies.
9. "Combination Product" means any product containing both (i) substantially all of at least one variable region of an Antibody, and (ii) one or more other therapeutically active ingredients.
10. "Commercialization Plan" shall have the meaning set forth in Section 3.4(b).
11. "Controlled" means, with respect to all or any portion of any gene, protein, compound, material, Information or intellectual property right, that the Party owns or has a license to such gene, protein, compound, material, Information or intellectual property right and has the ability to grant to the other Party access, a license or a sublicense (as applicable) to such gene, protein, compound, material, Information or intellectual property right as provided for herein without violating the terms of any agreement or other arrangements with any Third Party existing at the time such Party would be first required hereunder to grant the other Party such access, license or sublicense.
12. "Cost of Goods Sold" means [ * ].
13. "Cost of Manufacture" means [ * ].
14. "Development" means those activities undertaken with respect to a Product that are directed toward obtaining Regulatory Approval and the pre-marketing, marketing research, marketing and sale of such Product, including without limitation, humanization, cell line optimization, pre-clinical testing and toxicology studies, human clinical trials, formulation, bulk production, fill/finish, manufacturing process development, manufacturing scale-up costs and validation, qualification and certification costs and preparation of regulatory filings.
15. "Development Plan" means the plan describing the Development intended to be conducted for a given Co-Funded Product, including an estimated schedule and budget, as such plan may be amended by the relevant Joint Development Committee from time to time.
16. "Development Costs" means [ * ].
17. "Diligent Efforts" means the carrying out of obligations or tasks in a sustained manner consistent with the efforts a Party devotes to a product or a research, development or marketing project of similar market potential, profit potential or strategic value resulting from its own research efforts, based on conditions then prevailing and taking into account its relative risk profile, time to market, and other factors considered in portfolio management. Diligent Efforts requires that the Party: (i) promptly assign responsibility for such obligations to specific employee(s) who monitor such progress on an on-going basis, (ii) set and consistently seek to achieve specific and meaningful objectives for carrying out such obligations, and (iii) allocate resources designed to advance progress with respect to such objectives.
18. "Drug Approval Application" means an application for Regulatory Approval required before commercial sale of a Product as a pharmaceutical product in a regulatory jurisdiction.
19. "EXEL Diagnostic Product" means [ * ].
20. "EXEL Know-How" means all Information Controlled by EXEL during the term of the Agreement that is necessary or reasonably useful for PDL (a) to fulfill its obligations under the Research Plan, or (b) to research, develop, use, import, manufacture, market or sell Antibodies or Products, but excluding the EXEL Patents.
21. "EXEL Patents" means all (i) unexpired letters patent (including inventor's certificates) which have not been held invalid or unenforceable by a court of competent jurisdiction from which no appeal can be taken or has been taken within the required time period, including without limitation any substitution, extension, registration, confirmation, reissue, re-examination, renewal, patent of addition or any like filing thereof and (ii) pending applications for letters patent, including without limitation any continuation, division, or continuation-in-part thereof and any provisional applications Controlled by EXEL related to Targets or Antibodies, including the identification and generation of Antibody Target Candidates and Antibody Targets for use in identifying and generating Antibodies, including but not limited to issued patents and pending applications that claim the composition of matter, manufacture, import or use of a Target, Antibody Target Candidate, Antibody Target, Antibody or Product, which are filed prior to or during the term of this Agreement in the United States or any foreign jurisdiction. "EXEL Patents" shall not include Joint Patents or PDL Patents or, after assignment to PDL, Antibody Patents.
22. "EXEL Products" means those Products which previously were Co-Funded Products, but which EXEL has assumed responsibility for Development and commercialization as described in Section 5.9(c).
23. "First Commercial Sale" means the first sale of the applicable Product to a Third Party following Regulatory Approval of the Product in the country where sold.
24. "Humanized Antibody" means [ * ] pursuant to this Agreement by [ * ]. The term "Humanized Antibody" shall include, without limitation [ * ].
25. "Independent Research" means [ * ].
26. "IND" means an Investigational New Drug Application as defined in the current Federal Food, Drug and Cosmetic Act and applicable regulations promulgated thereunder by the FDA or the equivalent application to the equivalent agency in any other regulatory jurisdiction, as amended from time to time during the term of this Agreement, and any equivalent application or filing for diagnostics or medical devices.
27. "Information" means information, results and data of any type whatsoever, in any tangible or intangible form whatsoever, including without limitation, databases, inventions, practices, methods, techniques, specifications, formulations, formulae, knowledge, know-how, skill, experience, test data including pharmacological, biological, chemical, biochemical, toxicological and clinical test data, analytical and quality control data, stability data, studies and procedures, and patent and other legal information or descriptions.
28. "Inventions" means any and all inventions, results, know-how and other Information, and all intellectual property relating thereto, made, discovered or developed by one or more Parties and their employees or agents (including, without limitation, consultants or contractors who have assigned rights to inventions to a Party) pursuant to work performed under the Collaboration or in the course of developing a Pre-Opt-In Product or developing or marketing a Co-Funded Product.
29. "Joint Inventions" means any and all Inventions (other than Antibody Inventions) made jointly by employees or agents of both Parties (including, without limitation, consultants or contractors who have assigned rights to inventions to a Party), as determined in accordance with United States patent laws.
30. "Joint Patents" means all (i) unexpired letters patent (including inventor's certificates) which have not been held invalid or unenforceable by a court of competent jurisdiction from which no appeal can be taken or has been taken within the required time period, including without limitation any substitution, extension, registration, confirmation, reissue, re-examination, renewal, patent of addition or any like filing thereof, and (ii) pending applications for letters patent, including without limitation any continuation, division, or continuation-in-part thereof and any provisional applications claiming Joint Inventions, which are filed during the term of this Agreement in the United States or any foreign jurisdiction. "Joint Patents" shall not include EXEL Patents or PDL Patents or Antibody Patents.
31. "Model System Targets" means [ * ].
32. "Net Sales" means [ * ].

In the case of Combination Products for which a Product and each of the other therapeutically active ingredients contained in the Combination Product have established market prices when sold separately, Net Sales shall be determined by multiplying the Net Sales for each such Combination Product by a fraction, the numerator of which shall be the established market price for the Product(s) contained in the Combination Product, and the denominator of which shall be the sum of the established market prices for the Product(s) plus the other active ingredients contained in the Combination Product. When such separate market prices are not established, then the Parties shall negotiate in good faith to determine the method of calculating Net Sales for Combination Products.

If PDL, its Affiliates or sublicensees receive non-cash consideration for any Product sold or otherwise transferred to a Third Party, the fair market value of such non-cash consideration on the date of the transfer as known to PDL, or as reasonably estimated by PDL if unknown, shall be included in the definition of Net Sales. EXEL shall have a right to review the basis of such determination and upon written notice, audit such estimates as provided in Section 9.16.

33. "Oncology Screens" shall have the meaning [ * ].
34. "Opt-In Period" shall have the meaning set forth in Section 5.1.
35. "Patents" means EXEL Patents, PDL Patents and/or Joint Patents as the context requires.
36. "PDL Diagnostic Product" means a product that is being or has been developed for [ * ] for use with a [ * ].
37. "PDL Know-How" means all Information Controlled by PDL during the term of the Agreement that is necessary or reasonably useful for EXEL to (a) fulfill its obligations under the Research Plan, or (b) develop, import, use, manufacture, market or sell EXEL Products, but excluding the PDL Patents and excluding all Information Controlled by PDL that relates to antibodies other than EXEL Products (including, without limitation, general methods for the humanization or manufacture of antibodies), except to the extent the Parties agree pursuant to Section 5.9(c).
38. "PDL Patents" means all (i) unexpired letters patent (including inventor's certificates) which have not been held invalid or unenforceable by a court of competent jurisdiction from which no appeal can be taken or has been taken within the required time period, including without limitation any substitution, extension, registration, confirmation, reissue, re-examination, renewal, patent of addition or any like filing thereof and (ii) pending applications for letters patent, including without limitation any continuation, division, or continuation-in-part thereof and any provisional applications, Controlled by PDL related to the development of Antibodies, including but not limited to applications that claim the composition of matter, manufacture, or use of a Target, Antibody or Product, which are issued or filed prior to or during the term of this Agreement in the United States or any foreign jurisdiction. "PDL Patents" shall not include Joint Patents or EXEL Patents or, until assigned to PDL, Antibody Patents.
39. "PDL Product" means any Product developed under this Agreement which (a) [ * ], or (b) [ * ].
40. "Phase III Clinical Trial" means a trial on sufficient numbers of patients that is designed to establish that a pharmaceutical product is safe and efficacious for its intended use, and to define warnings, precautions and adverse reactions that are associated with the pharmaceutical product in the dosage range to be prescribed, and to support Regulatory Approval of such pharmaceutical product or label expansion of such pharmaceutical product.
41. "Precursor Antibody" means [ * ] pursuant to this Agreement from [ * ]. The term "Precursor Antibody" shall include, without limitation [ * ].
42. "Pre-Opt-In Product" means a Product for which EXEL has not made a decision under Section 5.1 whether to co-fund and for which the Opt-In Period has not expired.
43. "Product" means any therapeutic or prophylactic product developed under this Agreement, for [ * ], incorporating [ * ].
44. "Product Profit" means the profit or loss for a particular Co-Funded Product for a particular period calculated as described in Exhibit B.
45. "Regulatory Approval" means any and all approvals (including supplements, amendments, pre- and post- approvals, pricing and reimbursement approvals), licenses, registrations or authorizations of any national, supra-national (e.g., the European Commission or the Council of the European Union), regional, state or local regulatory agency, department, bureau, commission, council or other governmental entity, that are necessary for the manufacture, distribution, use and sale of a Product in a regulatory jurisdiction.
46. "Research Funding" means the research funding and license payments made by PDL to EXEL as described in Section 9.2.
47. "Research Plan" means the research plan describing the goals and activities to be conducted through the stage of Precursor Antibody evaluation during the Research Term, including initially a detailed description of such goals and activities for the first year of the Research Term and a general description of the goals and intended activities for the remainder of the Research Term, as such plan is amended from time to time during the Research Term in accordance with Section 3.1(b). The Research Plan, including any amended Research Plan, shall be attached as Exhibit A.
48. "Research Term" means the period commencing on [ * ] and ending on the termination [ * ].
49. "Sole Inventions" means any and all Inventions (other than Antibody Inventions) made, discovered or developed solely by one Party and its employees or agents (including, without limitation, consultants or contractors who have assigned rights to inventions to a Party).
50. "Target(s)" means [ * ]. The term "Target(s)" shall include [ * ], but shall exclude [ * ].
51. "Target Pool" means [ * ] whenever identified, [ * ].
52. "Third Party" means any entity other than (i) EXEL, (ii) PDL or (iii) an Affiliate of either of them.
53. "Third Party Royalty" means any royalty paid by a Party or an Affiliate to a Third Party in respect of the manufacture, importation, use or sale of a Product.

2. The Collaboration Relationship

1. Overview. PDL and EXEL will collaborate to identify, develop, market and sell antibodies for use in the diagnosis, prophylaxis and treatment of one or more [ * ] cancerous conditions. EXEL will conduct activities under the Research Plan to identify Targets and will present all such Targets to PDL [ * ]. Targets will be analyzed [ * ]. [ * ] conduct preclinical testing in preparation for an IND and develop a Development Plan for any Product for which PDL intends to file an IND. If EXEL elects to co-fund one or more Products [ * ]

3. Management of the Collaboration

1. Joint Scientific Committee.

1. Membership. [ * ] the Effective Date, the Parties shall establish a Joint Scientific Committee (the "JSC") to oversee the research activities of EXEL and PDL under the Research Plan. The JSC shall be composed of four representatives, two members appointed by each of the Parties. One representative from each Party on the JSC shall be the individual at the Party with primary responsibility for the management of the Collaboration. Initial designees shall be Geoff Duyk and Greg Plowman on behalf of EXEL and William Benjamin and Max Vasquez on behalf of PDL. Each Party may replace its appointed JSC representatives at any time upon written notice to the other Party. EXEL shall designate one of its representatives as Chairperson of the JSC, and PDL shall designate one of its representatives as Vice-Chairperson. The Chairperson shall be responsible for scheduling meetings and preparing and circulating a draft agenda in advance of each meeting. Any member may add topics to the agenda. The Vice-Chairperson shall be responsible for preparing and issuing minutes of each meeting within thirty (30) days thereafter.
2. Responsibilities. During the [ * ], the JSC shall meet on a quarterly basis as provided in Section 3.5. Following the Research Term, the JSC shall meet on a quarterly basis for [ * ] for the purposes of winding down or completing work [ * ]. [ * ] may elect to continue to work in the same manner as described in the Research Plan on [ * ] and [ * ] on a case-by-case basis. For those [ * ] for which [ * ] continues to conduct such work and that complete the stage of in vitro and in vivo validation as described in Section 2.7 of the Research Plan (to the extent specified by the JSC), for each such resulting Product, the Opt-In Decision as set forth in Section 5.1 (i.e., EXEL's right to co-fund) shall survive; otherwise, such rights shall terminate. The JSC shall operate [ * ] and in accordance with the principles set forth in this Article 3. The JSC shall: (i) evaluate the data generated by the Parties in the course of the Collaboration, (ii) decide what research activities the Parties shall perform on Targets or Precursor Antibodies under the Collaboration, except as provided in Section 4.2, and (iii) review and amend the Research Plan from time to time as appropriate, including not less than an annual review to detail the activities and goals for the upcoming year; provided that any amendment of the Research Plan that varies any material terms of this Agreement shall be subject to Section 15.4, which requires that any such amendment shall be reduced to writing and signed by an authorized officer of each Party.

2. Joint Patent Committee. Within [ * ] the Effective Date, a Joint Patent Committee (the "JPC") shall be formed. The JPC, in consultation with the JSC, will devise a strategy for the protection of intellectual property arising from the Collaboration, including Antibody Target Candidates, Antibody Targets and Antibody Inventions, and will supervise and direct the filing, prosecution and maintenance of all Patents covering the Joint Inventions, as further described in Article 10. This committee will consist of one member from each Party's management team or the Party's designated alternate. The PDL representative will serve as the Chairperson of the JPC. During the term of this Agreement, the JPC will meet at [ * ], as provided in Section 3.5, and may hold additional meetings at the request of either Party.
3. Joint Development Committee.

1. Membership. [ * ] as EXEL exercises its option to co-fund a Product, as provided in Section 5.1, the Parties promptly shall establish a Joint Development Committee (a "JDC") to oversee the development and commercialization of that Co-Funded Product. The JDC shall be composed of four representatives, two members appointed by each of the Parties. One JDC representative from PDL shall be the individual at PDL with primary responsibility for the management of the development of the Product. Each Party may replace its appointed JDC representatives at any time upon written notice to the other Party. PDL shall designate one of its representatives as Chairperson of the JDC, and EXEL shall designate one of its representatives as Vice-Chairperson. The Chairperson shall be responsible for scheduling meetings and preparing and circulating an agenda in advance of each meeting. The Vice-Chairperson shall be responsible for preparing and issuing minutes of each meeting within thirty (30) days thereafter.
2. Responsibilities. During the Development of a Co-Funded Product, the JDC for that Co-Funded Product shall meet on a quarterly basis as provided in Section 3.5. Each JDC shall operate [ * ] and in accordance with the principles set forth in this Article 3. Each JDC shall: (i) oversee the progress of the Development conducted by PDL for its Co-Funded Product, and (ii) review and approve any material amendments to the Development Plan for its Co-Funded Product.

4. Joint Commercialization Committee.

1. Membership. [ * ] for each Co-Funded Product, the Parties shall establish a Joint Commercialization Committee ("JCC") for that Co-Funded Product. The JCC shall be composed of four representatives, two members appointed by each of the Parties. One representative from PDL on the JCC shall be the individual at PDL with primary responsibility for the commercialization of the Product. Each Party may replace its appointed JCC representatives at any time upon written notice to the other Party. PDL shall designate one of its representatives as Chairperson of the JDC, and EXEL shall designate one of its representatives as Vice-Chairperson. The Chairperson shall be responsible for scheduling meetings and preparing and circulating an agenda in advance of each meeting. The Vice-Chairperson shall be responsible for preparing and issuing minutes of each meeting within thirty (30) days thereafter.
2. Responsibilities. Each JCC shall meet on a quarterly basis as provided in Section 3.5. Each JCC shall operate [ * ] and in accordance with the principles set forth in this Article 3. Each JCC shall: (i) prepare a basic commercialization plan, including a launch and marketing plan and budget for the commercialization of its Co- Funded Product (the "Commercialization Plan"), (ii) oversee the implementation of the Commercialization Plan by PDL, and (iii) review and approve any material amendments to the Commercialization Plan. In any event, the Commercialization Plan shall not include detailed Information regarding PDL's implementation of the Plan, including without limitation, sales force incentives, which shall be in PDL's sole discretion. The Commercialization Plan shall be prepared taking into consideration such factors as: (i) the use of Third Party collaborators to develop, market and sell in particular countries or territories, (ii) market conditions, (iii) regulatory factors, and (iv) competition. The Commercialization Plan budget will include all projected additional Regulatory Approvals, and sales and marketing expenses for the Co-Funded Product.

5. Meetings. All meetings of the JSC, JPC, JDCs and JCCs shall be held at the headquarters of either EXEL or PDL (or at any other mutually agreed upon location), on an alternating basis. Either Party may bring additional representatives to attend meetings of a particular committee as nonvoting observers. A meeting of a committee may be held by audio or video teleconference with the consent of each Party, provided that at least half of the minimum number of meetings for that committee shall be held in person. Meetings of a committee shall be effective only if at least one representative of each Party is present or participating.
6. Obligations of Parties. EXEL and PDL shall provide the JSC, JPC, JDCs and JCCs and their authorized representatives with reasonable access during regular business hours to all records, documents, and Information relating to the Collaboration which any such committee may reasonably require in order to perform its obligations hereunder; provided, however, that if such documents are under a bona fide obligation of confidentiality to a Third Party, then EXEL or PDL, as the case may be, may withhold access thereto to the extent necessary to satisfy such obligation, such access not to be unreasonably withheld. EXEL and PDL may also withhold documents relating to any evaluations of the Collaboration, including documents relating to evaluating the activities under this Agreement or relating to a decision whether to continue a Collaboration project.
7. Collaboration Guidelines.

1. General. In all matters related to the Collaboration and the development and marketing of Co-Funded Products, the Parties shall be guided by standards of reasonableness in economic terms and fairness to each of the Parties, striving to balance as best they can the legitimate interests and concerns of the Parties to further the goals of the Collaboration and to realize the economic potential of the Products.
2. [ * ]; Deadlocks. The JSC, JPC, JDCs and JCCs shall operate [ * ]. In the event of a deadlock within the JSC, the JPC, a JDC or a JCC concerning any decision, such deadlock shall be resolved as follows:

1. JSC Deadlocks. If a deadlock arises between the members of the JSC, a non-JSC-member officer of each party shall be advised of the deadlock in writing and shall attempt to provide the JSC with a mutually agreed upon resolution within one (1) month. If such resolution is not timely provided, the Chief Executive Officer ("CEO") of each Party shall be advised of the deadlock in writing and the deadlock shall be resolved by mutual agreement of the Parties' CEOs within one (1) month after they have been so advised. If the CEOs do not agree on a resolution, [ * ] regarding any deadlock concerning target selection (i.e., whether a Target meets the Antibody Target Candidate or Antibody Target criteria) and all other deadlocks shall be submitted to and resolved by binding arbitration pursuant to the Commercial Arbitration Rules of the American Arbitration Association (the "AAA Rules"). In any event, each Party shall submit a briefing document detailing its position in the deadlock not to exceed 25 double-spaced 8.5"x11" pages within 10 business days of the selection of the arbitrator, and the arbitrator shall be instructed to make such determination within 30 days of submission of both position papers, but in any event not later than 40 days following submission of the matter to arbitration. The arbitration shall be held in San Francisco, California and shall be conducted by one arbitrator who is knowledgeable in the subject matter at issue and who is selected by mutual agreement of the Parties or, failing such agreement, shall be selected according to the AAA Rules. In conducting the arbitration, the arbitrator shall apply the California Rules of Evidence, and shall be able to decree any and all relief of an equitable nature, including without limitation such relief as a temporary restraining order, a preliminary injunction, a permanent injunction, and specific performance. Each Party shall bear its respective costs and expenses and the fees of the arbitrator shall be shared equally.
2. JDC Deadlocks. If a deadlock arises between the members of a JDC, the CEO of each Party shall be advised of the deadlock in writing and shall attempt to provide the JDC with a mutually agreed upon resolution within one (1) month. If such resolution is not timely provided by the CEOs of the Parties, the deadlock shall be resolved by mutual agreement of the Parties' CEOs within one (1) month after they have been so advised. If the CEOs do not agree on a resolution, then [ * ].
3. JCC Deadlocks. If a deadlock arises between the members of a JCC, the CEO of each Party shall be advised of the deadlock in writing and shall attempt to provide the JCC with a mutually agreed upon resolution within one (1) month. If such resolution is not timely provided by the CEOs of the Parties, the deadlock shall be resolved by [ * ].

3. Independence. Subject to the terms of this Agreement, the activities and resources of each Party shall be managed by such Party, acting independently and in its individual capacity. The relationship between EXEL and PDL is that of independent contractors and neither Party shall have the power to bind or obligate the other Party in any manner, other than as is expressly set forth in this Agreement.

4. Collaboration; Humanization

1. Collaboration.

1. General. [ * ], the Parties shall conduct collaborative research with the general goals and objectives of: (a) applying EXEL technology to discover and characterize Targets that may be useful as tools for the discovery and development of therapeutic and diagnostic Antibodies for controlling cell growth, apoptosis and proliferation in the diagnosis, prevention, treatment or cure of cancer or pre-cancerous conditions, and (b) applying PDL technology [ * ]. Subject to [ * ], the obligations of EXEL described in [ * ] shall terminate [ * ]. The rights and obligations of PDL in [ * ] shall terminate as provided for in [ * ]. The obligations of PDL in [ * ] shall continue until the later of (i) the [ * ] or (ii) the time [ * ]. The details of the Collaboration are set forth below and in the Research Plan. In the event of any conflict between the provisions of this Agreement and those of the Research Plan, the provisions of this Agreement shall govern.
2. Presentation of Targets. Promptly after the Effective Date, EXEL shall present to the JSC all Model System Targets and Targets identified prior to the Research Term. During the Research Term, EXEL will conduct activities as described in Sections 2.1 and 2.2 of the Research Plan to identify additional Model System Targets and Targets and, promptly after identification, will present all such additional Model System Targets and Targets to the JSC. [ * ].
3. Allocation of Targets to [ * ]. As described in Section 2.3 of the Research Plan, [ * ] shall conduct [ * ] for each [ * ]. After presentation to the JSC of the [ * ] and results of such [ * ] for a [ * ], the JSC shall determine whether the [ * ] is to be designated an [ * ] and pursued in accordance with the Research Plan. All [ * ] shall be included in and shall constitute the "Work Pool." For each [ * ] determined not to be designated an [ * ], then, promptly following such determination by the JSC, and in no event later than the quarterly JSC meeting following the JSC meeting at which such determination was made, [ * ] shall elect, by notifying the JSC, whether such [ * ] shall be included in the [ * ] (in which case it shall be a [ * ]) or the [ * ] (in which case it shall be an [ * ]).
4. [ * ] [ * ] shall be reserved for possible future inclusion by the JSC in the Work Pool. [ * ] shall have [ * ] license with respect to the [ * ] as set forth in [ * ]. [ * ] may designate a maximum number of [ * ] equal to [ * ]. [ * ] may at any time, by notifying the JSC, elect to re-designate a [ * ] as an [ * ], in which event it shall no longer count against the maximum number of [ * ]. The JSC may designate a [ * ] for out-licensing, in which case it shall continue to count as a [ * ] until such time as it is either out-licensed or re-designated by [ * ] as an [ * ] or re-designated by the JSC to be included in the Work Pool.
5. [ * ] [ * ] shall be available for possible future inclusion by the JSC in the Work Pool or by [ * ] in the [ * ] at [ * ], subject to the following limitation: If [ * ] [ * ] in one or more model organisms, other than [ * ], either on its own behalf or pursuant to an agreement with a Third Party Antibody Collaborator (as defined below) and if [ * ] identifies through such [ * ] that is also a [ * ], then [ * ] shall promptly notify the JSC in writing that such [ * ] was identified in a screen outside the Collaboration. If such [ * ] is an [ * ], and if there is a reasonable basis to believe such [ * ] may have potential in cancer, then no later than the quarterly JSC meeting following the JSC meeting at which such notice was provided, the JSC may elect to include such [ * ] in the Work Pool or [ * ] may elect to include such [ * ]. If neither the JSC nor [ * ] so elects, then such [ * ] shall be remain in the [ * ] and shall be deemed an [ * ] [ * ] shall have [ * ] license with respect to the [ * ] as set forth in Section 8.1(b), except that it shall have [ * ] license with respect to any [ * ] in the [ * ] as set forth in Section 8.1(a). "Third Party Antibody Collaborator" shall mean a Third Party providing average annual research funding or other non-cash consideration (which shall be fair market value on the date of transfer if known to [ * ] or, as reasonably estimated by [ * ] if unknown) of not less than [ * ] in a designated therapeutic area.
6. [ * ] Each [ * ] shall be available for selection by the JSC for inclusion in the Work Pool until such time as [ * ] notifies [ * ] and the JSC in writing that either [ * ] or the Third Party Antibody Collaborator has made a decision (as documented by written records of [ * ]) to begin work to express and purify the protein expressed by such [ * ] for purposes of developing a [ * ]. Upon receipt of such notice, [ * ] shall have no further rights to that [ * ] and it shall cease to be a [ * ].

2. Humanized Antibody Generation and Preclinical Testing. [ * ] will determine which Precursor Antibodies should be humanized. If [ * ] decides not to humanize a particular Precursor Antibody, then the provisions of Section 7.1 shall apply to that Precursor Antibody and the provisions of Section 7.2, if applicable, shall apply to its Target. [ * ] will generate Humanized Antibodies for each Precursor Antibody selected by [ * ] and will conduct appropriate preclinical testing, as determined by [ * ], for preparation of the IND. If [ * ] decides not to file an IND for any particular Humanized Antibody, then the provisions of Section 7.3 shall apply to that Humanized Antibody.
3. Conduct of Research. Each Party shall use Diligent Efforts to conduct: (i) their respective tasks, as contemplated under the Research Plan and by the JSC (the "Research"), and (ii) the Collaboration and the Research in good scientific manner, and in compliance in all material respects with the requirements of applicable laws, rules and regulations and all applicable good laboratory practices to attempt to achieve their objectives efficiently and expeditiously.
4. Records. Each Party shall maintain complete and accurate records of all work conducted by it or on its behalf under the Collaboration or pursuant to the Research and all Information generated in connection with its efforts under the Collaboration or pursuant to the Research. Each Party shall maintain such records for a period of [ * ] after the later to occur of (a) the end of the Research Term, or (b) the termination of all efforts to develop, license, market or sell the Product to which such records pertain. Such records shall fully and properly reflect all work done and all Information generated in the performance of the Collaboration or the Research in sufficient detail and in good scientific manner appropriate for patent and regulatory purposes. Each Party shall have the right to review and copy such records of the other Party at reasonable times to the extent necessary for such Party to conduct its research, development or other obligations under this Agreement.
5. Reports. [ * ], each Party shall report to the JSC not less than [ * ] and will periodically submit to the other Party and the JSC a written progress report summarizing the Research.
6. Sharing of Biological Data. PDL shall provide EXEL with copies of all Information that is Controlled by PDL and that is generated by or on behalf of PDL in the course of the Collaboration. EXEL may use such PDL Information for [ * ]. EXEL shall not [ * ]. EXEL shall provide PDL with copies of all Information that is Controlled by EXEL and that is generated by or on behalf of EXEL in the course of the Collaboration. PDL may use such Information for [ * ].
7. Right to Engage Third Parties for Collaboration Efforts. [ * ] shall have the right to grant licenses and sublicenses to Third Parties of its rights with respect to the conduct of its portion of the Collaboration, as it deems necessary or advisable, provided that [ * ].

5. Development and Marketing of Co- Funded Products; Exel Products

1. Development Decision. At such time as PDL has substantially completed the IND and Development Plan for a Product, PDL shall deliver to EXEL (i) such IND and Development Plan, and (ii) documentation of historical Development Costs described in Section 5.2(a), and the budget for such costs, if any, for that Product. EXEL shall have [ * ] from the date of PDL's delivery of the IND and the Development Plan to review and comment on the IND and Development Plan ("Opt-In Period") [ * ] and to determine whether EXEL will elect to co-fund the development and commercialization of that Product ("Opt-In Decision"). If EXEL decides to co-fund such Product, EXEL shall provide written notice to PDL of its Opt-In Decision, accompanied by the payments specified in Section 5.2(a) prior to the expiration of the Opt-In Period. Effective as of the date of such notice, such Product shall become a "Co-Funded Product" and the Development Plan provided to EXEL shall be deemed agreed to by EXEL unless the Parties mutually agree in writing on a revised Development Plan. The Parties then shall establish a Joint Development Committee to oversee the Development of the Co-Funded Product, in accordance with Section 3.3. If EXEL does not so notify PDL and make such payments within the Opt-In Period, then EXEL immediately shall return all copies of the IND and Development Plan for that Product to PDL. Thereafter, that Product shall be deemed a PDL Product, as provided in Section 6.1.
2. Payments for Co-Funded Products. EXEL shall make the following payments for each Co-Funded Product:

1. Initial Payments. [ * ] reimbursement of fifty percent (50%) of the Development Costs incurred by PDL through the end of PDL's most recently ended fiscal quarter prior to PDL's delivery to EXEL of the IND and Development Plan for that Product under Section 5.1.
2. Reimbursement of Development Costs. Following the initial payments under Section 5.2(a), EXEL shall reimburse PDL [ * ] for fifty percent (50%) of the Development Costs incurred by PDL for each Co-Funded Product. All such reimbursement payments shall be due within thirty (30) days after invoicing by PDL.

3. Development Plan for Co-Funded Products. [ * ] shall provide [ * ] for all Co-Funded Products. [ * ] shall [ * ] of each Co-Funded Product as described in the [ * ]. [ * ] shall have the right to [ * ]. [ * ] shall have [ * ]. The JDC for each Co-Funded Product shall carry out its responsibilities, as described in Section 3.3.
4. Commercialization Plan for Co- Funded Products. The marketing and sale of each Co-Funded Product will be governed by its Commercialization Plan, prepared as described in Section 3.4. PDL shall have the authority and responsibility to implement each Commercialization Plan. The JCC for each Co-Funded Product shall carry out its responsibilities, as described in Section 3.4.
5. Right to Engage Third Parties for [ * ]. PDL may use Third Parties to perform portions of its obligations relating to [ * ]. In any material agreement with a Third Party relating to the Development of a Product, the Party retaining such Third Party shall provide for terms that are consistent with the terms of this Agreement and the Party shall remain liable for the performance of any obligations hereunder which it delegates to Third Parties. [ * ] shall have the right to grant licenses and sublicenses to Third Parties of its rights with respect to Co- Funded Products as it deems necessary or advisable for the Development and/or commercialization of Co-Funded Products. [ * ] shall [ * ].
6. INDs and Drug Approval Applications. [ * ] shall be responsible for the preparation and filing of, and shall own all regulatory submissions relating to, [ * ] filed in any regulatory jurisdiction. [ * ] shall keep the relevant JDC and JCC informed regarding the schedule and process for the preparation of Drug Approval Applications for Co-Funded Products. [ * ] shall provide a draft copy of the initial Drug Approval Application for each Major Market (as defined in Section 9.3), and all supplemental Drug Approval Applications for each Major Market (e.g., for a new indication) for each Co-Funded Product to EXEL for review, to the extent practical, prior to their submission to the appropriate regulatory authority, provided, however, that [ * ] shall be required to promptly review such submission and in any event shall have [ * ] to comment on such documents, [ * ].
7. Records. Each Party shall maintain complete and accurate records of all research and development work conducted by it or on its behalf related to Co-Funded Products and Pre-Opt- In Products, and all Information generated and Development Costs incurred by it or on its behalf in connection with Development under this Agreement with respect to Co-Funded Products and Pre-Opt-In Products. Each Party shall maintain such records for a period of [ * ] after the later to occur of (a) the end of the Research Term, or (b) the termination of all efforts to develop, license, market or sell the Product to which such records pertain. Such records shall fully and properly reflect all work performed and all Information generated in sufficient detail and in good scientific manner appropriate for patent and regulatory purposes. Each Party shall have the right to review and copy such records of the other Party at reasonable times to the extent necessary for such Party to conduct its research, development or other obligations under this Agreement.
8. Reports. During the term of the Agreement, [ * ] will provide reports at the relevant JDC and JCC meetings summarizing the recent Development and commercialization activities relating to each Co-Funded Product. [ * ] will provide [ * ] with summary reports for Pre-Opt-In Products through the JSC or, after the Research Term, upon request by [ * ], but not more frequently than [ * ].
9. Termination of Co-Funding; Out- License of Co-Funded Products.

1. Voluntary Termination by [ * ]. [ * ] shall have the right to terminate its co-funding obligation for any Co-Funded Product effective [ * ] after providing irrevocable, written notice to [ * ] of such election to terminate. Upon the effective date of such termination: (i) such Product shall be deemed a [ * ] Product, rather than a Co- Funded Product, (ii) the JDC for such Product shall be disbanded, and (iii) [ * ] shall no longer have any rights pursuant to Section 9.9 to receive a share of Product Profit with respect to such Product but instead shall receive prospective milestones for events that occur after the effective date of such termination and royalties on Net Sales of such Product pursuant to Article 9. [ * ]
2. Compulsory Termination by [ * ]. If [ * ] fails to make a payment under Section 5.2 and such payment is not received within [ * ] after notice of failure to pay by [ * ], then at [ * ] option, [ * ] shall be deemed to have terminated co-funding effective [ * ] after the end of such [ * ] period. The effect of such termination shall be as described in Section 5.9(a).
3. Voluntary Termination by [ * ]; [ * ] Products. If [ * ] decides to terminate the development and/or commercialization of a particular Co-Funded Product and not to attempt to out- license such Co-Funded Product to a Third Party, [ * ] shall have the right to terminate its obligations to develop and commercialize that Co-Funded Product effective [ * ] after providing irrevocable, written notice to [ * ] of such election to terminate. Within [ * ] after receipt of such notice, [ * ] shall notify [ * ] in writing whether or not it elects to assume sole responsibility for, and all costs and obligations of, the continued development and commercialization of such Product. If [ * ] so elects, then upon the effective date of [ * ] termination: (i) such Product shall be deemed an "[ * ]" rather than a Co-Funded Product, (ii) the JDC for such Product shall be disbanded, and (iii) promptly after [ * ] election, [ * ] and [ * ] shall work together to transfer and assign all regulatory documents, contracts, materials and Information to [ * ] or its designees to the extent necessary for [ * ] to assume such responsibility. [ * ].
4. Out-Licensing Decision for Products and Diagnostic Products. [ * ] shall provide [ * ] with written notice of its intent to out-license some or all of the rights for a particular Co-Funded Product and/or its related Diagnostic Product to a Third Party (whether or not accompanied by a decision to terminate the development and/or commercialization of a particular Co-Funded Product and/or its Diagnostic Product). [ * ] shall have [ * ] from receipt of such notice to notify [ * ] in writing that it wishes to exercise its right of negotiation. If [ * ] exercises such right, the Parties shall negotiate for a period of up to [ * ] to enter into a license agreement, the terms of which shall include customary terms and conditions, including, without limitation, appropriate signing and licensing fees, milestone payments and royalties. If [ * ] do not enter into a license agreement within such time, [ * ] thereafter shall have the right to out-license such rights to a Third Party, subject to [ * ]. Upon [ * ] entering into such a license or sublicense with a Third Party, [ * ] shall have [ * ] and [ * ] shall have [ * ]. All compensation received by the Parties from such Third Party under such license or sublicense (including, but not limited to, all license fees, milestone payments and royalty payments) shall be shared as [ * ] by the Parties in accordance with [ * ], provided that all such compensation shall be calculated after deductions for Development Costs incurred by either Party under the agreement with the Third Party.

6. Development and Marketing of PDL Products

1. PDL Products. If EXEL does not elect to co- fund a Product as provided in Article 5, such Product shall be deemed a PDL Product. PDL shall have sole control and responsibility for the development and commercialization of PDL Products, and EXEL shall have no further rights with respect to such PDL Product except (a) the right to receive milestone and royalty payments as described in Sections 9.3, 9.4 and 9.5, and (b) [ * ].
2. Reports. Upon written request by EXEL to PDL during the term of the Agreement, but not more frequently than once per calendar year, PDL will submit to EXEL a written progress report summarizing the status of each PDL Product.
3. Right of Negotiation. [ * ].

7. Commercialization of Targets and Early-Stage Products

1. Targets and Precursor Antibodies. In the event that (a) any Targets result from the Collaboration for which Antibodies are not generated for any reason, or (b) any Precursor Antibodies to a given Antibody Target Candidate or Antibody Target result from the Collaboration, but PDL determines not to select any Precursor Antibodies to that Antibody Target Candidate or Antibody Target for humanization, then the JSC may designate such Targets and/or Precursor Antibodies for out-licensing ("Out-Licensing Candidates"), [ * ] [ * ] shall have [ * ]. All consideration received or to be received from any such license, including, without limitation, all license fees, milestone payments and royalties shall be treated as [ * ].
2. [ * ] Reversion Targets. Each Target identified by [ * ] during the [ * ] that (a) [ * ] or (b) [ * ], shall revert to [ * ] ("Reversion Targets") and shall not be treated as Out-Licensing Candidates pursuant to Section 7.1. Upon a Target becoming a Reversion Target, [ * ] shall have no further rights to that Reversion Target, it shall cease to be a Target and [ * ] licenses under this Agreement to that Reversion Target shall terminate.
3. Humanized Antibodies Not Selected by [ * ] for IND. In the event that [ * ] creates a Humanized Antibody, but decides not to proceed with an IND filing for such Humanized Antibody, then such Humanized Antibody shall be treated in the same manner as a [ * ] Product is treated under [ * ].
4. General Licensing. Subject to Sections 5.9(d) and 6.3, [ * ] shall have the right to enter into a license or sublicense with any Third Party for any or all rights to any Antibody Target Candidates, Antibodies or Products [ * ], including without limitation any Out-Licensing Candidates. All consideration received or to be received from any such license, including, without limitation, all license fees, milestone payments and royalties shall be treated as [ * ], except that any consideration for [ * ] shall be allocated as provided in Sections 5.9 and 6.3. Upon [ * ] or the Parties' entering into such a license or sublicense with a Third Party with respect to any Target, Antibody or Pre-Opt-In Product, all rights under Article 5 shall terminate with respect to the applicable Product licensed to the Third Party.
5. [ * ] Reversion. Effective [ * ], all [ * ] shall revert to [ * ]. [ * ] shall have no further rights with respect to such [ * ].

8. Licenses and Related Rights

1. Licenses to PDL.

1. Research. Subject to the terms of this Agreement, EXEL hereby grants PDL a non-exclusive, worldwide, non-transferable, royalty-free license for internal use under the EXEL Patents, EXEL Know-How and EXEL's interest in the Joint Patents to the extent necessary (i) to permit PDL to conduct its obligations under Article 4 and (ii) to use and characterize Targets, including, without limitation, the Overlap Targets. The license set forth above includes the right to sublicense, subject to Sections 4.7 and 5.5.
2. Pre-Opt-In Products and PDL Products. Subject to the terms of this Agreement, EXEL hereby grants PDL a worldwide, exclusive license, including the right to sublicense, under the EXEL Patents, EXEL Know-How and EXEL's interest in the Joint Patents (i) to use the Targets [ * ] for the purpose of creating, developing and marketing antibodies for commercial purposes, (ii) to use Antibody Target Candidates and Antibody Targets to make, have made, use, develop and test Antibodies, and (iii) to make, have made, use, develop, test, sell, offer to sell, have sold and import Pre-Opt-In Products and PDL Products. Such license shall include all human prophylactic and therapeutic indications for Pre-Opt-In Products and PDL Products and shall be milestone and royalty-bearing as set forth in Article 9. The exclusivity of the license set forth in 8.1(b) is subject to EXEL's retained rights under Sections 8.2 (a) and 8.5.
3. Co-Funded Products. Subject to the terms of this Agreement, EXEL hereby grants PDL a worldwide, co- exclusive license (with EXEL), including the right to sublicense, under the EXEL Patents, EXEL Know-How and EXEL's interest in the Joint Patents to make, have made, use, develop, test, sell, offer to sell, have sold and import Co-Funded Products. Such license shall include all human prophylactic and therapeutic indications and shall involve profit-sharing with respect to any such Product in lieu of royalties and milestones as set forth in Article 9.
4. PDL Diagnostic Products. Subject to the terms of this Agreement, EXEL hereby grants PDL a worldwide, co-exclusive license, including the right to sublicense, under the EXEL Patents, EXEL Know-How and EXEL's interest in the Joint Patents to make, have made, use, develop, test, sell, offer to sell, have sold and import PDL Diagnostic Products. At the time PDL identifies a Third Party manufacturer for any such PDL Diagnostic Product, PDL may request the co-exclusive license be converted to an exclusive license. [ * ].
5. Antibody Inventions. Subject to the terms of this Agreement, EXEL hereby grants PDL a worldwide, exclusive license, including the right to sublicense, under the Antibody Patents that claim Antibody Inventions invented solely or jointly by PDL to practice such Antibody Inventions for all purposes.

2. Licenses to EXEL.

1. Research. Subject to the terms of this Agreement, PDL hereby grants EXEL a non-exclusive, worldwide, non-transferable, royalty-free license (without the right to sublicense) for internal use under the PDL Patents, PDL Know-How and PDL's interest in the Joint Patents to the extent necessary (i) to permit EXEL to conduct its obligations under the Research Plan, and (ii) [ * ].
2. EXEL Products. Subject to the terms of this Agreement, effective upon a Product becoming an EXEL Product pursuant to Sections 5.9(c) or 12.2(b), PDL hereby grants to EXEL, a worldwide, license (with the right to sublicense) under the PDL Patents, PDL Know-How and PDL's interest in the Joint Patents to develop, make, have made, use, sell, offer to sell, have sold and import such EXEL Products. This license shall be subject to any licenses or sublicenses granted by PDL in accordance with Section 5.9 prior to the license under this Section 8.2(b) becoming effective. Such license shall include all human prophylactic and therapeutic indications and any Diagnostic Products developed for use in connection with such prophylactic and therapeutic indications and shall be milestone and royalty-bearing as set forth in Section 5.9(c). Such license shall be exclusive to the extent of PDL's interest in an Antibody Patent covering the EXEL Product and to the extent any PDL Patent or Joint Patent relates solely to such EXEL Product; otherwise such license shall be non-exclusive.
3. EXEL Diagnostic Products. Subject to the terms of this Agreement, effective upon a Product becoming an EXEL Product pursuant to Section 5.9(c) or 12.2(b), and to the extent PDL then has rights to a EXEL Diagnostic Product developed for use with such EXEL Product, PDL hereby grants to EXEL, a worldwide license (with the right to sublicense) under the PDL Patents, PDL Know-How and PDL's interest in the Joint Patents to develop, make, have made, use, sell, offer to sell, have sold and import such EXEL Diagnostic Product. This license shall be subject to any licenses or sublicenses granted by PDL, in accordance with Section 5.9, prior to the license under this Section 8.2(c) becoming effective. Such license shall include all human diagnostic indications and shall be milestone and royalty-bearing as set forth in Section 5.9(c). Such license shall be consistent with the license granted pursuant to Section 8.2(b) with respect to the EXEL Product for which the EXEL Diagnostic Product is intended to be used.

3. Negative Covenants. Each Party hereby covenants that it will not practice any technology licensed to it under this Agreement outside the scope of the licenses granted herein. Specifically and without limitation, EXEL shall not, unless expressly permitted elsewhere in this Agreement [ * ], provided that this covenant shall not be interpreted to prevent EXEL from [ * ].
4. Exclusivity. EXEL shall not research, develop or commercialize Products, except under the terms of this Agreement. Specifically and without limitation, unless expressly permitted elsewhere in this Agreement, neither EXEL nor its Affiliates shall: (a) [ * ]; (b) make, have made, use, sell, offer to sell, have sold or import such [ * ]; or (c) develop, make, have made, sell, offer to sell, have sold or import, a [ * ] until the earlier of either (i) [ * ], or (ii) if at any time [ * ] following the selection of [ * ]. [ * ].
5. Independent Research. The Parties acknowledge and agree that EXEL may use Information and materials that EXEL generates in the course of performing its obligations under this Agreement that constitutes general know-how relating to [ * ] for Independent Research. For clarification, EXEL may use the following Information generated by EXEL in the course of performing its obligations under this Agreement, for Independent Research: [ * ] EXEL shall have no rights under this Agreement to use PDL Information or materials, or to use or operate under any rights licensed by PDL from Third Parties, for Independent Research or for development or commercialization of any product or for any purpose other than as expressly provided under this Agreement.

9. Compensation

1. Loan. Concurrently with the execution of this Agreement, the Parties are entering into a Note Purchase Agreement of even date herein pursuant to which PDL will loan EXEL thirty million dollars ($30,000,000) pursuant to a Convertible Note. The terms of such Convertible Note shall be governed exclusively by the Note Purchase Agreement and related documents executed pursuant thereto.
2. Research Funding. Subject to Sections 12.2 and 12.3, for the first two (2) years of this Agreement, PDL shall make research funding and license payments totaling four million dollars ($4,000,000) per year. This initial Research Term shall be deemed to begin on [ * ]. Research Funding shall be payable in equal [ * ] installments within [ * ] after the beginning of each [ * ] during the term of the Research Funding. The annual Research Funding at the rate of four million dollars ($4,000,000) per year shall be [ * ]. If the Research Term has been [ * ], then the research funding shall [ * ] at the rate of [ * ] for the following [ * ]. The Research Term and Research Funding thereafter shall be [ * ] at the rate of four million dollars ($4,000,000) per year for the [ * ].
3. Milestone Payments. For each PDL Product, PDL shall pay EXEL the following amounts within thirty (30) days after each PDL Product achieves the stated milestone:

1. [ * ] [ * ]
2. [ * ] [ * ]
3. Upon first filing of a BLA for the PDL Product [ * ]
4. Upon first Regulatory Approval of the PDL Product in a Major Indication in a Major Market [ * ]
5. If the PDL Product has not achieved Milestone 9.3(d), upon such PDL Product achieving sales resulting in cumulative royalty payments from PDL to EXEL under this Agreement of at least [ * ] [ * ]

[ * ] as used in (b) above shall occur at such time as a draft final report for the trial has been written [ * ].

Milestone payments shall be payable only once, which shall be the first time a milestone is achieved. If a milestone for a PDL Product is skipped or avoided by advancing to what would normally be expected to be a later development or regulatory step, then the milestone that was expected to occur earlier shall be deemed to have been achieved at the same time as such later milestone is achieved, and the corresponding payment for both milestones shall be due. For the purposes of milestone payments, all dosage forms, formulations and constructs containing an Antibody against the same Antibody Target shall be deemed a single Product.

"Major Indication" as used in (d) above means the following: cancers in any of the following: [ * ]; provided, however, that the PDL Product is [ * ] in the target cancer.

"Major Market" as used in (d) above means the United States, United Kingdom, Germany, France, Italy or Japan.

4. Royalty Payments. For sales of each PDL Product for a prophylactic or therapeutic indication by PDL, its Affiliates or sublicensees, PDL shall pay EXEL royalties at the following rates:

Annual Net Sales of a given PDL Product	Royalty Rate
[ * ]	[ * ]
[ * ]	[ * ]

Except as set forth in Section 9.6, the foregoing royalty rates shall not be subject to adjustment or reduction for any reason. For the purposes of royalty payments, all dosage forms, formulations and constructs containing the same Antibody shall be deemed a single Product. The measure of annual Net Sales set forth in this Section 9.4 shall be the sum of Net Sales of a particular PDL Product in all countries for each fiscal year of PDL.

By way of example, if in a particular fiscal year, PDL sells two PDL Products, with one PDL Product having [ * ] in annual Net Sales and the other PDL Product having [ * ] in annual Net Sales, then PDL shall make royalty payments to EXEL during that year totaling [ * ] with respect to the first PDL Product and [ * ] with respect to the second PDL Product for that fiscal year, assuming no adjustments are required pursuant to Section 9.6.

5. Royalty Payment for PDL Product for a Diagnostic Indication. For sales of each Diagnostic Product by PDL, its Affiliates or sublicensees, PDL shall pay EXEL royalties at a rate equal to [ * ] of the rate that would otherwise apply under Sections 6.3 or 9.4 after all adjustments under this Agreement to such rates.
6. Royalty Credits and Adjustments.

1. The milestone payments set forth in Section 9.3(b) - (d) shall be [ * ]. In addition, the amount of [ * ] shall be creditable against royalty payments beginning in the quarter of the [ * ] as set forth in Section 9.4 and Section 9.5 as provided in Section 9.6(b).
2. [ * ]. Amounts paid by PDL to Third Parties for intellectual property applicable to products in addition to PDL Products shall be reasonably allocated among the products covered under the applicable licenses from Third Parties. In any event, royalty credits shall not apply to license fees and other amounts paid under Third Party licenses prior to the Effective Date. Royalty credits may be applied against royalties due under Section 9.4 or Section 9.5 with respect to PDL Products, provided that the royalty paid by PDL after the application of any credit under this Section 9.6(b) shall not, as a result of such adjustment, be less than [ * ] of the royalty rate which would otherwise apply under Section 9.4 or Section 9.5 to such Products.
3. [ * ].
4. In no event shall the royalty rate under Section 9.4 for a PDL Product be reduced pursuant to this Section 9.6 to less than [ * ].

7. Term of Royalties. EXEL's right to receive royalties under Section 9.4 and Section 9.5 shall expire on a country-by-country basis upon the later of (i) [ * ] from the First Commercial Sale of such PDL Product in such country, or (ii) the expiration of the last to expire issued patent within the EXEL Patents or Joint Patents in such country covering the PDL Product or the manufacture, use or sale of such PDL Product.
8. Royalty Payment Reports. All royalty payments under this Agreement shall be made to EXEL or its designee quarterly within [ * ] following the end of each calendar quarter for which royalties are due or, in the case of royalties from the sales of sublicensees, within [ * ] following the end of the quarter in which PDL receives the royalty report from the sublicensee. Each royalty payment shall be accompanied by a statement stating the Net Sales, by country, of each PDL Product sold during the relevant calendar quarter.
9. Profit Sharing For Co-Funded Products.

1. Share of Profits. PDL shall be entitled to [ * ] of Product Profit from the sale of Co-Funded Products and EXEL shall be entitled to [ * ] of such Product Profit until such time as, and so long as, [ * ] of the cumulative Product Profit for all Co-Funded Products equals [ * ] of the amount paid to EXEL under Section 9.2 (i.e., [ * ]). Whenever cumulative Product Profit exceeds such amount, each Party shall be entitled to [ * ] of the subsequent Product Profit from the sale of Co-Funded Products. The respective shares of Product Profit are referred to below as the "PDL Share" and the "EXEL Share." The respective profit sharing described in this Section 9.9(a) may be adjusted for particular Co-Funded Products pursuant to Section 3.7(b).
2. Determination of Product Profit. Within [ * ] after the end of each calendar quarter following the First Commercial Sale of a Co-Funded Product, PDL shall provide EXEL with a statement detailing (i) PDL's Net Sales and the Product Profit incurred or received, as applicable, in the previous calendar quarter with respect to each Co-Funded Product, (ii) the cumulative Product Profit for all Co-Funded Products and (iii) the PDL Share and the EXEL Share for that quarter (the "Quarterly Report"). Such statement shall be accompanied by appropriate supporting information.
3. Payments. If the Product Profit for such calendar quarter was negative, then EXEL shall pay the EXEL Share to PDL within [ * ] after receipt of the Quarterly Report. If the Product Profit for such calendar quarter was positive, then PDL shall pay the EXEL Share to EXEL within [ * ] after sending the Quarterly Report to EXEL.

10. Nonrefundable Payments. Except as expressly provided in this Agreement, all payments made by a Party to the other shall be non-refundable and non- creditable.
11. Payment Method. All payments due under this Agreement to a Party shall be made by bank wire transfer in immediately available funds to an account designated by the receiving Party. All payments hereunder shall be made in United States dollars.
12. Taxes. Each Party shall pay any and all taxes levied on account of all payments it receives under this Agreement. If laws or regulations require that taxes be withheld, the Party required to withhold will (i) deduct those taxes from the remittable payment, (ii) pay the taxes to the proper taxing authority, and (iii) send evidence of the obligation together with proof of tax payment to the other Party within [ * ] following that tax payment.
13. Blocked Currency. In each country where the local currency is blocked and cannot be removed from the country, royalties or profit share payments accrued in that country shall be paid to the receiving Party in the country in local currency by deposit in a local bank designated by the receiving Party, unless the Parties otherwise agree.
14. Sublicenses. In the event PDL grants licenses or sublicenses to others to sell PDL Products which are subject to royalties under Section 9.4, such licenses or sublicenses shall include an obligation for the licensee or sublicensee to account for and report its sales of Products on substantially the same basis as if such sales were Net Sales by PDL, and PDL shall pay to EXEL, with respect to such sales, royalties as if such sales of the licensee or sublicensee were Net Sales of PDL. With respect to such sales of PDL Products by licensees or sublicensees, PDL shall be required only to include information regarding Net Sales reflected in reports received by PDL during the calendar quarter in question. PDL shall use commercially reasonable efforts to cause its sublicensees to report sales of PDL Products in a manner that will enable PDL to report such Net Sales by licensees and sublicensees on a quarterly basis.
15. Foreign Exchange. Conversion of sales recorded in local currencies to United States dollars will be performed in a manner consistent with PDL's normal practices used to prepare its audited financial statements for internal and external reporting purposes, which uses a mutually agreed upon generally accepted source of published exchange rates. It is agreed that the exchange rates published by Citibank or the Wall Street Journal for the last banking day of the quarter shall be acceptable exchange rates; provided that, in the case of sales by sublicensees, the Parties will use the exchange rates provided in the agreements between PDL and such sublicensees.
16. Records; Inspection. Each Party shall keep complete and accurate books of account and records for PDL Products, EXEL Products and Co-Funded Products, to be made under this Agreement. Such books and records shall be kept for at least [ * ] following the end of the calendar year to which they pertain. Such records will be open for inspection during such three year period by independent accountants, solely for the purpose of verifying payment statements hereunder. Such inspections shall be made no more than once each calendar year, at reasonable times and on reasonable notice. Inspections conducted under this Section 9.16 shall be conducted by an independent Third Party reasonably acceptable to both Parties. The audit shall be at the expense of the Party requesting the audit, except in the event that the results of the audit reveal that the audited Party underpaid the Party requesting the audit by [ * ] or more for any period covered by the audit, in which case the audit fees, and any unpaid amounts (plus interest) that are discovered will be paid promptly by the audited Party, and in any event no later than [ * ] following delivery of the audit results to the audited Party.
17. Late Payments. Any overdue payments under this Agreement shall bear interest at the rate of [ * ], or the highest rate allowed by law, whichever is less, commencing on the date such payment is due until paid.

10. Intellectual Property

1. Ownership.

1. Except as otherwise described herein and subject to the licenses granted under this Agreement, each Party shall own the entire right, title and interest in and to any and all of its Sole Inventions, and Patents covering such Sole Inventions, except that all Antibody Inventions initially shall be assigned to EXEL. The Parties intend that during patent prosecution [ * ] (such patent applications and any patents that issue with respect to such applications being referred to as "Antibody Patents"). At the time PDL notifies EXEL pursuant to Section 5.1 and thus commences the Opt-In Period for a particular Product containing a particular Antibody, EXEL shall assign to PDL the Antibody Patents that cover that Antibody. Following such assignment to PDL, the assigned Antibody Patents shall be treated as PDL Patents under this Agreement.
2. Subject to Section 10.1(a) and the licenses granted under this Agreement, PDL and EXEL shall each own an undivided one-half interest in and to any and all Joint Inventions and Joint Patents. The Parties shall have the right to grant licenses under such Joint Patents only to the extent provided in this Agreement.

2. Strategy; Disclosure. During the Research Term, each Party shall submit a written report to the JPC within [ * ] after the end of each quarter describing any Sole Invention or Joint Invention or Antibody Inventions of which it became aware during the prior quarter that it believes may be patentable. The JPC, in consultation with the JSC, shall decide whether to file a patent application for each such Joint Invention, as discussed in Section 10.3. The JPC shall establish the patent strategy for all Joint Inventions, Antibody Inventions and Inventions pertaining to Antibody Target Candidates and Antibody Targets arising from the Collaboration, considering in good faith EXEL's obligations to PDL and Third Parties relating to patent strategy for Targets.
3. Patent Prosecution and Maintenance; Abandonment.

1. Sole Inventions. Each Party shall direct the filing, prosecution and maintenance of all Patents covering its Sole Inventions, to the extent possible consistent with the strategy established by the JPC for Joint Inventions and consistent with the remaining provisions, as applicable, of this Section 10.3.
2. EXEL Product Patents. EXEL shall prosecute and reasonably maintain all of the patents and applications that qualify as EXEL Patents that claim or cover any Co-Funded Product or PDL Product or the Antibody Target of any such Product ("EXEL Product Patents"). If EXEL decides not to continue the prosecution or maintenance of an EXEL Product Patent in any country, it shall promptly advise PDL thereof and, at the request of PDL, EXEL and PDL shall negotiate in good faith to determine an appropriate course of action in the interests of both Parties. If the Parties determine that it would be [ * ] for PDL to assume responsibility for such prosecution or maintenance, then PDL shall have the right but not the obligation to assume such prosecution or maintenance. If the Parties do not determine that it would be [ * ] for PDL to assume responsibility for such prosecution or maintenance, then, at PDL's request, EXEL shall continue such prosecution or maintenance, provided that, [ * ].
3. PDL Product Patents. PDL shall prosecute and reasonably maintain all of the patents and applications that qualify as PDL Patents that claim or cover any Co-Funded Product or EXEL Product or the Antibody Target of any such Product ("PDL Product Patents"). If PDL decides not to continue the prosecution or maintenance of a PDL Product Patent in any country, it promptly shall advise EXEL thereof and, at the request of EXEL, PDL and EXEL shall negotiate in good faith to determine an appropriate course of action in the interests of both Parties. If the Parties determine that it would be [ * ] for EXEL to assume responsibility for such prosecution or maintenance, then EXEL shall have the right but not the obligation to assume such prosecution or maintenance. If the Parties do not determine that it would be [ * ] for EXEL to assume responsibility for such prosecution or maintenance, then, at EXEL's request, PDL shall continue such prosecution or maintenance, provided that, [ * ].
4. Joint Inventions. Each Party will use reasonable efforts to advise the other of a Joint Invention as provided in Section 10.2 or promptly upon such Party becoming aware of such Joint Invention. If the Invention is an Antibody Invention, it shall be assigned as provided in Section 10.1(a) and shall be prosecuted as provided in Section 10.3(e). As soon as one of the Parties concludes that it wishes to file a patent application covering a Joint Invention, it immediately shall inform the other Party thereof, consult about the filing procedures concerning such patent application, and file such patent applications for the Joint Inventions in such countries as the JPC determines. For this purpose, such Party will provide the other Party with the determination of inventors and scope of claims as early as possible. If a Party is faced with possible loss of rights resulting from the delay necessary for such communication, such communications may take place promptly after filing a provisional or convention application. PDL will have the first right of election to file patent applications for Joint Inventions in any country in the world. If PDL declines to file any such application within [ * ] after receipt of a written request to do so from EXEL, then EXEL may do so. Regardless of which Party files a patent application, however, any claims covered by such applications shall be considered as part of the Joint Patents. If the Party who initially files a patent application covering a Joint Invention decides not to continue the prosecution or maintenance of such patent application or patent in general or in any particular country, it promptly shall notify the other Party in writing in reasonably sufficient time for such other Party to assume such prosecution and maintenance, and shall take the necessary steps and execute the necessary documents to permit such other Party to assume such prosecution or maintenance. The other Party shall have the right but not the obligation to assume such prosecution or maintenance.
5. Antibody Inventions. Antibody Inventions initially shall be assigned to EXEL as provided in Section 10.1(a). Unless the Parties agree otherwise, EXEL shall file patent applications for the Antibody Inventions in such countries as the JPC determines. If EXEL declines to file any such application within [ * ] after receipt of a written request to do so from PDL, then PDL may do so. At the time that an application constituting an Antibody Patent is filed, EXEL shall promptly notify PDL in writing in reasonably sufficient time for PDL to assume the prosecution and maintenance of that Antibody Patent, and shall take the necessary steps and execute the necessary documents to permit PDL to assume such prosecution or maintenance. If PDL subsequently decides not to continue the prosecution or maintenance of an Antibody Patent directed to a Pre-Opt-In Product, in general or in any particular country, it promptly shall notify EXEL in writing in reasonably sufficient time for EXEL to assume such prosecution and maintenance, and shall take the necessary steps and execute the necessary documents to permit EXEL to assume such prosecution or maintenance. EXEL shall have the right but not the obligation to assume such prosecution or maintenance.
6. Cooperation. At the request of the Party performing the prosecution of any patent application under this Section 10.3, the other Party will cooperate, in all reasonable ways, in connection with the prosecution and maintenance of all such patent applications. Each Party shall make available to the other Party or its respective authorized attorneys, agents or representatives such of its employees or consultants as the other Party in its reasonable judgment deems necessary in order to assist such other Party with the prosecution and maintenance of such patents. Each Party shall sign or use commercially reasonable efforts to have signed at no charge to the other Party all legal documents necessary in connection with such prosecution and maintenance.
7. Updates on Developments. The Party performing the prosecution of any patent application under this Section 10.3 shall advise the other Party of any substantial action or development in the prosecution of such patent applications and patents, in particular those involving the question of scope or the issuance, rejection, or revocation, of an interference involving, or an opposition to any such patent application or patent. In addition, the Party filing a patent application on a Joint Invention shall provide the other Party with (a) a draft of such new patent application prior to filing that application, allowing adequate time for review and comment by the other Party if possible; provided, however, the filing Party shall not be obligated to delay the filing of any patent application; and (b) copies of material correspondence from patent offices concerning patent applications covering such Joint Invention and a reasonable opportunity to comment on any material responses, amendments or submissions to be made to such patent offices. Notwithstanding the foregoing, PDL (with respect to PDL Patents directed to PDL Products) and EXEL (with respect to EXEL Patents directed to EXEL Products) shall have no obligation to advise or confer with the other Party with respect to such Patents and shall prosecute, maintain or abandon such Patents in their sole discretion.
8. Expenses. For any Patents that relate solely to Co-Funded Products, all costs and expenses for the filing, prosecution (including any interferences, reissue proceedings and reexaminations) and maintenance of such Patents shall be [ * ]. For any other Patents, all such costs and expenses shall be [ * ].

4. Enforcement of Patent Rights.

1. Enforcement of PDL Product Patents.

1. Enforcement by PDL. In the event either Party becomes aware of a suspected infringement of a PDL Product Patent or the institution by a Third Party of any proceedings for the revocation of, or to invalidate or render unenforceable, any PDL Product Patent due to the Third Party having an antibody product against the same target as a Co-Funded Product or an EXEL Product, such Party shall notify the other Party promptly, and following such notification, the Parties shall confer. PDL shall have the right, but shall not be obligated, to bring an infringement action or to defend such proceedings at its own expense, in its own name and entirely under its own direction and control. EXEL will reasonably assist PDL in such actions or proceedings if so requested, and will lend its name to such actions or proceedings if requested by PDL or required by law [ * ]. EXEL shall have the right to participate and be represented in any such suit by its own counsel at its own expense. No settlement of any such action or defense which restricts the scope or affects the enforceability of a PDL Product Patent that covers an EXEL Product may be entered into by PDL without the prior consent of EXEL, which consent shall not be unreasonably withheld.
2. Enforcement by EXEL. If PDL elects not to bring any action for infringement or to defend any proceeding described in Section 10.4(a)(i) and so notifies EXEL, then, subject to the rights of any Third Party licensors of such Patent to PDL, EXEL may bring such action or defend such proceeding at its own expense, in its own name and entirely under its own direction and control. PDL will reasonably assist EXEL in any action or proceeding being prosecuted or defended by EXEL, if so requested by EXEL or required by law at [ * ]. PDL shall have the right to participate and be represented in any such suit by its own counsel at its own expense. No settlement of any such action or defense which restricts the scope or affects the enforceability of PDL Patents may be entered into by EXEL without the prior consent of PDL, which consent shall not be unreasonably withheld.

2. Enforcement of EXEL Product Patents.

1. Enforcement by EXEL. In the event either Party becomes aware of a suspected infringement of an EXEL Product Patent or the institution by a Third Party of any proceedings for the revocation of, or to invalidate or render unenforceable, any EXEL Product Patent due to the Third Party having an antibody product against the same target as a Co-Funded Product or a PDL Product, such Party shall notify the other Party promptly, and following such notification, the Parties shall confer. EXEL shall have the right, but shall not be obligated, to bring an infringement action or to defend such proceedings at its own expense, in its own name and entirely under its own direction and control. PDL will reasonably assist EXEL in such actions or proceedings if so requested, and will lend its name to such actions or proceedings if requested by EXEL or required by law [ * ]. PDL shall have the right to participate and be represented in any such suit by its own counsel at its own expense. No settlement of any such action or defense which restricts the scope or affects the enforceability of an EXEL Product Patent that covers a Co- Funded Product or PDL Product may be entered into by EXEL without the prior consent of PDL, which consent shall not be unreasonably withheld.
2. Enforcement by PDL. If EXEL elects not to bring any action for infringement or to defend any proceeding described in Section 10.4(b)(i) and so notifies PDL, then, subject to the rights of any Third Party licensors of such Patent to EXEL, PDL may bring such action or defend such proceeding at its own expense, in its own name and entirely under its own direction and control. EXEL will reasonably assist PDL in any action or proceeding being prosecuted or defended by PDL, if so requested by PDL or required by law [ * ]. EXEL shall have the right to participate and be represented in any such suit by its own counsel at its own expense. No settlement of any such action or defense which restricts the scope or affects the enforceability of EXEL Patents may be entered into by PDL without the prior consent of EXEL, which consent shall not be unreasonably withheld.

3. Enforcement of Joint Patents.

1. Enforcement by PDL. In the event either Party becomes aware of a suspected infringement of a Joint Patent or the institution by a Third Party of any proceedings for the revocation of, or to invalidate or render unenforceable, any Joint Patent, such Party shall notify the other Party promptly, and following such notification, the Parties shall confer. PDL shall have the right, but shall not be obligated, to prosecute an infringement action or to defend such proceedings at its own expense, in its own name and entirely under its own direction and control. EXEL will reasonably assist PDL in such actions or proceedings if so requested, and will lend its name to such actions or proceedings if requested by PDL or required by law [ * ]. EXEL shall have the right to participate and be represented in any such suit by its own counsel at its own expense. No settlement of any such action or defense which restricts the scope or affects the enforceability of a Joint Patent that covers an EXEL Product may be entered into by PDL without the prior consent of EXEL, which consent shall not be unreasonably withheld.
2. Enforcement by EXEL. If PDL elects not to bring any action for infringement or to defend any proceeding described in Section 10.4(c)(i) and so notifies EXEL, then EXEL may bring such action or defend such proceeding at its own expense, in its own name and entirely under its own direction and control. PDL will reasonably assist EXEL in any action or proceeding being prosecuted or defended by EXEL, if so requested by EXEL or required by law [ * ]. PDL shall have the right to participate and be represented in any such suit by its own counsel at its own expense. No settlement of any such action or defense which restricts the scope or affects the enforceability of a Joint Patent that covers a Co-Funded Product or PDL Product may be entered into by EXEL without the prior consent of PDL, which consent shall not be unreasonably withheld.

4. General Provisions Relating to Enforcement of Patents.

1. Withdrawal. If either Party brings such an action or defends such a proceeding under this Section 10.4 and subsequently ceases to pursue or withdraws from such action or proceeding, it shall promptly notify the other Party and the other Party may substitute itself for the withdrawing Party under the terms of this Section 10.4 at its own expense.
2. Recoveries. In the event either Party exercises the rights conferred in this Section 10.4 and recovers any damages or other sums in such action, suit or proceeding or in settlement thereof, such damages or other sums recovered shall first be applied to all out-of-pocket costs and expenses incurred by the Parties in connection therewith, including attorneys fees. If such recovery is insufficient to cover all such costs and expenses of both Parties, it shall be shared [ * ]. If after such reimbursement any funds shall remain from such damages or other sums recovered, such funds shall be [ * ].

5. Excluded Patents. Certain patents as identified in Exhibits D-1 and D-2 relating to background technologies of either EXEL or PDL, shall not be subject to the provisions of Sections 10.3 and 10.4 (a-d).

5. Trademarks; Product Presentation.

1. Co-Funded Products. PDL shall own all right title and interest in and to all trademarks, trade names, service marks and trade dress specifically developed for and used on or in connection with all Co- Funded Products. PDL shall be responsible for all decisions regarding the trademarks, service marks and trade dress used on and in connection with all Co- Funded Products. PDL and EXEL shall each retain sole and exclusive ownership of their own respective and independently developed and pre-existing trademarks, trade names, service marks and trade dress, regardless of whether such trademarks, trade names, service marks and trade dress are used on or in connection with any Co-Funded Product. The JCC shall approve all trademarks and service marks used on or in connection with any Co-Funded Products. Subject to applicable laws, rules and regulations, any written or visual promotional or educational materials intended for use in conjunction with Co-Funded Products shall refer to both Parties (where practical) with substantially equal prominence, and all product labeling and promotional material regarding the detailing and promoting of such Products shall display the names and logos of PDL and EXEL (where practical) with substantially equal prominence.
2. PDL Products. PDL shall own all right title and interest in and to all trademarks, service marks and trade dress specifically developed by PDL for and used on or in connection with all PDL Products. PDL shall be responsible for all decisions regarding the trademarks, service marks and trade dress used on or in connection with all PDL Products.
3. EXEL Products. EXEL shall own all right title and interest in and to all trademarks, service marks and trade dress specifically developed by EXEL for and used on or in connection with all EXEL Products. EXEL shall be responsible for all decisions regarding the trademarks, service marks and trade dress used on or in connection with all EXEL Products. PDL agrees to assign promptly any trademark rights for an EXEL Product to EXEL.

11. Confidentiality

1. Nondisclosure of Confidential Information. All written and oral Information disclosed by one Party to the other Party pursuant to this Agreement and characterized as confidential to the receiving Party shall be "Confidential Information." The Parties agree that during the term of this Agreement, and for a period of [ * ] after this Agreement expires or terminates, a Party receiving Confidential Information of the other Party will (i) maintain in confidence such Confidential Information to the same extent such Party maintains its own proprietary information of similar kind and value (but at a minimum each Party shall use commercially reasonable efforts), (ii) not disclose such Confidential Information to any Third Party without prior written consent of the other Party, and (iii) not use such Confidential Information for any purpose except those permitted by this Agreement.
2. Exceptions. The obligations in Section 11.1 shall not apply with respect to any portion of the Confidential Information that the receiving Party can show by competent written proof:

1. Is publicly disclosed by the disclosing Party, either before or after it is disclosed to the receiving Party hereunder; or
2. Was known to the receiving Party, without obligation to keep it confidential, prior to disclosure by the disclosing Party; or
3. Is subsequently disclosed to the receiving Party by a Third Party lawfully in possession thereof and without obligation to keep it confidential; or
4. Has been published by a Third Party; or
5. Has been independently developed by the receiving Party without the aid, application or use of Confidential Information.

3. Authorized Disclosure. A Party may disclose the Confidential Information belonging to the other Party to the extent such disclosure is reasonably necessary in any of the following instances:

1. Filing or prosecuting Patents relating to Sole Inventions, Joint Inventions or Products;
2. Regulatory filings relating to Products;
3. Prosecuting or defending litigation;
4. Complying with applicable governmental regulations; or
5. Disclosure, in connection with the performance of this Agreement, to Affiliates, sublicensees, prospective licensees, research collaborators, employees, consultants, or agents, each of whom prior to disclosure must be bound by similar obligations of confidentiality and non-use at least equivalent in scope to those set forth in this Article 11.

The Parties acknowledge that the terms of this Agreement shall be treated as Confidential Information of both Parties. Such terms may be disclosed by a Party to investment bankers, investors, prospective business partners (including potential acquirers or acquisition targets) and potential investors, each of whom prior to disclosure must be bound by similar obligations of confidentiality and non-use at least equivalent in scope to those set forth in this Article 11. In addition, if required, a copy of this Agreement may be filed by either Party with the Securities and Exchange Commission. In connection with any such filing, the filing Party shall endeavor to obtain confidential treatment of economic and trade secret information and shall consult with the other Party prior to such filing with respect to determining for which information confidential treatment should be sought.

4. Publicity. The Parties agree that the public announcement of the execution of this Agreement shall be substantially in the form of the press release attached as Exhibit C. Any other news release relating to this Agreement or to the performance hereunder, shall first be reviewed and approved by both Parties; provided, however, that any disclosure which is required by law as advised by the disclosing Party's counsel may be made without the prior consent of the other Party, although the other Party shall be given prompt notice of any such legally required disclosure and to the extent practicable shall provide the other Party an opportunity to comment on the proposed disclosure.
5. Publications. Neither Party shall publish or present the results of studies carried out under this Agreement without the opportunity for prior review by the other Party. Subject to Section 11.3, each Party agrees to provide the other Party the opportunity to review any proposed abstracts, manuscripts or presentations (including verbal presentations) which relate to any Target, Antibody or Product (excluding any Product that has become a PDL Product) at least [ * ] prior to its intended submission for publication and agrees, upon request, not to submit any such abstract or manuscript for publication until the other Party is given a reasonable period of time to secure patent protection for any material in such publication which it believes to be patentable. Both Parties understand that a reasonable commercial strategy may require delay of publication of information for filing of patent applications. The Parties agree to review and consider delay of publication and filing of patent applications under certain circumstances. The JSC and JPC will review such requests and recommend subsequent action. Neither Party shall have the right to publish or present Confidential Information of the other Party that is subject to Section 11.1. Nothing contained in this Section 11.5 shall prohibit the inclusion of information necessary for a patent application, except for Confidential Information of the nonfiling Party, provided the nonfiling Party is given a reasonable opportunity to review the information to be included prior to submission of such patent application. Any disputes between the Parties regarding delaying a publication or presentation to permit the filing of a patent application shall be referred to the JSC or, for a Co-Funded Product, the relevant JDC.

12. Term and Termination

1. Term. This Agreement shall become effective on the Effective Date and shall remain in effect until the expiration of the last royalty or profit sharing payment obligation with respect to any Product, as provided in this Agreement.
2. Termination for Material Breach.

1. Entire Agreement. If either Party breaches any material agreement, condition or covenant of this Agreement, the Note Purchase Agreement or the Note, or makes any materially false report to the other Party, the Party not in breach may terminate this Agreement at its option on [ * ] written notice, subject to the remaining provisions of this Section 12.2; provided however, that any breach that relates only to a particular Product(s) or only to the activities under the Collaboration shall be governed by Section 12.2(b) instead of this Section 12.2(a).
2. Particular Products or Collaboration. In the case of a breach that relates only to a particular Product(s) or only to the activities under the Collaboration, the non-breaching Party, at its option on [ * ] written notice and subject to the remaining provisions of this Section 12.2, may terminate this Agreement as to the particular Product(s) to which such breach relates, (provided, however, that after such time as the breaching Party has first filed for Regulatory Approval of a Product, the non-breaching Party may terminate the breaching Party's rights to such Product only in those countries to which such breach relates) or in the case of a breach relating only to the activities under the Collaboration, the non-breaching Party may terminate the Collaboration under this Agreement, but this Agreement shall continue in full force and effect with respect to all Products. In the event of a breach by PDL with respect to a particular Co-Funded Product, then EXEL, as an alternative to terminating the Agreement as to such Product as provided above, may instead, on providing [ * ] written notice to PDL, elect to terminate PDL's rights to such Co-Funded Product on the same terms as if PDL had voluntarily terminated its rights to such Co-Funded Product under Section 5.9(c).
3. Right to Cure. In any notice of breach under this Section 12.2, the non-breaching Party shall identify the actions or conduct that such Party considers to be a material breach and specify conduct or actions that the notifying Party would consider to be an acceptable cure of such breach. No termination of this Agreement or the Collaboration or of rights relating to a particular Product or country pursuant to Section 12.2(a) or (b) shall become effective unless such breach shall not have been remedied, or steps initiated to remedy the same to the non-breaching Party's reasonable satisfaction, within [ * ] after written notice thereof to the breaching Party, or, in case the breach is a failure to make any payment when due, within [ * ] after such notice.
4. Disputes. If a Party gives notice of termination under this Section 12.2 and the other Party disputes whether such notice was proper, then the issue of whether this Agreement has been terminated shall be resolved in accordance with Section 15.1. If, as a result of such dispute resolution process it is determined that the notice of termination was proper, then such termination shall be deemed to have been effective on the effective date of the notice of termination. If as a result of such dispute resolution process it is determined that the notice of termination was improper, then no termination shall have occurred and this Agreement shall have remained in effect.

3. Termination or Expiration of Research Funding/Collaboration. PDL and EXEL shall have their respective rights to terminate Research Funding as described in Section 9.2, which shall have the effect of terminating the Research Term. Upon such termination or upon expiration of the Research Term, the Collaboration under this Agreement shall terminate, but all other rights and obligations under this Agreement shall continue. If either Party terminates the Collaboration pursuant to Section 12.2, any Research Funding paid by PDL for any time period beyond the effective date of such termination shall be immediately refunded by EXEL to PDL. The termination or expiration of the Collaboration shall not affect any rights of PDL to any Targets, Antibodies or Products resulting from the Collaboration prior to its termination or expiration.
4. Effect of Termination of Entire Agreement or Rights to Particular Product. Upon termination of this Agreement in its entirety pursuant to Section 12.2(a), all licenses granted to the breaching Party under this Agreement shall terminate and the breaching Party shall return to the non-breaching Party all materials and Information delivered under this Agreement by the non-breaching Party to the breaching Party, except as provided in Section 12.5. Upon termination of this Agreement pursuant to Section 12.2(b) with respect to a particular Product, all licenses granted to the breaching Party under this Agreement with respect to that Product (for the countries in which such rights are being terminated) shall terminate and, if such termination is for all countries, the breaching Party shall return to the non-breaching Party all materials and Information delivered under this Agreement by the non-breaching Party to the breaching Party relating to that Product, except as provided in Section 12.5.
5. Inventory. Upon termination of this Agreement in its entirety or with respect to a particular Product for which Regulatory Approval has been obtained, the breaching Party shall have all rights necessary to sell within [ * ] of such termination any such Product in its or its Affiliates' or sublicensee's inventory on the date of such termination, which have not previously been sold ("Inventory"); provided, however that the breaching Party shall pay the royalties due on such Inventory and provide related reports in the amounts and manner provided for in Article 9.
6. Survival.

1. In the event of termination of this Agreement for any reason other than material breach pursuant to Section 12.2, in addition to those Sections which by their terms survive, the following provisions of this Agreement shall also survive: Articles 1, 5, 6, 7, 8 10, 11, 12, and 15 and Sections 9.3 - 9.17, 14.1 and 14.2.
2. In the event of termination of this Agreement pursuant to Section 12.2, the provisions of this Agreement referenced in Section 12.6(b) shall survive, provided, however, that any licenses granted under this Agreement in favor of the breaching Party shall terminate. In such case, the non-breaching Party shall continue to hold the licenses granted hereunder, subject to the royalties set forth herein.
3. In any event, termination of this Agreement shall not relieve the Parties of any liability or obligation which accrued hereunder prior to the effective date of such termination, nor preclude either Party from pursuing all rights and remedies it may have hereunder or at law or in equity with respect to any breach of this Agreement, nor prejudice either Party's right to obtain performance of any obligation.

13. Representations and Covenants

1. Mutual Authority. EXEL and PDL each represents and warrants to the other that (a) it has the authority and right to enter into and perform this Agreement and (b) its execution, delivery and performance of this Agreement will not conflict in any material fashion with the terms of any other agreement to which it is or becomes a party or by which it is or becomes bound.
2. Representations by EXEL.

1. EXEL [ * ].
2. To its knowledge, EXEL, as of the Effective Date, owns or has a valid license to use all technology it anticipates using in the Collaboration.

3. Rights in Technology. During the term of this Agreement, each Party will use Diligent Efforts not to diminish the rights under its Patents or Joint Patents granted to each other herein, including without limitation by not committing or permitting any acts or omissions which would cause the breach of any agreements between itself and Third Parties which provide for intellectual property rights applicable to the development, manufacture, use or sale of Products. Each Party agrees to provide promptly the other Party with notice of any such alleged breach. As of the Effective Date, each Party is in compliance in all material respects with any aforementioned agreements with Third Parties.
4. Performance by Affiliates. The Parties recognize that each may perform some or all of its obligations under this Agreement through Affiliates, provided, however, that each Party shall remain responsible and be guarantor of the performance by its Affiliates and shall cause its Affiliates to comply with the provisions of this Agreement in connection with such performance.

14. Indemnification and Limitation of Liability

1. Indemnification.

1. PDL Products. PDL hereby agrees to defend and hold harmless EXEL and its agents and employees from and against any and all suits, claims, actions, demands, liabilities, expenses and/or loss, including reasonable legal expenses and reasonable attorneys' fees ("Losses") resulting directly or indirectly from the manufacture, use, testing, handling, storage, sale or other disposition of PDL Products by PDL or its Affiliates, agents or sublicensees except to the extent such Losses result from the negligence or wrongdoing of EXEL.
2. EXEL Products. EXEL hereby agrees to defend and hold harmless PDL and its agents and employees from and against any and all Losses resulting directly or indirectly from the manufacture, use, testing, handling, storage, sale or other disposition of EXEL Products by EXEL or its Affiliates, agents or sublicensees except to the extent such Losses result from the negligence or wrongdoing of PDL.
3. General Indemnification Provisions. In the event that a Party is seeking indemnification under this Section 14.1, it shall inform the other Party of a claim as soon as reasonably practicable after it receives notice of the claim, shall permit the other Party to assume direction and control of the defense of the claim (including the right to settle the claim solely for monetary consideration), and shall cooperate as requested by the other Party (at the expense of the other Party) in the defense of the claim.
4. Co-Funded Products. In the event of any Losses to either Party resulting directly or indirectly from the manufacture, use, testing, handling, storage, sale or other disposition of Co-Funded Products by either Party or their Affiliates, agents or sublicensees, such [ * ] or if no Regulatory Approval has occurred for the Co-Funded Product, then such [ * ] for that Co-Funded Product.

2. Limitation of Liability. EXCEPT AS SPECIFICALLY PROVIDED IN SECTION 14.1, IN NO EVENT SHALL EITHER PARTY, ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR AFFILIATES BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, SPECIAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES, WHETHER BASED UPON A CLAIM OR ACTION OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHER TORT, OR OTHERWISE, ARISING OUT OF THIS AGREEMENT. For clarification, the foregoing sentence shall not be interpreted to limit or to expand the express rights specifically granted in the sections of this Agreement.
3. Product Liability Insurance. Any Party developing a Product shall carry product liability insurance of not less than [ * ]. Such product liability insurance shall be in effect not later than the first administration of a Product in humans. Notwithstanding the foregoing, a Party may self-insure for product liability claims if the Party then has current assets of at least [ * ].

15. Miscellaneous

1. Dispute Resolution. In the event of any controversy or claim arising out of, relating to or in connection with any provision of this Agreement, other than a dispute addressed in Sections 3.7 or 15.3, the Parties shall try to settle their differences amicably between themselves first, by referring the disputed matter to an appropriate Vice President (or higher level officer) of each Party and, if not resolved by such officers, by referring the disputed matter to the respective Chief Executive Officers of each Party. Either Party may initiate such informal dispute resolution by sending written notice of the dispute to the other Party, and, within twenty (20) days after such notice, such representatives of the Parties shall meet for attempted resolution by good faith negotiations. If such personnel are unable to resolve such dispute within thirty (30) days of their first meeting of such negotiations, either Party may seek to have such dispute resolved in any United States federal court of competent jurisdiction and appropriate venue. The Parties hereby consent to jurisdiction in the United States federal courts. If, notwithstanding such consent, United States federal courts would not have proper jurisdiction over a dispute, then such dispute may be submitted to any state court in the United States with proper jurisdiction and venue. The Parties agree that, except as provided in Section 15.3, any dispute under this Agreement shall be submitted exclusively to a state or federal court in the United States.
2. Governing Law. Resolution of all disputes arising out of or related to this Agreement or the performance, enforcement, breach or termination of this Agreement and any remedies relating thereto, shall be governed by and construed under the substantive laws of the State of California, as applied to agreements executed and performed entirely in the State of California by residents of the State of California, without regard to conflicts of law rules.
3. Patents and Trademarks. Any dispute, controversy or claim relating to the scope, validity, enforceability or infringement of any Patent rights covering the manufacture, use or sale of any Product or of any trademark rights related to any Product shall be submitted to a court of competent jurisdiction in the territory in which such Patent or trademark rights were granted or arose.
4. Entire Agreement; Amendment. This Agreement sets forth the complete, final and exclusive agreement and all the covenants, promises, agreements, warranties, representations, conditions and understandings between the Parties hereto and supersedes and terminates all prior agreements and understandings between the Parties. There are no covenants, promises, agreements, warranties, representations, conditions or understandings, either oral or written, between the Parties other than as are set forth herein and therein. No subsequent alteration, amendment, change or addition to this Agreement shall be binding upon the Parties unless reduced to writing and signed by an authorized officer of each Party.
5. Export Control. This Agreement is made subject to any restrictions concerning the export of products or technical information from the United States or other countries which may be imposed upon or related to EXEL or PDL from time to time. Each Party agrees that it will not export, directly or indirectly, any technical information acquired from the other Party under this Agreement or any products using such technical information to a location or in a manner that at the time of export requires an export license or other governmental approval, without first obtaining the written consent to do so from the appropriate agency or other governmental entity.
6. Bankruptcy.

1. All rights and licenses granted under or pursuant to this Agreement, including amendments hereto, by each Party to the other Party are, for all purposes of Section 365(n) of Title 11 of the United States Code ("Title 11"), licenses of rights to intellectual property as defined in Title 11. Each Party agrees during the term of this Agreement to create and maintain current copies or, if not amenable to copying, detailed descriptions or other appropriate embodiments, to the extent feasible, of all such intellectual property. If a case is commenced by or against either Party (the "Bankrupt Party") under Title 11, then, unless and until this Agreement is rejected as provided in Title 11, the Bankrupt Party (in any capacity, including debtor-in- possession) and its successors and assigns (including, without limitation, a Title 11 Trustee) shall, at the election of the Bankrupt Party made within sixty (60) days after the commencement of the case (or, if no such election is made, immediately upon the request of the non-Bankrupt Party) either (i) perform all of the obligations provided in this Agreement to be performed by the Bankrupt Party including, where applicable and without limitation, providing to the non- Bankrupt Party portions of such intellectual property (including embodiments thereof) held by the Bankrupt Party and such successors and assigns or otherwise available to them or (ii) provide to the non-Bankrupt Party all such intellectual property (including all embodiments thereof) held by the Bankrupt Party and such successors and assigns or otherwise available to them.
2. If a Title 11 case is commenced by or against the Bankrupt Party and this Agreement is rejected as provided in Title 11 and the non-Bankrupt Party elects to retain its rights hereunder as provided in Title 11, then the Bankrupt Party (in any capacity, including debtor-in-possession) and its successors and assigns (including, without limitations, a Title 11 Trustee) shall provide to the non-Bankrupt Party all such intellectual property (including all embodiments thereof) held by the Bankrupt Party and such successors and assigns or otherwise available to them immediately upon the non- Bankrupt Party's written request therefor. Whenever the Bankrupt Party or any of its successors or assigns provides to the non-Bankrupt Party any of the intellectual property licensed hereunder (or any embodiment thereof) pursuant to this Section 15.6, the non-Bankrupt Party shall have the right to perform the obligations of the Bankrupt Party hereunder with respect to such intellectual property, but neither such provision nor such performance by the non-Bankrupt Party shall release the Bankrupt Party from any such obligation or liability for failing to perform it.
3. All rights, powers and remedies of the non-Bankrupt Party provided herein are in addition to and not in substitution for any and all other rights, powers and remedies now or hereafter existing at law or in equity (including, without limitation, Title 11) in the event of the commencement of a Title 11 case by or against the Bankrupt Party. The non-Bankrupt Party, in addition to the rights, power and remedies expressly provided herein, shall be entitled to exercise all other such rights and powers and resort to all other such remedies as may now or hereafter exist at law or in equity (including, without limitation, under Title 11) in such event. The Parties agree that they intend the foregoing non-Bankrupt Party rights to extend to the maximum extent permitted by law and any provisions of applicable contracts with Third Parties, including without limitation for purposes of Title 11, (i) the right of access to any intellectual property (including all embodiments thereof) of the Bankrupt Party or any Third Party with whom the Bankrupt Party contracts to perform an obligation of the Bankrupt Party under this Agreement, and, in the case of the Third Party, which is necessary for the development, registration and manufacture of Products, and (ii) the right to contract directly with any Third Party described in Section 15.6(c)(i) to complete the contracted work. Any intellectual property provided pursuant to the provisions of this Section 15.6 shall be subject to the licenses set forth in this Agreement and the payment obligations of this Agreement, which shall be deemed to be royalties for purposes of Title 11.

7. Force Majeure. Both Parties shall be excused from the performance of their obligations under this Agreement to the extent that such performance is prevented by force majeure and the nonperforming Party promptly provides notice of the prevention to the other Party. Such excuse shall be continued so long as the condition constituting force majeure continues and the nonperforming Party takes reasonable efforts to remove the condition. For purposes of this Agreement, force majeure shall include conditions beyond the control of the Parties, including without limitation, an act of God, voluntary or involuntary compliance with any regulation, law or order of any government, war, civil commotion, labor strike or lock-out, epidemic, failure or default of public utilities or common carriers, destruction of production facilities or materials by fire, earthquake, storm or like catastrophe; provided, however, the payment of invoices due and owing hereunder shall not be delayed by the payer because of a force majeure affecting the payer.
8. Notices. Any notice required or permitted to be given under this Agreement shall be in writing, shall specifically refer to this Agreement and shall be deemed to have been sufficiently given for all purposes if sent by express delivery service or personally delivered, or by facsimile or electronic mail and confirmed by first class mail. Unless otherwise specified in writing, the mailing addresses of the Parties shall be as described below.

For EXEL:	Exelixis, Inc.
	170 Harbor Way
	P.O. Box 511
	South San Francisco, CA 94083-0511
	Attention: Chief Executive Officer
With a copy to:	Cooley Godward LLP
	Five Palo Alto Square
	3000 El Camino Real
	Palo Alto, CA 94306-2155
	Attention: Robert L. Jones, Esq.
For PDL:	Protein Design Labs, Inc.
	34801 Campus Drive
	Fremont, CA 94555-3606
	Attention: Chief Executive Officer
With a copy to:	Protein Design Labs, Inc.
	34801 Campus Drive
	Fremont, CA 94555-3606
	Attention: General Counsel

9. Consents Not Unreasonably Withheld or Delayed. Whenever provision is made in this Agreement for either Party to secure the consent or approval of the other, that consent or approval shall not unreasonably be withheld or delayed, and whenever in this Agreement provisions are made for one Party to object to or disapprove a matter, such objection or disapproval shall not unreasonably be exercised.
10. United States Dollars. References in this Agreement to "Dollars" or "$" shall mean the legal tender of the United States.
11. No Strict Construction. This Agreement has been prepared jointly and shall not be strictly construed against either Party.
12. Assignment. Neither Party may assign or transfer this Agreement or any rights or obligations hereunder without the prior written consent of the other, except a Party may make such an assignment without the other Party's consent to an Affiliate or to a successor to substantially all of the business of such Party, whether in a merger, sale of stock, sale of assets or other transaction. Any permitted successor or assignee of rights and/or obligations hereunder shall, in writing to the other Party, expressly assume performance of such rights and/or obligations. Any permitted assignment shall be binding on the successors of the assigning Party. Any assignment or attempted assignment by either Party in violation of the terms of this Section 15.12 shall be null and void and of no legal effect.
13. Electronic Data Interchange. If both Parties elect to facilitate business activities hereunder by electronically sending and receiving data in agreed formats (also referred to as Electronic Data Interchange or "EDI") in substitution for conventional paper-based documents, the terms and conditions of this Agreement shall apply to such EDI activities.
14. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
15. Further Actions. Each Party agrees to execute, acknowledge and deliver such further instruments, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.
16. Severability. If any one or more of the provisions of this Agreement is held to be invalid or unenforceable by any court of competent jurisdiction from which no appeal can be or is taken, the provision shall be considered severed from this Agreement and shall not serve to invalidate any remaining provisions hereof. The Parties shall make a good faith effort to replace any invalid or unenforceable provision with a valid and enforceable one such that the objectives contemplated by the Parties when entering this Agreement may be realized.
17. Ambiguities. Ambiguities, if any, in this Agreement shall not be construed against any Party, irrespective of which Party may be deemed to have authored the ambiguous provision.
18. Headings. The headings for each article and section in this Agreement have been inserted for convenience of reference only and are not intended to limit or expand on the meaning of the language contained in the particular article or section.
19. No Waiver. Any delay in enforcing a Party's rights under this Agreement or any waiver as to a particular default or other matter shall not constitute a waiver of such Party's rights to the future enforcement of its rights under this Agreement, excepting only as to an express written and signed waiver as to a particular matter for a particular period of time.

In Witness Whereof, the Parties have executed this Agreement in duplicate originals by their proper officers as of the date and year first above written.

[ * ]

Entrypoints for Genetic Screens -

Proposed or Initiated in Oncology Program

[ * ]

[ * ]

FREMONT and SOUTH SAN FRANCISCO, CA - May 22, 2001 - Protein Design Labs, Inc. (Nasdaq: PDLI) (PDL) and Exelixis, Inc. (Nasdaq: EXEL) (Exelixis) announced today a collaboration to discover and develop humanized antibodies for the diagnosis, prevention and treatment of cancer. The collaboration will utilize Exelixis' model organism genetics technology for the identification of new cancer drug targets, and PDL's antibody and clinical development expertise to create and develop new antibody drug candidates. PDL will provide Exelixis with $4.0 million in annual research funding for two or more years, and has purchased a $30.0 million note convertible after the first year of the collaboration into shares of Exelixis common stock.

George A. Scangos, Ph.D., President and Chief Executive Officer of Exelixis, said, "We're pleased to be working with PDL, a leader in the development of humanized antibodies, and are already in a position to deliver our first targets under this collaboration. PDL is committed to a high- quality pipeline of anti-cancer antibody products, and I am pleased that PDL has recognized the value in our oncology target portfolio. The direct cash value to Exelixis is substantial, and there is considerably more value in the co- development rights that Exelixis has in this program, and in the resources that PDL will bring to the collaboration. This relationship is consistent with Exelixis' strategy of moving towards the market and capturing increasing value from the results of our research, and is a strong complement to our internal efforts directed towards finding small molecule therapeutics for cancer."

Laurence Jay Korn, Ph.D., Chief Executive Officer and Chairperson of Protein Design Labs, said, "PDL has seven antibodies in clinical development, including Zamyl™ (anti-CD33) and Remitogen™ (anti-HLA- DR) for potential cancer indications, and Nuvion™ (anti-CD3) for the treatment of graft versus host disease. This collaboration provides PDL with an opportunity to expand our pipeline of oncology drugs with new antibodies that specifically block the initiation or progression of cancer, using the model organism genetic approach of Exelixis to identify novel targets. The Exelixis technology is designed to provide information about the function of a target at an early stage, which mav be quite valuable, as we believe antibodies for cancer are likely to work best when they interfere with a function necessary for cell growth or proliferation, or when they induce apoptosis."

Under the terms of the collaborative agreement, PDL will receive an exclusive, worldwide license to develop antibodies against certain targets identified by Exelixis that are involved in cell growth, apoptosis (cell death) and proliferation. This approach may provide potential targets for developing novel humanized antibodies for the treatment of cancer using PDL's proprietary SMART™ antibody technology. Exelixis will have the right to co-fund and co-develop antibodies resulting from the collaboration. For antibody products developed by PDL that Exelixis elects not to co-develop, Exelixis will be entitled to specified milestone payments and royalty payments on any product sales.

Protein Design Labs, Inc. is a leader in the development of humanized antibodies to prevent or treat various disease conditions. PDL currently has antibodies under development for autoimmune and inflammatory conditions, asthma and cancer. PDL holds fundamental patents in the U.S., Europe and Japan for its antibody humanization technology. Further information is available at www.pdl.com.

Exelixis, Inc. is a leading life sciences biotechnology company focused on product development through its expertise in comparative genomics and model system genetics. These technologies provide a rapid, efficient and cost-effective way to move from DNA sequence data to knowledge about the function of genes and the proteins that they encode. Exelixis' technology is broadly applicable to all life science industries including pharmaceutical, diagnostic, agricultural biotechnology and animal health. Exelixis has partnerships with Aventis, Bayer, Pharmacia, Bristol-Myers Squibb and Dow AgroSciences and is building its internal development program in the area of oncology. For more information, please visit Exelixis' web site at www.exelixis.com.

This press release contains certain forward-looking statements that involve risks and uncertainties that may affect our business, as more fully discussed in the "Risk Factors" section of our filings with the U.S. Securities and Exchange Commission. These risks and uncertainties include, but are not limited to, our ability successfully to collaborate and identify novel targets and develop potential products from the collaboration. Exelixis and PDL direct the reader to our respective SEC filings, including our respective Annual Reports on Form 10-K for the year ended December 31, 2000. The information in this press release is current as of its release date. Neither party assumes responsibility to update the information.

[ * ]

Exhibit 10.2

NEITHER THIS CONVERTIBLE NOTE NOR THE UNDERLYING SHARES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER (AS DEFINED BELOW) MAY NOT TRANSFER THIS CONVERTIBLE NOTE, OR ANY SHARES ISSUED PURSUANT TO ITS CONVERSION PROVISION, UNLESS (i) THERE IS AN EFFECTIVE REGISTRATION STATEMENT COVERING SUCH NOTE OR SUCH SHARES UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, (ii) THE COMPANY FIRST RECEIVES A LETTER FROM AN ATTORNEY, ACCEPTABLE TO THE COMPANY OR ITS AGENTS, STATING THAT IN THE OPINION OF THE ATTORNEY THE PROPOSED TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND UNDER ALL APPLICABLE STATE SECURITIES LAWS, OR (iii) THE TRANSFER IS MADE PURSUANT TO RULE 144 UNDER THE SECURITIES ACT.

EXELIXIS, INC.

5.75% CONVERTIBLE
NOTE DUE MAY 22, 2006

South San Francisco, California

FOR VALUE RECEIVED, Exelixis, Inc., a Delaware corporation (the "Company"), hereby promises to pay, subject to the conversion provisions in Section 6 herein, to Protein Design Labs, Inc., a Delaware corporation, or its permitted transfers and assigns (the "Lender" or "Holder") the principal sum of THIRTY MILLION DOLLARS ($30,000,000) plus interest plus enforcement costs (including, but not limited to, reasonable attorney fees) thereon (collectively, the "Obligations") on the earlier of (i) a "Change in Control" (as hereinafter defined) of the Company; and (ii) May 22, 2006 (such earlier date being the "Maturity Date"). A "Change in Control" of the Company would occur if the Company sells, conveys or otherwise disposes of all or substantially all of its property or business, or merges or consolidates with any other corporation or business entity (other than a wholly-owned subsidiary of the Company) or effects any other transaction or series of transactions in which (I) the members of the Board of Directors of the Company prior to the transaction or series of transactions constituting the putative Change in Control event do not constitute a majority of the members of the Board of Directors of the enterprise following completion of the transaction or series of transactions constituting the putative Change in Control event (and in any event excluding from any such calculation any members of the Board of Directors who prior to such transaction(s) were members of the Board of both the Company and such other company or entity); and (II) the stockholders of the Company immediately prior thereto own less than a majority of the outstanding voting securities of the Company (or its successor or parent) immediately thereafter.

Section 1. Interest.  Interest on the outstanding principal amount shall be cumulative, accrue at the rate of 5.75% per annum (or, if lower, the maximum rate permitted by law), and be paid in cash annually in arrears from and after the date hereof until and including the Maturity Date, unless this convertible note ("Note") is converted pursuant to Section 6 hereof, in which case accrued interest thereon (whether or not yet payable) shall be payable in cash to Lender within thirty (30) days of such date of conversion. Any interest not paid when due shall accrue interest at a rate of 10% per annum (or, if lower, the maximum rate permitted by law) and shall be treated as principal for the purposes of Section 6 hereof until paid.

Section 2. Note Purchase Agreement.  This Note has been issued pursuant to a Note Purchase Agreement (the "Note Purchase Agreement") dated as of the date hereof by and among the Company and the Holder. The Company shall keep or cause to be kept at its principal office appropriate records for the recordation of the name and address of the Holder, which address may be changed from time to time effective ten (10) days after receipt of written notice of such change from the Holder.

Section 3. Default.  The occurrence of one or more of the following events shall constitute an event of default ("Event of Default"):

1. The Company shall fail to pay any of the Obligations when the same shall have become due and payable.
2. The Company shall fail to pay any of its material debts or other material obligations (other than the Obligations under this Note) when the same shall have become due and payable.
3. The entry of a decree or order by a court having jurisdiction adjudging the Company as bankrupt or insolvent, or approving as properly filed a petition seeking reorganization arrangement, adjustment, or composition of or in respect of the Company under the Bankruptcy Act, as amended, or any other applicable federal or state law, or appointing a receiver, liquidator, assignee, or trustee of the Company, or any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of sixty (60) consecutive days.
4. The institution by the Company of proceedings to be adjudicated as bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under the Bankruptcy Act, as amended, or any other applicable federal or state law, or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, or trustee of the Company, or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action.

3.5 The Company shall (a) be in breach of any material term or provision of this Note; (b) be in breach under Section 12.2 of the Collaboration Agreement of even date herewith ("Collaboration Agreement"), which breach shall remain uncured as provided thereunder; or (c) be in breach of any material term or provision of the Note Purchase Agreement.

Section 4. Acceleration.  Upon an Event of Default, all Obligations shall become immediately due and payable to the Holder without presentment, demand, protest or other notice of any kind, all of which are expressly waived by the Company.

Section 5. Prepayments. The Company may not prepay the amounts due hereunder prior to the third anniversary of this Note. After the third anniversary of this Note, and subject to Holder's right of conversion under Section 6 herein, the Company shall have the right to prepay the amounts due hereunder in whole or in part; provided that the Company meets the following conditions: (a) the Company shall provide the Holder not less than thirty (30) days prior written notice of each prepayment ("Prepayment Notice"), specifying the principal amount or amounts to be prepaid and the prepayment date, and (b) the Company shall pay on the prepayment date the interest accrued to date on the principal amount paid. Any Prepayment Notice shall be irrevocable and binding on the Company; provided any Prepayment Notice shall be deemed rescinded upon notice prior to the prepayment date that Holder intends to exercise its conversion rights.

Section 6. Conversion.  

6.1 The Holder of this Note shall have the right, at the Holder's option, at any time after the first anniversary of this Note, upon written notice, to convert all of the principal amounts outstanding from time to time under this Note into the Company's common stock ("Common Stock") at a price per share ("Original Conversion Price") equal to the lower of: (x) $28.175; and (y) 110% of the Fair Market Value (as hereinafter defined) of a share of Common Stock. "Fair Market Value" of a share of Common Stock means: (i) if the Company's stock is traded on NASDAQ or a national securities exchange, the average closing price for such share of Common Stock on such exchange for the twenty (20) trading days immediately prior to the applicable date of conversion, or (ii) if the Company's stock is not traded on NASDAQ or a national securities exchange, the fair market value of the Company's stock on the applicable date of conversion as determined in good faith by the Company's Board of Directors.

6.2 In the event of an exercise of the Holder's rights of conversion under this Section 6, the Holder shall irrevocably be obligated to convert all of the principal amounts then outstanding under this Note and the Company shall, as promptly as practicable after the surrender, but in no event more than fourteen (14) days after the delivery of the Note for conversion, deliver to the Holder a certificate or certificates representing the number of fully paid and nonassessable shares of Common Stock of the Company into which this Note shall be converted.

6.3 The number of shares of Common Stock which shall be delivered on conversion of principal under this Note shall be an amount determined by dividing the principal under this Note by the Original Conversion Price (or the Conversion Price (as defined below), as determined in accordance with this Section 6), and rounding the result down to the nearest share. The conversion price from time to time specified in Section 6.1 above may be adjusted from time to time as provided in Section 9, and any adjusted conversion price shall be the "Conversion Price."

6.4 No fractional shares of stock or scrip shall be issued upon conversion of this Note. Instead of any fractional shares of stock which would otherwise be issuable upon conversion of this Note, the Company shall pay in cash an amount equal to the fractional share multiplied by the Conversion Price in respect of such fractional interest.

Section 7. Assignment, Exchange, or Loss of Note.  Subject to any transfer restrictions herein, upon presentation and surrender of this Note to the Company at its principal office with a duly executed request for assignment and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Note in the name of the assignee named in such instrument of assignment and this Note shall promptly be canceled.

Section 8. Rights of the Holder.  The Holder shall not, by virtue of the provisions in this Note, be entitled to any rights of a stockholder in the Company, either at law or equity.

Section 9. Adjustments.   In case the Company shall, after the receipt of notice pursuant to Section 6.1 but prior to the conversion thereunder: (i) pay a dividend or make a distribution on the Common Stock payable in common shares, (ii) subdivide the outstanding Common Stock into a greater number of shares, (iii) combine the outstanding Common Stock into a lesser number of shares, or (iv) issue by reclassification of the Common Stock any common shares of the Company, the Holder of this Note shall thereafter be entitled, upon conversion, to receive the number and kind of shares which, if this Note had been converted immediately prior to the happening of such event, the Holder would have owned upon such conversion and been entitled to receive upon such dividend, distribution, subdivision, combination, or reclassification. Such adjustment shall become effective on the day next following (x) the record date of such dividend or distribution or (y) the day upon which such subdivision, combination, or reclassification shall become effective.

Section 10. Restrictions on Transfer.  This Note has not been registered under the Securities Act. This Note, or any right hereunder, may not be enforced against the Company by any Holder, except the original Holder herein, (i) unless there is an effective registration covering such note or underlying shares under the Securities Act and applicable state securities laws, (ii) unless the Company receives an opinion of an attorney acceptable to the Company or its agents, that the proposed transfer of the Note complies with the requirements of the Securities Act and any relevant state securities law, or (iii) unless the transfer is made pursuant to Rule 144 under the Securities Act.

Section 11. Notices.  All notices and other communications required or permitted under this Note shall be validly given, made, or served if in writing and delivered personally, via overnight courier or sent by registered mail, to the Company at the following address:

All notices and other communications required or permitted under this Note shall be validly given, made or served if in writing and delivered personally, via overnight courier or sent by registered mail, to the Holder at the following address:

Changes to a party's address information provided herein shall be effected by notice to the other party as provided herein.

Section 12. Law Governing.  This Note shall be governed by and construed in accordance with the internal laws of the State of California.

Section 13. Titles and Captions; Presumption.  All section titles or captions contained in this Note are for convenience only and shall not be deemed part of the context nor affect the interpretation of this Note. This Note or any section thereof shall not be construed against any party due to the fact that said Note or any section thereof was drafted by said party.

Section 14. Computation of Time.  In computing any period of time pursuant to this Note, the day of the act, event or default from which the designated period of time begins to run shall be included, unless it is a Saturday, Sunday, or a legal holiday, in which event the period shall begin to run on the next day which is not a Saturday, Sunday, or legal holiday, in which event the period shall run until the end of the next day thereafter which is not a Saturday, Sunday, or legal holiday.

Section 15. Further Assurances.  The Company shall execute and deliver all documents, provide all information and take or forbear from all such action as may be necessary or appropriate to achieve the purposes of the Note.

Section 16. Parties in Interest.  Nothing herein shall be construed to be to the benefit of any third party, nor is it intended that any provision shall be for the benefit of any third party.

IN WITNESS WHEREOF, a duly authorized officer of Exelixis, Inc. has executed this Note to be effective on this 22nd day of May 2001.

Exhibit 10.3

NOTE PURCHASE AGREEMENT

THIS NOTE PURCHASE AGREEMENT (the "Agreement") is dated as of May 22, 2001 (the "Effective Date") by and between Exelixis, Inc., a Delaware corporation having its principal place of business at 170 Harbor Way, P.O. Box 511, South San Francisco, California 94083-0511 (the "Company") and Protein Design Labs, Inc., a Delaware corporation having its principal place of business at 34801 Campus Drive, Fremont, California 94555-3606 (the "Holder").

A. Pursuant to the terms of the Convertible Note (the "Note"), dated as of even date herewith between the Company and the Holder, the Holder has loaned to the Company the principal sum of Thirty Million Dollars ($30,000,000) (the "Principal Amount").

B. The Company has agreed to issue the Note pursuant to the terms set forth in this Agreement.

Now, Therefore, in consideration of the premises and promises herein contained and in order to induce the Holder to loan to the Company the Principal Amount, the Company agrees with the Holder as follows:

1.1 Authorization of Notes. On or before the date hereof the Company shall authorize the issuance of the Note in the form attached to this Agreement as Exhibit A in the Principal Amount.

1.2 Sale of Note. Subject to the terms and conditions hereof, the Company will issue and sell to the Holder, and the Holder will purchase from the Company for the Principal Amount, the Note. The Note and the shares of common stock of the Company (the "Shares") issued upon conversion of the Note are sometimes collectively referred to herein as the "Securities."

2.2 Closing Date. Subject to the terms and conditions of this Agreement, the purchase and sale of the Note hereunder shall take place at 3:00 p.m. local time at the offices of the Company, on the date hereof or at such other time and place as the Company and the Holder may agree (the "Closing"). The date of the Closing is hereinafter referred to as the "Closing Date."

2.3 Delivery. At the Closing, the Company will deliver to the Holder the Note against payment of the Principal Amount therefor by wire transfer in immediately available funds:

The Company represents and warrants to the Holder as follows:

3.1 Organization and Standing. The Company:

(a) is a corporation duly organized, validly existing, authorized to exercise all its corporate powers, rights, and privileges, and in good standing under the laws of the State of Delaware; and

(b) has the corporate power and corporate authority to own and operate its properties and to carry on its business as now conducted and as proposed to be conducted.

3.2 Authorization and Validity. All corporate action on the part of the Company, its officers, directors, and stockholders necessary for the authorization, execution, delivery, and performance of all of the Company's obligations under this Agreement, the Note and all documents, instruments and agreements executed in connection therewith (the "Loan Documents") and for the authorization, issuance, and delivery of the Note has been taken and the Loan Documents constitute legally valid and binding obligations of the Company, enforceable against the Company in accordance with their terms.

3.3 Corporate Power. The Company has all requisite legal and corporate power and authority to execute and deliver the Loan Documents, to sell and issue the Note hereunder, and to carry out and perform its obligations under the Loan Documents.

3.4 Validity of Securities. The Securities, when issued, sold, and delivered in compliance with the terms and for the consideration expressed in this Agreement, will be duly authorized and validly issued (including without limitation, but subject to the accuracy of the representations of Holder herein, issued in compliance with all applicable federal and state securities laws), fully paid and nonassessable. The Securities will be free and clear of all liens and encumbrances other than any liens or encumbrances created by or imposed thereon by the Holder; provided, however, that the Securities shall be subject to restrictions on transfer under state and/or federal securities laws. The Securities are not subject to any preemptive rights or rights of first refusal. The Shares have been duly authorized and reserved for issuance upon conversion of the Note. The certificate evidencing the Shares will be in due and proper form.

3.5 Securities Law Compliance. Subject to the accuracy of the representations and warranties of the Holder set forth in Section 4, the offer, issue, and sale of the Securities are exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended, (the "Securities Act") and the qualification requirements, if any, of applicable state securities laws.

3.6 No Conflict. The execution, delivery, and performance of the Loan Documents, the sale and issuance of the Note and the consummation of the transactions contemplated hereby and thereby will not (a) result in any violation of, be in conflict with, or constitute a default under, with or without the passage of time or the giving of notice: (i) any provision of the Company's Certificate of Incorporation or Bylaws; (ii) any provision of any judgment, decree, or order to which the Company is a party or by which it is bound; (iii) any material contract, obligation, or commitment to which the Company is a party or by which it is bound; or (iv) any material statute, rule, or governmental regulation applicable to the Company, (b) (i) require any consent, approval, authorization or other order of, or qualification with, any court or governmental body or agency (except such as may be required under applicable securities laws), or (ii) result in the imposition or creation of (or the obligation to create or impose) a lien under, any agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or their respective property is bound.

3.7 Properties. The Company and its subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them that is material to the business of the Company and its subsidiaries, in each case free and clear of all liens and defects, except as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and its subsidiaries; and any real property and buildings held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries.

3.8 SEC Filings, Financial Statements. The Company has filed with the Securities and Exchange Commission (the "SEC") all required quarterly reports on Form 10-Q and annual reports on Form 10-K, registration statements, documents, and reports required to be filed by it with the SEC or, if not required to be filed, such other reports and documents as have otherwise been filed by the Company (collectively, the "SEC Reports"). To the knowledge of the Company, all of the SEC Reports complied as to form, when filed, in all material respects with the applicable provisions of the Securities Act, and the Securities Exchange Act of 1934, as amended. As of their respective dates, the SEC Reports did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Each of the consolidated financial statements (including notes thereto) contained in the SEC Reports (a) was prepared in accordance with generally accepted accounting principals applied on a consistent basis throughout the periods involved (except as indicated in the notes thereto) and (b) fairly presented the financial position of the Company as at the respective dates thereof.

3.9 No Material Adverse Changes. Since the filing of the Company's Registration Statement on Form S-4, other than as set forth in the Company's SEC Reports, (a) there has not occurred any material adverse change: (i) in the financial condition or operations of the Company and its subsidiaries, taken as a whole, or (ii) in the capital stock or long-term debt of the Company or any of its subsidiaries, taken as a whole, except as contemplated under this Agreement or development, that would reasonably be expected to involve a material adverse change in the financial condition or operations of the Company and its subsidiaries, taken as a whole; (b) the Company and its subsidiaries, taken as a whole, have not sustained any material loss or interference with its assets, businesses or properties (whether owned or leased) from fire, explosion, earthquake, flood or other calamity, whether or not covered by insurance, or from any labor dispute or any court or legislative or other governmental action, order or decree; and (c) since the date of the latest consolidated balance sheet included in the SEC Reports, except as reflected therein, the Company has not (A) issued any securities other than the issuance of securities pursuant to the grant of or the exercise of options granted under stock option plans or agreements existing prior to the date of the latest consolidated balance sheet included in the SEC Reports, or (B) declared or paid any dividend or made any distribution on any shares of its capital stock or redeemed, purchased or otherwise acquired or agreed to redeem, purchase or otherwise acquire any shares of capital stock, except to the extent provided under any stock option plans or agreements existing prior to the latest date of the consolidated balance sheet included in the SEC Reports.

4. REPRESENTATIONS AND WARRANTIES OF THE HOLDER

Holder hereby represents and warrants to the Company as follows:

4.1 Authorization. When executed and delivered by the Holder, and assuming execution and delivery by the Company, the Agreement will constitute a valid obligation of such Holder, enforceable in accordance with its terms.

4.2 Brokers and Finders. Holder has not retained any investment banker, broker, or finder in connection with the transactions contemplated by this Agreement.

4.3 Investment. This Agreement is made with the Holder in reliance upon its representations to the Company, which by the Holder's execution of this Agreement Holder hereby confirms, that the Securities to be received by the Holder will be acquired for investment for the Holder's own account, not as a nominee or agent, and not with a view to the sale or distribution of any part thereof, and that the Holder has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, the Holder further represents that it has no contract, undertaking, agreement, or arrangement with any person to sell, transfer, or grant participation to such person or to any third person, with respect to any of the Securities.

4.4 No Registration. Holder understands and acknowledges that the offering of the Securities pursuant to this Agreement will not be registered under the Securities Act on the grounds that the offering and sale of securities contemplated by this Agreement are exempt from registration pursuant to Section 4(2) of the Securities Act, and that the Company's reliance upon such exemption is predicated upon Holder's representations set forth in this Agreement

4.5 Limitations on Transferability. Holder covenants that in no event will it dispose of any of the Securities (other than pursuant to Rule 144 promulgated by the SEC under the Securities Act ("Rule 144") or any similar or analogous rule) unless and until (i) Holder shall have notified the Company of the proposed disposition, and (ii) if requested by the Company, Holder shall have furnished the Company with an opinion of counsel satisfactory in form and substance to the Company and the Company's counsel, in the reasonable exercise of their judgment, to the effect that (x) such disposition will not require registration under the Securities Act and (y) appropriate action necessary for compliance with the Securities Act and any applicable state, local, or foreign law has been taken. Notwithstanding the limitations set forth in the foregoing sentence, if Holder is a limited liability company or a partnership it may transfer Securities to its members or constituent partners or a retired partner of such partnership who retires after the date hereof, or to the estate of any such member or partner or retired partner or transfer by gift, will, or intestate succession to any such member's or partner's spouse or lineal descendants or ancestors without the necessity of registration or opinion of counsel if the transferee agrees in writing to be subject to the terms of this Agreement to the same extent if such transferee were a Holder; provided, however, that Holder hereby covenants not to effect such transfer if such transfer either would invalidate the securities laws exemptions pursuant to which the Securities were originally offered and sold or would itself require registration under the Securities Act or applicable state securities laws. Each certificate evidencing the Securities transferred as above provided shall bear the appropriate restrictive legends set forth in Sections 7.6 and 7.7(a) below, except that such certificate shall not bear such legend if the transfer was made in compliance with Rule 144 or if the opinion of counsel referred to above is to the further effect that such legend is not required in order to establish compliance with any provisions of the Securities Act.

4.6 Experience. Holder represents that: (i) it has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its prospective investment in the Securities; (ii) it has received all the information it has requested from the Company and considers necessary or appropriate for deciding whether to purchase the Securities; (iii) it has had the opportunity to discuss the Company's business management, and financial affairs with its management, (iv) it has the ability to bear the economic risks of its prospective investment; and (v) it is able, without materially impairing its financial condition, to hold the Securities for an indefinite period of time and to suffer a complete loss on its investment.

4.7 Accredited Holder. Holder presently qualifies, and will as of the Closing Date qualify, as an "accredited investor" within the meaning of Regulation D of the rules and regulations promulgated under the Securities Act.

The obligations of the Holder under Section 1 of this Agreement are subject to the fulfillment at or before the Closing of the following conditions, any of which may be waived by the Holder:

5.1 Representations and Warranties. The representations and warranties of the Company contained in Section 3 shall be true on and as of the Closing with the same effect as if made on and as of the Closing.

5.2 Performance. The Company shall have performed or fulfilled all agreements, obligations, and conditions contained in the Loan Documents and required to be performed or fulfilled by the Company before the Closing.

The obligations of the Company under Section 1 of this Agreement are subject to the fulfillment at or before the Closing of the following condition, which may be waived in writing by the Company:

6.1 Representations and Warranties. The representations and warranties of the Holder contained in Section 4 shall be true on and as of the Closing with the same effect as if made on and as of the Closing.

7. MISCELLANEOUS

7.1 Governing Law. This Agreement shall be governed by, and be construed in accordance with, the laws of the State of California, excluding those laws that direct the application of the laws of another jurisdiction.

7.2 Survival; Termination. The warranties and representations of the parties contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing for until the earlier of: (a) the payment in full of all outstanding principal and interest under the Note, or (b) the conversion of the Note into Shares, provided, however, that such representations and warranties need only be accurate as of the date of such execution and delivery and as of the Closing. This Agreement shall be terminated and of no further force and effect upon earlier of: (a) the payment in full of all outstanding principal and interest under the Note, or (b) the conversion of the Note into Shares.

7.3 Successors and Assigns. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of and be binding upon the successors, assigns, heirs, executors and administrators of the parties hereto.

(a) Entire Agreement. This Agreement and the exhibits hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof, and supersede any and all prior and contemporaneous agreements, understandings, discussions and correspondence.

(b) Waiver. Holder's failure, at any time or times hereafter, to require strict performance by the Company of any provision of this Agreement shall not waive, affect or diminish any right of the Holder thereafter to demand strict compliance and performance therewith. Any suspension or waiver by the Holder of a default under the Agreement or a default under any of the other Loan Documents shall not suspend, waive or affect any other default under this Agreement or any other default under any of the other Loan Documents, whether the same is prior or subsequent thereto and whether of the same or of a different kind or character. None of the undertakings, agreements, warranties, covenants and representations of the Company contained in this Agreement or any of the other Loan Documents and no default under this Agreement or default under any of the other Loan Documents shall be deemed to have been suspended or waived by the Holder unless such suspension or waiver is in writing signed by an officer of the Company, and directed to the Holder.

7.5 Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, sent by Federal Express or other national overnight delivery service or otherwise delivered by hand or by messenger, addressed (a) if to the Holder, at Holder's address set forth below or at such other address as the Holder shall have furnished to the Company in writing or (b) if to any other holder of any Note, at such address as such holder shall have furnished the Company in writing or, until any such holder so furnishes an address to the Company, then to and at the address of the last holder of such Note who has so furnished an address to the Company, or (c) if to the Company, at its address set forth below, or at such other address as the Company shall have furnished to the Holder.

7.6 California Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE.

(a) All certificates for the Securities shall bear a legend substantially similar to the following:

(b) The certificates evidencing the Securities shall also bear any legend required pursuant to any state, local, or foreign law governing such securities.

7.8 Counterparts. This Agreement may be executed in two counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

Exhibit 10.4

1. Premises and Term. In consideration of the obligation of Tenant to pay rent as herein provided, and in consideration of the other terms, provisions and covenants hereof, Landlord hereby leases to Tenant, and Tenant hereby takes from Landlord certain premises situated within the County of Hennepin, State of Minnesota, as shown outlined in red on the plan attached hereto as EXHIBIT A (the "Premises"), which is located in a building or buildings (collectively, the "Building") situated on the real property described on EXHIBIT A-1 attached hereto (the "Property") and incorporated herein by reference, together with all rights, privileges, easements, appurtenances, and immunities belonging to or in any way pertaining to the leased premises.

TO HAVE AND TO HOLD the same for a term commencing on the "commencement date," as hereinafter defined, and ending February 28, 2009, unless sooner terminated as hereinafter provided.

The commencement date shall be June 1, 2001. Taking of possession by Tenant shall be deemed conclusively to establish that the Premises have been completed and that the Premises are in good and satisfactory condition, as of when possession was so taken. Tenant acknowledges that no representations as to the condition of the Premises or the Building have been made by Landlord, unless such are expressly set forth in this lease. On or before such commencement date Tenant shall, upon demand, execute and deliver to landlord a letter of acceptance of delivery of the Premises, on Landlord's standard form. Landlord and Tenant acknowledge that all leasehold improvements to be placed in the Premises shall be constructed and placed therein by Tenant and/or Tenant's contractors, pursuant to EXHIBIT B attached hereto and made a part hereof, and, notwithstanding anything in the Lease to the contrary, Landlord's obligation to complete the Premises shall be satisfied by Landlord's delivery to Tenant of the Building shell as currently constructed and in an "AS- IS" condition.

2. Base Rent and Security Deposit.

1. Tenant agrees to pay to Landlord base rent for the Premises, in advance, without demand, deduction or set off, for the entire term hereof at the rate of

$13,061.60 per month for the period beginning on the commencement date and ending on the last day of the forty-eighth (48^th) full calendar month thereafter,

$15,333.19 per month for the period beginning on the first day of the forty-ninth (49^th) full calendar month of the term and ending on the last day of the eighty-fourth (84^th) full calendar month of the term; and

$16,468.98 per month for the period beginning on the first day of the eighty-fifth (85^th) full calendar month of the term and ending on the last day of the ninety-third (93^rd) full calendar month of the term (such last day of the ninety-third (93^rd) full calendar month of the term or any earlier date as to which the term is terminated as provided herein is hereinafter the "Expiration Date"),

except that the monthly installment which otherwise shall be due on the commencement date shall be due and payable on the date hereof. Thereafter, one such monthly installment shall be due and payable without demand on or before the first day of each calendar month succeeding the commencement date during the term hereof, except that the rental payment for any fractional calendar month at the commencement or end of the lease period shall be prorated.

2. In addition, Tenant agrees to deposit with Landlord on the date hereof the sum of Zero Dollars ($0.00), which sum shall be held by Landlord, without interest, as security for the performance of Tenant's covenants and obligations under this lease, it being expressly understood and agreed that such deposit is not an advance rental deposit or a measure of Landlord's damages in case of Tenant's default. Upon the occurrence of any event of default by Tenant, Landlord may, from time to time, without prejudice to any other remedy provided herein or provided by law, apply such fund to any arrears of rent or other payments due Landlord hereunder, and any other damage, injury, expense or liability caused by such event of default without waiving such default; and Tenant shall pay to Landlord on demand the amount so applied in order to restore the security deposit to its original amount. Although the security deposit shall be deemed the property of Landlord, any remaining balance of such deposit shall be returned by Landlord to Tenant at such time after termination of this lease that all of Tenant's obligations under this lease have been fulfilled. If the Property is conveyed by Landlord and Landlord delivers said deposit to Landlord's grantee, Landlord shall have no further liability to Tenant with respect to said deposit and its application or return.

3. Use. The premises shall be used only for the purpose of receiving, manufacturing, storing, shipping and selling (other than retail) products, materials and merchandise made and/or distributed by Tenant and for such other lawful purposes as may be incidental thereto; provided however that Tenant agrees that if the City of Plymouth or any other entity notifies Tenant that manufacturing is in violation of the zoning code of the City of Plymouth, Tenant shall take such steps as necessary to cause the operation of Tenant's business in the Premises to comply with said zoning code; and provided further that Tenant further agrees that any such notification by the City of Plymouth or other entity shall not work a constructive eviction or entitle Tenant to terminate this Lease and there shall be no reduction in base rent or Operating Costs (as hereinafter defined) as a result of such violation and/or such corrective steps. Outside storage, including without limitation, trucks and other vehicles, garbage containers and outdoor furniture are prohibited without Landlord's prior written consent. Tenant shall at its own cost and expense obtain any and all licenses and permits necessary for any such use. Tenant shall comply with all governmental laws, ordinances and regulations applicable to the use of the Premises, and shall promptly comply with all governmental orders and directives for the correction, prevention and abatement of nuisance in or upon, or connected with, the Premises, all at Tenant's sole expense. Tenant shall not receive, store or otherwise handle on the Premises any product, material or merchandise which is explosive or highly flammable. Tenant will not permit the Premises to be used for any purpose or in any manner (including without limitation any method of storage) which would render the insurance on the Building or the Property void or the insurance risk more hazardous or cause the State Board of Insurance or other insurance authority to disallow any sprinkler credits. If any increase in the fire and extended coverage insurance premiums paid by Landlord for the Building is caused by Tenant's use and occupancy of the Premises, then Tenant shall pay to landlord as additional rent the amount of such increase. Notwithstanding Tenant's obligation to comply with laws, Tenant shall have no obligation to remedy any instances of noncompliance as to the Building shell which Landlord is obligated to repair pursuant to Paragraph 1 above, and in no event shall Tenant have any liability for toxic or hazardous materials except to the extent caused by Tenant, its agents, servants, contractors, licensees or invitees except, as to such invitees Tenant shall only have liability if Tenant knew or reasonably should have known that its invitee was bringing Hazardous Substances (as defined in Paragraph 26) onto the Property.
4. Operating Costs.

1. Upon demand, Tenant shall pay to Landlord, as additional rent during the term hereof, Tenant's proportionate share of Operating Costs, as hereinafter defined, calculated on the basis of the ratio set forth in Paragraph 4E.

As used in this lease, the term "Operating Costs" shall mean any and all expenses, costs and disbursements of any kind and nature whatsoever incurred by Landlord in connection with the ownership, management, maintenance, operation and repair of the Property or the Building which landlord shall pay or become obligated to pay in respect of a calendar year (regardless of when such Operating Costs were incurred). Operating Costs shall include, without limitation, the costs of maintenance, repairs, and replacements to the Building including roof, walls, downspouts, gutters, painting, and sprinkler systems; the costs of maintaining and repairing parking lots, parking structures and easements; property management fees, salaries, fringe benefits and related costs payable to employees of Landlord whose duties are connected with the Property; insurance costs, all heating and air conditioning costs, electricity, sewer and water and other utility costs not separately metered to tenants, landscape maintenance, trash and snow removal, taxes, as defined in Paragraph 4F, and costs and expenses incurred by Landlord in protesting any assessments, levies or the tax rate, provided, however, that Operating Costs shall not include the following: (i) costs of alterations of any tenant's premises; (ii) costs of curing construction defects; (iii) depreciation; (iv) interest and principal payments on mortgages, and other debt costs; (v) real estate brokers' leasing commissions or compensation; (vi) any cost or expenditure (or portion thereof) for which landlord is reimbursed, whether by insurance proceeds or otherwise; and (vii) cost of any service furnished to any other occupant of the Building which landlord does not provide to Tenant hereunder. Notwithstanding anything contained herein to the contrary, depreciation of any structural repairs or replacements to the Building, or of any capital improvements made after the date of this lease which are intended to reduce Operating Costs or of any capital improvements which are required under any governmental laws, regulations, or ordinances which were not applicable to the Building at the time it was constructed, shall be included in Operating Costs. The useful life of any such improvement, structural repair or replacement shall be reasonably determined by Landlord. In addition, interest on the undepreciated cost of any such improvement, structural repair or replacement (at the prevailing construction loan rate available to Landlord on the date the cost of such improvement was incurred) shall also be included in Operating Costs. Notwithstanding anything to the contrary contained in the Lease, Operating Costs shall, in no event, include the following:

1. Repairs or other work occasioned by fire, windstorm or other casualty except the amount of any "deductible" payable under insurance policies and except glass breakage and/or earthquake damage if not insured against, or by exercise of the right of eminent domain;
2. Leasing commissions, attorney's fees, costs and disbursements and other expenses incurred in connection with negotiations or disputes with tenants, other occupants, or prospective tenants or other occupants;
3. Expenses of renovating or otherwise improving or decorating, painting or redecorating space for tenants or other occupants or vacant space;
4. Landlord's costs of electricity and other services sold to tenants of the building and for which Landlord is entitled to be reimbursed by tenants as an additional charge or rental over and above the basic rent payable under the lease with such tenant, other than that billed as rent escalation;
5. Depreciation;
6. Costs of a capital nature, including, but not limited to, capital improvements, capital repairs, capital equipment, and capital tools all in accordance with generally accepted accounting principles, except for the yearly amortized portion of said capital costs;
7. Expenses in connection with services or other benefits of a type which are not provided Tenant but which are provided to another tenant or occupant of the Building;
8. Costs incurred due to violation by Landlord or any other tenant of the terms and conditions of this Lease;
9. Overhead and profit increment paid to subsidiaries or affiliates of Landlord for services on or the real property, to the extent only that the costs of such services exceed competitive costs of such services were they not so rendered by a subsidiary or affiliate;
10. Interest on debt or amortization payments on any mortgage or mortgages, and rental under any ground or underlying leases or lease; or rental or lease payments for parking;
11. Landlord's general corporate overhead and general administrative expenses;
12. Any compensation paid to clerks, attendants or other persons in commercial concessions operated by Landlord;
13. All items and services for which Tenant reimburses Landlord or pays third persons; and
14. Advertising and promotional expenditures.

2. Promptly after the commencement of this lease and during December of each year or as soon thereafter as practicable, Landlord shall give Tenant written notice of its estimate of amounts payable under Paragraph 4A for the ensuing calendar year. On or before the first day of each month thereafter, Tenant shall pay to Landlord as additional rent one/twelfth (1/12^th ) of such estimated amounts, provided that if such notice is not given in December, Tenant shall continue to pay on the basis of the prior year's estimate until the first day of the month after the month in which such notice is given. If at any time it appears to Landlord that the amounts payable under Paragraph 4A for the then current calendar year will vary from its estimate by more than five percent (5%). Landlord may, by written notice to Tenant, revise its estimate for such year, and subsequent payments by Tenant for such year shall be based upon such revised estimate.

Within ninety (90) days after the close of each calendar year or as soon thereafter as practicable, Landlord shall deliver to Tenant a summary of the total Operating Costs for the previous calendar year and Tenant's proportionate share thereof. If such summary shows an amount due from Tenant that is less than the estimated payments previously paid by Tenant, it shall be accompanied by a refund of the excess to Tenant. If such summary shows an amount due from Tenant that is more than the estimated payments previously paid by Tenant, Tenant shall pay the deficiency to Landlord, as additional rent, within thirty (30) days after delivery of the summary.

3. Tenant or its representatives shall have the right to examine Landlord's books and records of Operating Costs during normal business hours within sixty (60) days following the furnishing of the summary to Tenant. Unless Tenant takes written exception to any item within ninety (90) days following the furnishing of the summary to Tenant (which item shall be paid in any event), such summary shall be considered as final and accepted by Tenant. If it is determined that Tenant paid Operating Costs in excess of one hundred and five percent (105%) of actual Operating Costs, Landlord shall pay the reasonable costs of Tenant's audit within thirty (30) days after receipt of copies of invoices with proof of payment detailing such costs.
4. If Landlord selects the accrual accounting method rather than the cash accounting method for operating expense purposes, Operating Costs shall be deemed to have been paid when such expenses have accrued.
5. For purposes hereof the Premises total 27,259 square feet. The Building totals 106,070 square feet. Tenant's "proportionate share" of 25.7% is arrived at by dividing 106,070 into 27,259.
6. Landlord agrees to pay before they become delinquent all taxes, installments of special assessments and governmental charges of any kind and nature whatsoever (herein collectively referred to as "taxes") lawfully due and payable with respect to the Building and the Property.
7. If at any time during the term of this lease, the present method of taxation shall be changed so that in lieu of the whole or any part of any taxes, assessments or governmental charges levied, assessed or imposed on real estate and the improvements thereon, there shall be levied, assessed or imposed on Landlord a capital levy or other tax directly on the rents received therefrom and/or a franchise tax, assessment, levy or charge measured by or based, in whole or in part, upon such rents for the present or any future building or buildings on the Property, then all such taxes, assessments, levies or charges, or the part thereof so measured or based, shall be deemed to be included within the term "taxes" for the purposes hereof.

5. Landlord's Responsibilities. Landlord shall maintain in good repair, reasonable wear and tear and any casualty covered by the provisions of Paragraph 12A excepted, all parts of the Building, other than tenants' premises, making all necessary repairs and replacements, whether ordinary or extraordinary, structural or nonstructural, including roof, foundation, walls, downspouts, gutters, sprinkler system; regularly mow any grass, remove weeds and perform general landscape maintenance; and maintain and repair the parking lot and driveway areas. Tenant shall immediately give Landlord written notice of any defect or need for repairs after which Landlord shall have a reasonable opportunity to repair the same or cure such defect. Landlord's liability with respect to any defects, repairs or maintenance for which Landlord is responsible under any of the provisions of this Lease shall be limited to the cost of such repairs or maintenance or the curing of such defect. The term "walls" as used herein shall not include windows, glass or plate glass, doors, special store fronts or office entries.
6. Tenant's Responsibilities.

1. Tenant shall at its own cost and expense keep and maintain all parts of the Premises (except as provided in Paragraph 5) in good condition, promptly making all necessary repairs and replacements, including but not limited to, windows, glass and plate glass, doors, any special entry, interior walls and finish work, floors and floor covering, heating and air conditioning systems, dock boards, truck doors, dock bumpers, plumbing work and fixtures, termite and pest extermination, regular removal of trash and debris and keeping the parking areas, driveways, alleys and the whole of the Premises in a clean and sanitary condition. Tenant shall not be obligated to repair any damage caused by fire, tornado or other casualty covered by the insurance to be maintained by Landlord pursuant to Paragraph 12A, except that Tenant shall be obligated to repair all wind damage to glass unless caused by a tornado.
2. Tenant shall not, without Landlord's prior written approval, damage any demising wall or disturb the integrity and support provided by any demising wall and shall, at its sole cost and expense, promptly repair any damage or injury to any demising wall caused by Tenant or its employees, agents or invitees.
3. Tenant and its employees, customers and licensees shall have the nonexclusive right to use, in common with the other parties occupying the Building, common parking areas, if any (exclusive of any parking or work load areas designated or to be designated by Landlord for the exclusive use of Tenant or other tenants occupying or to be occupying other portions of the Building), driveways and alleys adjacent to the Building, subject to such reasonable rules and regulations as Landlord may from time to time prescribe.
4. Intentionally Deleted.
5. Tenant shall, at its own cost and expense, either (1) enter into a regularly scheduled preventive maintenance/service contract with a qualified maintenance contractor; or (2) undertake its own program, utilizing its own employees, for servicing all hot water, heating and air conditioning systems and equipment serving the Premises. If Tenant elects to proceed under clause (1) above, the maintenance contractor and the contract must be approved by Landlord, and must include all services suggested by the equipment manufacturer in the operation/maintenance manual and must become effective (and a copy thereof delivered to Landlord) within thirty (30) days after the date Tenant enters into such maintenance/service contract. If Tenant elects to proceed under clause (2) above, Tenant understands and agrees that:

(x) all costs of maintaining and replacing the Tenant HVAC Equipment and the Existing HVAC Equipment (as those terms are defined in Paragraph 28 hereof) shall be borne solely by Tenant.

(y) notwithstanding anything to the contrary in this Lease, Tenant shall be liable to Landlord for all costs incurred by Landlord in repairing or replacing the roof of the Building in excess of those costs which would have been incurred by Landlord if Tenant had not placed the Tenant HVAC Equipment on the roof of the Building; and

(z) On or before November 30 of each of 2004 and 2007, and simultaneously with any request for (i) an assignment of this Lease; (ii) a sublease of all or a portion of the Premises; or (iii) early termination of this Lease, Tenant shall deliver to Landlord a written report on the condition of the Tenant HVAC Equipment and the Existing HVAC Equipment, which report shall be based on an inspection of the condition of the Tenant HVAC Equipment performed by a qualified maintenance contractor and which report shall contain such qualified maintenance contractor's estimate of the remaining useful life of the Tenant HVAC Equipment and the Existing HVAC Equipment.

6. Tenant shall upon demand by Landlord, pay, as additional rent, the cost and expense of repairing any damage to the Premises resulting from and/or caused in whole or in part by the negligence or misconduct of Tenant, its agents, servants, employees, patrons, customers, or any other person entering upon the property as a result of Tenant's business activities or caused by Tenant's default hereunder to the extent the cost of repairing such damage is not reimbursed by the insurance to be maintained by Landlord under Paragraph 12A.

7. Alterations. Tenant shall not make any alterations, additions or improvements to the Premises (including but not limited to roof and wall penetrations) without the prior written consent of Landlord, except that Tenant may make alterations which do not cost, in the aggregate, more than Five Thousand Dollars ($5,000.00) each; provided such alterations do not affect the Building structure or systems, including, but not limited to, HVAC, plumbing, mechanical and electrical systems (collectively, the "Building Systems"), in which case Landlord's prior written consent must be obtained, which consent shall not be unreasonably withheld or delayed. Tenant may, without the consent of Landlord, but at its own cost and expense and in a good workmanlike manner erect such shelves, bins, machinery and trade fixtures as it may deem advisable, without altering the basic character of the Building and without overloading or damaging such Building, and in each case complying with all applicable governmental laws, ordinances, regulations and other requirements. Prior to commencing any such alterations, additions or improvements Tenant shall provide such assurances to Landlord, including but not limited to waivers of lien, surety company performance and payment bonds and personal guaranties of persons of substance, as Landlord shall reasonably require to assure payment of the costs thereof and to protect Landlord against any loss from mechanics', laborers', materialmen's or other liens. All alterations, additions, improvements and partitions, including, without limitation, all telephone and data communications cabling erected by Tenant shall be and remain the property of Tenant during the term of this lease and, at Landlord's sole and absolute discretion, and by notice given to Tenant prior to the end of the term, Tenant shall, as designated by Landlord, remove that portion (which may be none, some or all) of the alterations, additions, partitions and improvements, including, without limitation (a) the improvements to be constructed pursuant to the Work Letter Agreement attached hereto as EXHIBIT B; (b) all equipment, including, without limitation, all Tenant HVAC Equipment, as contemplated by Paragraphs 6.E.; and (c) all telephone and data communications cabling, including, without limitation, the fiberoptic cable installed by Tenant pursuant to that certain License Agreement dated October 19, 1999, to the extent placed thereon by Tenant or at Tenant's request or direction, and Tenant shall otherwise proceed in accordance with Paragraph 6.E. hereof. Any alterations, additions, improvements and partitions not designated by Landlord to be removed pursuant to this Paragraph shall become the property of Landlord as of the Expiration Date or earlier termination of this Lease and shall be delivered up to the Landlord with the Premises. All shelves, bins, machinery and trade fixtures installed by Tenant shall be removed by Tenant by the date of termination of this lease or upon earlier vacating of the Premises if required by Landlord; upon any such removal Tenant shall restore the Premises to their original condition. Any removals and restorations required by this Paragraph 7 shall be accomplished in a good workmanlike manner and shall not damage the primary structure qualities of the Building. All obligations of Tenant to restore the Premises shall be subject to the rights and obligations of the parties in the event of the occurrence of a casualty covered by Paragraph 12(b), condemnation pursuant to Paragraph 15.
8. Signs/Window Coverings. Tenant shall not, without the prior written consent of Landlord, install or affix any window coverings, blinds, draperies, signs, window or door lettering or advertising media of any type on the Property, the Building or in or on the Premises which are visible from the exterior of the Building. Any permitted signs shall be subject to any applicable governmental laws, ordinances, regulations and other requirements. Tenant shall remove any permitted signs and window coverings upon the termination of this lease. Any such installations and removals shall be made in such manner as to avoid injury or defacement of the Building and other improvements, and Tenant shall repair any injury or defacement, including without limitation discoloration, caused by such installation and/or removal.
9. Inspection. Landlord and Landlord's agents and representatives shall have the right to enter and inspect the Premises at any reasonable time upon four hours prior notice on business days and upon twenty- four hours prior notice on non-business days and, in accordance with Tenant's standard security procedures, except in the event of an emergency when no notice or compliance with Tenant's security procedures shall be required, for the purpose of ascertaining the condition of the Premises or in order to make such repairs as may be required or permitted to be made by Landlord under the terms of this lease. During the period that is six (6) months prior to the end of the term hereof, Landlord and Landlord's agents and representatives shall have the right to enter the Premises at any reasonable time for the purpose of showing the Premises and shall have the right to erect on the Premises a suitable sign indicating the Premises are available. Tenant shall give written notice to Landlord at least thirty (30) days prior to vacating the Premises and shall arrange to meet with Landlord for a joint inspection of the Premises prior to vacating. In the event of Tenant's failure to give such notice or arrange such joint inspection, Landlord's inspection at or after Tenant's vacating the Premises shall be conclusively deemed correct for purposes of determining Tenant's responsibility for repairs and restoration.
10. Utilities. Tenant shall pay for all water, gas, heat, light, power, telephone, sewer and sprinkler charges and other utilities and services separately metered for the Premises, together with any taxes, penalties, surcharges or the like pertaining thereto and shall furnish and install all replacement electric light bulbs and tubes. Landlord shall in no event be liable for any interruption or failure of utility services on the Premises.
11. Assignment and Subletting.

1. Tenant shall not have the right to assign or pledge this lease or to sublet the whole or any part of the Premises, whether voluntarily or by operation of law, or permit the use or occupancy of the Premises by anyone other than Tenant, without the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed, and such restrictions shall be binding upon any assignee or subtenant to which Landlord has consented. For the purpose of determining whether the withholding of Landlord's consent is reasonable, the following are the criteria by which Landlord will determine the acceptability of a proposed assignee or subtenant: (1) the occupancy of any assignee or subtenant is not, in Landlord's reasonable judgment, inconsistent with the character of the Building; (2) such assignee or subtenant shall assume in writing the performance of the covenants and obligations of Tenant hereunder; (3) a fully executed copy of any such assignment or sublease shall be immediately delivered to Landlord, but the making of such assignment or sublease shall not be deemed to release Tenant from the payment and performance of any of its obligations under this Lease; (4) such assignment or subletting is approved by any mortgagee holding a mortgage covering the Premises which reserves such right under its mortgage; (5) Tenant is not in default of this Lease on the date of the assignment or sublease; and (6) at least fifteen (15) days prior to the execution of any assignment or sublease (a) as to a proposed assignee or subtenant which is not an affiliate of Tenant, Landlord is given financial statements of the proposed assignee or subtenant, which financial statements shall show a financial condition equal to the lesser of (i) the financial condition shown in Tenant's audited financial statement dated as of December 31, 2000, a copy of which is attached hereto as EXHIBIT D; or (ii) the financial condition necessary to meet Landlord's then- current standards (including credit enhancements if then required by Landlord) for leasing space similar to the Premises to new tenants in Plymouth Business Center; or (b) as to a proposed assignee or subtenant which is an affiliate of Tenant, Tenant provides to Landlord, in form and substance satisfactory to Landlord, a guaranty of an affiliate of Tenant which has a net worth equal to or greater than Tenant's net worth as of the date of this Lease. For the purposes of this Lease, "affiliate" shall mean, with respect to a party, any person or entity that controls, is controlled by or is under common control with such party, with "control" and its derivatives meaning (x) as to a publicly held company, ownership of 5 percent or more of the voting interests of the entity in question; or (y) as to all other entities, 50 percent or more of the voting interests in the entity in question. In the event Tenant desires to sublet the Premises, or any portion thereof, or assign this lease, Tenant shall give written notice thereof to Landlord with a reasonable time prior to the proposed commencement date of such subletting or assignment, which notice shall set forth the name of the proposed subtenant or assignee, the relevant terms of any sublease and copies of financial reports and other relevant financial information of the proposed subtenant or assignee. Notwithstanding any permitted assignment or subletting, Tenant shall at all times remain directly, primarily and fully responsible and liable for the payment of the rent herein specified and for compliance with all of its other obligations under the terms, provisions and covenants of this lease. Upon the occurrence of an "event of default" (as hereinafter defined), if the Premises or any part thereof are then assigned or sublet, Landlord, in addition to any other remedies herein provided or provided by law, may, at its option, collect directly from such assignee or subtenant all rents due and becoming due to Tenant under such assignment or sublease and apply such rent against any sums due to landlord from Tenant hereunder, and no such collection shall be construed to constitute a novation or release of Tenant from the further performance of Tenant's obligations hereunder.

If Landlord grants its consent to any sublease or assignment, Tenant shall pay Landlord, as additional rent, in addition to the base rent payable hereunder (a) fifty percent (50%) of rent payable to Tenant by the assignee or sublessee (the "Subrent") if such Subrent exceeds the base rent payable hereunder, it being understood and agreed that Tenant shall pay all costs associated with such sublease or assignment, including, without limitation, leasehold improvement costs, brokerage commissions and its own legal fees and costs; and (b) Landlord's attorneys' fees incurred with respect to such assignment or sublease. In addition, if Tenant has any options to extend or renew the Term, such options shall not be available to any subtenant or assignee directly or indirectly. If Tenant assigns this Lease or sublets all or a portion of the Premises without first obtaining Landlord's consent, as required by this Paragraph 15.A, said assignment or sublease shall be null and void and of no force or effect. Landlord's consent to an assignment, sublease or other transfer of any interest of Tenant in this Lease or in the Premises shall not be deemed to be a consent to any subsequent assignment, transfer, use or occupation.

Tenant shall, at Tenant's own cost and expense, discharge in full any outstanding commission obligation on the part of Landlord with respect to this lease, and any commissions which may be due and owing as a result of any proposed assignment or subletting, whether or not the Premises are recaptured pursuant hereto and rented by Landlord to the proposed tenant or any other tenant.

2. In addition, but not in limitation of, Landlord's right to approve of any subtenant or assignee, Landlord shall have the option, in its sole discretion, in the event of any proposed subletting or assignment to a non- affiliate of Tenant, to terminate this lease, or in the case of a proposed subletting of less than the entire Premises, to recapture the portion of the Premises to be sublet, as of the date the subletting or assignment is to be effective. The option shall be exercised, if at all, by Landlord giving Tenant written notice thereof within thirty (30) days following Landlord's receipt of Tenant's written notice as required above; provided however that the recapture and termination described in this paragraph shall be void and of no further force and effect if, within ten days after receipt of Landlord's written notice, Tenant withdraws its proposed assignment or sublease. If this lease shall be terminated with respect to the entire Premises pursuant to this subparagraph, the term of this lease shall end on the date stated in Tenant's notice as the effective date of the sublease or assignment as if that date had been originally fixed in this lease for the expiration of the term hereof. If Landlord recaptures only a portion of the Premises under this subparagraph, the rent during the unexpired term shall abate proportionately based on the rent contained in this lease as of the date immediately prior to such recapture.

12. Fire and Casualty Damage.

1. Landlord agrees to maintain standard fire and extended coverage insurance covering the Building in an amount not less than 100% (or such greater percentage as may be necessary to comply with the provisions of any co-insurance clauses of the policy) of the "replacement cost" thereof as such term is defined in the Replacement Cost Endorsement to be attached thereto, insuring against the perils of fire, lightning and extended coverage, such coverages and endorsements to be as defined, provided and limited in the standard bureau forms prescribed by the insurance regulatory authority for the state in which the Building is situated for use by insurance companies admitted in such state for the writing of such insurance on risks located within such state. Subject to the provisions of Paragraphs 12C, 12D and 12E, such insurance shall be for the sole benefit of Landlord and under its sole control.
2. If the Building should be damaged or destroyed by fire, tornado or other casualty, Tenant shall give immediate written notice thereof to Landlord.
3. If the Building should be damaged or destroyed by fire, tornado or other casualty, or if it should be so damaged thereby that rebuilding or repairs cannot in Landlord's estimation be completed within two hundred (200) days after the date upon which Landlord is notified by Tenant of such damage, this Lease shall terminate and the rent shall be abated during the unexpired portion of this lease, effective upon the date of the occurrence of such damage, unless Landlord and Tenant mutually agree that the Building should be reconstructed upon terms acceptable to both parties, in which case this Lease shall continue and Tenant's Base Rent and Operating Cost obligations shall be payable in accordance Paragraph 12.D. hereof.
4. If the Building should be damaged by any peril covered by the insurance to be provided by Landlord under Paragraph 12A, but only to such extent that rebuilding or repairs can in Landlord's estimation be completed within two hundred (200) days after the date upon which Landlord is notified by Tenant of such damage (except that Landlord may elect not to rebuild if such damage occurs during the last year of the lease term) and if the damage occurs during the last year of the lease term, Landlord may only elect to rebuild if in Landlord's estimation rebuilding or repairs can be completed within ninety (90) days after Tenant's notification to Landlord, this lease shall not terminate, and Landlord shall at its sole cost and expense thereupon proceed with reasonable diligence to rebuild and repair the Building to substantially the condition in which they existed prior to such damage, except that Landlord shall not be required to rebuild, repair or replace any part of the partitions, fixtures, additions and other improvements which may have been placed in, on or about the Premises by Tenant. If the Premises are untenantable in whole or in part following such damage, the rent payable hereunder during the period in which they are untenantable shall be reduced to such extent as may be fair and reasonable under all of the circumstances. In the event that Landlord should fail to complete such repairs and rebuilding within two hundred (200) days after the date upon which Landlord is notified by Tenant of such damage (unless any such delay is due to changes, deletions or additions in construction requested by Tenant, strikes, lockouts, casualties, acts of God, war, material or labor shortages, governmental regulation or control or other causes beyond the reasonable control of Landlord, in which event such period shall be extended for the amount of time Landlord is so delayed), Tenant may at its option, upon thirty (30) days prior written notice, terminate this lease as Tenant's exclusive remedy, whereupon all rights and obligations hereunder shall cease and terminate.
5. Notwithstanding anything herein to the contrary, in the event the holder of any indebtedness secured by a mortgage or deed of trust covering the Premises or the Building requires that the insurance proceeds be applied to such indebtedness, the Landlord shall have the right to terminate this lease by delivering written notice of termination to Tenant within fifteen (15) days after such requirement is made by any such holder, whereupon all rights and obligations hereunder shall cease and terminate as of the date of the casualty.
6. Anything in this lease to the contrary notwithstanding, Landlord and Tenant hereby waive and release each other of and from any and all rights of recovery, claim, action or cause of action, against each other, their agents, officers and employees, for any loss or damage that may occur to the Premises, improvements to the Building or personal property (building contents) within the Building, by reason of fire or the elements regardless of cause or origin, including negligence of Landlord or Tenant and their agents, officers and employees, but only to the extent of the insurance proceeds payable under the policies of insurance covering the Property.

13. Liability. Landlord shall not be liable for and Tenant will indemnify and hold Landlord harmless from any loss, liability, claims, suits, costs and expenses, including attorney's fees, arising out of any claim of injury or damage on or about the Premises caused by the negligence or misconduct or breach of this lease by Tenant, its employees, subtenants or invitees or arising out of Tenant's use of the Premises or the Property or other work done by Tenant in or on the Premises or the Property. Landlord shall not be liable to Tenant or Tenant's agents, employees or invitees for any damage to persons or property due to any condition, design, or defect in the Building or its mechanical systems which may exist or occur, or due to any leakage or of damages from gas, oil, water, steam, smoke or electricity or due to any other cause whatsoever, except, subject to Paragraph 12. F hereof., Landlord's negligence, willful misconduct or breach of this Lease, and Tenant assumes all risks of damage to such persons or property, except, subject to Paragraph 12. F hereof, Landlord's negligence, willful misconduct or breach of this Lease. Landlord shall not be liable or responsible for any loss or damage to any property or person occasioned by theft, fire, act of God, public enemy, injunction, riot, strike, insurrection, war, court order, requisition or order of governmental body or authority, or other matter beyond control of Landlord, or for any injury or damage or inconvenience, which may arise through repair or alteration of any part of the Building, or failure to make repairs, or from any cause whatever except, subject to Paragraph 12.F. hereof, Landlord's willful acts, negligence or breach of this Lease.
14. Insurance. Tenant shall maintain throughout the term of this lease a policy of insurance, in form and substance satisfactory to Landlord, at Tenant's sole cost and expense, insuring both Landlord and Tenant against all claims, demands or actions arising out of or in connection with: (i) the Premises; (ii) the condition of the Premises; (iii) Tenant's operations in and maintenance and use of the Premises; and (iv) Tenant's liability assumed under this lease; with a combined single limit of not less than $2,000,000 per occurrence in respect of injury to persons (including death) and in the amount of not less than $500,000 per occurrence in respect of property damage or destruction, including loss of use thereof. Such policy shall be procured by Tenant from responsible insurance companies reasonably satisfactory to Landlord. Evidence of such policy, together with a receipt evidencing payment of the premium, shall be delivered to Landlord prior to the commencement date. Not less than thirty (30) days prior to the expiration date of such policy, a certified copy of a renewal thereof (bearing notations evidencing the payment of the renewal premium) shall be delivered to Landlord. Such policy shall further provide that not less than thirty (30) days' written notice shall be given to Landlord before such policy may be canceled or changed to reduce the insurance coverage provided thereby.

 

15. Condemnation.

1. If the whole or any substantial part of the Building is taken for any public or quasi-public use under governmental law, ordinance or regulation, or by right of eminent domain, or by private purchase in lieu thereof and the taking would prevent or materially interfere with the use of the Premises or the Building for the purpose of which they are being used, this lease shall terminate and the rent shall be abated during the unexpired portion of this lease effective when the physical taking of the Property shall occur.
2. If part of the Premises shall be taken for any public or quasi-public use under any governmental law, ordinance or regulation, or by right of eminent domain, or by private purchase in lieu thereof, and this lease is not terminated as provided in the subparagraph above, this lease shall not terminate but the rent payable hereunder during the unexpired portion of this lease shall be reduced to such extent as may be fair and reasonable under all of the circumstances.
3. In the event of any such taking or private purchase in lieu thereof, Landlord and Tenant shall each be entitled to receive and retain such separate awards and/or portion of lump sum awards as may be allocated to their respective interests in any condemnation proceedings, provided that Tenant shall not be entitled to receive any award for Tenant's loss of its leasehold interest or other property which would have become the property of Landlord upon termination of this Lease; the right to such award being hereby assigned to Landlord.

16. Holding Over. Tenant will, at the termination of this lease by lapse of time or otherwise, yield up immediate possession to Landlord. If Tenant retains possession of the lease premises or any part thereof after such termination, then such holding over shall constitute a month to month tenancy, upon the terms and conditions set forth in this Lease; provided, however, that the monthly rental shall, in addition to all other sums which are to be paid by Tenant hereunder, whether or not as additional rent, be equal to double the rental being paid monthly to Landlord under this Lease immediately prior to such termination. Tenant shall also pay to Landlord all damages sustained by Landlord resulting from retention of possession by Tenant, including the loss of any proposed subsequent tenant for any portion of the leased premises. The provisions of this paragraph shall not constitute a waiver by Landlord of any right of re-entry as herein set forth; nor shall receipt of any rent or any other act in apparent affirmance of the tenancy operate as a waiver of the right to terminate this lease for a breach of any of the terms, covenants, or obligations herein on Tenant's part to be performed.
17. Quiet Enjoyment. Landlord covenants that it now has, or will acquire before Tenant takes possession of the Premises, good title to the Premises, free and clear of all liens and encumbrances, excepting only the lien for current taxes not yet due, such mortgage or mortgages as are permitted by the terms of this lease, zoning ordinances and other building and fire ordinances and governmental regulations relating to the use of such property, and easements, restrictions and other conditions of record. In the event this lease is a sublease, then Tenant agrees to take the Premises subject to the provisions of the prior leases. Landlord represents and warrants that it has full right and authority to enter into this lease and that Tenant, upon paying the rental herein set forth and performing its other covenants and agreements herein set forth, shall peaceably and quietly have, hold and enjoy the Premises for the term hereof without hindrance or molestation from Landlord, subject to the terms and provisions of this lease.
18. Events of Default. The following events shall be deemed to be events of default by Tenant under this lease:

1. Tenant shall fail to pay any installment of the base rent, additional rent, Operating Costs, or any other payment or reimbursement to Landlord required herein when due, and such failure shall continue for a period of five (5) days from the date such payment was due; provided however that the first three (3) times base rent is not received by the fifth day of the month, Landlord agrees to give Tenant notice (which may be telephone notice) thereof, and provided the then-due base rent and Operating Costs are paid within two (2) business days after Tenant is in receipt of such notice, Tenant shall not be in default of this Lease and the late fee described in the paragraph of Paragraph 19 shall be waived.
2. Tenant shall become insolvent, or shall make a transfer in fraud of creditors, or shall make an assignment for the benefit of creditors.
3. Tenant shall file a petition under any section or chapter of the federal bankruptcy laws, or under any similar law or statute of the United States or any State thereof, whether now or hereafter in effect; or an order for relief shall be entered against Tenant in any such bankruptcy or insolvency proceedings filed against Tenant thereunder or Tenant shall be adjudged bankrupt or insolvent in proceedings filed against Tenant thereunder.
4. A receiver or trustee shall be appointed for all or substantially all of the assets of Tenant.
5. Tenant shall generally not pay its debts as such debts become due.
6. Tenant shall vacate all or a substantial portion of the Premises, whether or not Tenant is in default of the payments due under this lease.
7. Tenant shall fail to discharge any lien placed upon the Premises in violation of Paragraph 23 hereof within twenty (20) days after such lien or encumbrance is filed against the Premises.
8. Tenant shall fail to comply with any term, provision or covenant of this lease (other than any other provision of this Paragraph 18), and shall not cure such failure within twenty (20) days after written notice thereof to Tenant; provided however that if the nature of such failure is such that twenty (20) days is not sufficient to cure such failure, then Tenant shall not be deemed to be in default so long as it commences such cure within the twenty-day period and thereafter pursues such cure to completion, which completion shall not exceed ninety (90) days except in the case of construction in which case, if Tenant reasonably estimates the cure period will exceed ninety (90) days, Landlord and Tenant shall, at the commencement of the cure, in good faith, negotiate an extension of said ninety-day period.
9. Tenant shall violate the provisions of Paragraph 28 hereof, and shall not cure such puncture, penetration or other violation of Paragraph 28 hereof failure within twenty (20) days after written notice thereof to Tenant; provided however that if the nature of such failure is such that twenty (20) days is not sufficient to cure such failure, then Tenant shall not be deemed to be in default so long as it commences such cure within the twenty- day period and thereafter pursues such cure to completion, which completion shall not exceed ninety (90) days.
10. Tenant shall default under any one or more of (i) that certain Lease Agreement between Landlord and Tenant dated February 11, 1992, as amended, for premises leased by Tenant pursuant thereto located at 3955 Annapolis Lane, Plymouth, Minnesota (the "3955 Lease"); or (ii) that certain Supplemental Lease dated March 7, 1996, as amended, for premises at 3750 Annapolis Lane, Plymouth, Minnesota (to the extent not terminated by the mutual agreement of Landlord and Tenant).

19. Remedies. Upon the occurrence of any of such events of default described in Paragraph 18 hereof, Landlord shall have the option to pursue any one or more of the following remedies without any further notice or demand whatsoever.

1. Landlord may, at its election, terminate this Lease or terminate Tenant's right to possession only, without terminating the Lease; and/or Landlord may, at its election, terminate the 3955 Lease and/or the Supplemental Lease, or terminate Tenant's right to possession of the spaces(s) demised by the 3955 Lease and/or the Supplemental Lease only, without terminating the 3955 Lease and/or the Supplemental Lease and exercise all rights and remedies of Landlord under the 3955 Lease and/or the Supplemental Lease;
2. Upon any termination of this Lease, whether by lapse of time or otherwise, or upon any termination of Tenant's right to possession without termination of this Lease, Tenant shall surrender possession and vacate the Premises immediately and deliver possession thereof to Landlord, and Tenant hereby grants to Landlord full and free license to enter into and upon the Premises in such event with or without process of law and to repossess Landlord of the Premises as of Landlord's former estate and to expel or remove Tenant and any others who may be occupying or within the Premises and to alter all locks and other security devices at the Premises and to remove any and all property therefrom, without being deemed in any manner guilty of trespass, eviction or forcible entry or detainer, and without incurring any liability for any damage resulting therefrom, Tenant hereby waiving any right to claim damage for such re-entry and expulsion, and without relinquishing Landlord's right to rent or any other right given to Landlord hereunder or by operation of law;
3. Upon any termination of this lease, whether by lapse of time or otherwise, Landlord shall be entitled to recover as damages, all rent, including any amounts treated as additional rent hereunder, and other sums due and payable by Tenant on the date of termination, plus the sum of (i) an amount equal to the then present value of the rent, including any amounts treated as additional rent hereunder, and other sums provided herein to be paid by Tenant for the residue of the term hereof, less the fair rental value of the Premises for such residue (taking into account the time and expense necessary to obtain a replacement tenant or tenants, including expenses hereinafter described in subparagraph (d) relating to recovery of the Premises, preparation for reletting and for reletting itself) and (ii) the cost of performing any other covenants which would have otherwise been performed by Tenant;
4. (i) Upon any termination of Tenant's right to possession only without termination of the lease, Landlord may, at Landlord's option, enter into the Premises, remove Tenant's signs and other evidences of tenancy, and take and hold possession thereof as provided in subparagraph (b) above, without such entry and possession terminating the lease or releasing Tenant, in whole or in part, from any obligation, including Tenant's obligation to pay the rent, including any amounts treated as additional rent, hereunder for the full term. In any such case Tenant shall pay forthwith to Landlord, if Landlord so elects, a sum equal to the entire amount of the rent, including any amounts treated as additional rent hereunder, for the residue of the stated term hereof plus any other sums provided herein to be paid by Tenant for the remainder of the lease term;

(ii) Landlord may, but need not relet the Premises or any part thereof for such rent and upon such terms as Landlord in its sole discretion shall determine (including the right to relet the Premises as part of a larger area and the right to change the character or use made of the Premises) and Landlord shall not be required to accept any tenant offered by Tenant or to observe any instructions given by Tenant about such reletting. In any such case, Landlord may make repairs, alterations and additions in or to the Premises, and redecorate the same to the extent Landlord deems necessary or desirable, and Tenant shall, upon demand, pay the cost thereof, together with landlord' expenses of reletting including, without limitation, any broker's commission incurred by landlord. If the consideration collected by Landlord upon any such reletting plus any sums previously collected from Tenant are not sufficient to pay the full amount of all rent, including any amounts treated as additional rent hereunder and other sums reserved in this lease for the remaining term hereof, together with the costs of repairs, alterations, additions, redecorating, and Landlord's expenses of reletting and the collection of the rent accruing therefrom (including attorney's fees and broker's commissions), Tenant shall pay to Landlord the amount of such deficiency upon demand and Tenant agrees that Landlord may file suit to recover any sums falling due under this subparagraph from time to time;

5. Landlord may, at Landlord's option, enter into and upon the Premises, with or without process of law, if Landlord determines in its sole discretion that Tenant is not acting within a commercially reasonable time to maintain, repair or replace anything for which Tenant is responsible hereunder and correct the same, without being deemed in any manner guilty of trespass, eviction or forcible entry and detainer and without incurring any liability for any damage resulting therefrom and Tenant agrees to reimburse Landlord, on demand, as additional rent, for any expenses which Landlord may incur in thus effecting compliance with Tenant's obligations under this lease;
6. Any and all property which may be removed from the Premises by Landlord pursuant to the authority of the lease or of law, to which Tenant is or may be entitled, may be handled, removed and stored, as the case may be, by or at the direction of Landlord at the risk, cost and expense of Tenant, and Landlord shall in no event be responsible for the value, preservation or safekeeping thereof; provided Landlord shall give Tenant five (5) days prior written notice of such removal. Tenant shall pay to landlord, upon demand, any and all expenses incurred in such removal and all storage charges against such property so long as the same shall be in Landlord's possession or under Landlord's control. Any such property of Tenant not retaken by Tenant from storage within thirty (30) days after removal from the Premises shall, at Landlord's option, be deemed conveyed by Tenant to Landlord under this lease as by a bill of sale without further payment or credit by Landlord to Tenant.

Subject to the provisions of Paragraph 18(a), in the event Tenant fails to pay any installment of rent, including any amount treated as additional rent hereunder, or other sums hereunder as and when such installment or other charge is due, Tenant shall pay to Landlord on demand a late charge in an amount equal to five percent (5%) of such installment or other charge overdue in any month and five percent (5%) each month thereafter until paid in full to help defray the additional cost to Landlord for processing such late payments, and such late charge shall be additional rent hereunder and the failure to pay such late charge within ten (10) days after demand therefor shall be an additional event of default hereunder. The provision for such late charge shall be in addition to all of Landlord's other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Landlord's remedies in any manner.

Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the other remedies herein provided or any other remedies provided by law, nor shall pursuit of any remedy herein provided constitute a forfeiture or waiver of any rent due to Landlord hereunder or of any damages accruing to Landlord by reason of the violation of any of the terms, provisions and covenants herein contained. No act or thing done by the Landlord or its agents during the term hereby granted shall be deemed a termination of this lease or an acceptance of the surrender of the Premises, and no agreement to terminate this lease or accept a surrender of said Premises shall be valid unless in writing signed by Landlord. No waiver by Landlord of any violation or breach of any of the terms, provisions and covenants herein contained shall be deemed or construed to constitute a waiver of any other violation or breach of any of the terms, provisions and covenants herein contained. Landlord's acceptance of the payment of rental or other payments hereunder after the occurrence of an event of default shall not be construed as a waiver of such default, unless Landlord so notifies Tenant in writing. Forbearance by Landlord to enforce one or more of the remedies herein provided upon an event of default shall not be deemed or construed to constitute a waiver of such default or of Landlord's right to enforce any such remedies with respect to such default or any subsequent default. If, on account of any breach or default by Tenant in Tenant's obligations under the terms and conditions of this lease, it shall become necessary or appropriate for Landlord to employ or consult with an attorney concerning or to enforce or defend any of Landlord's rights or remedies hereunder, Tenant agrees to pay any reasonable attorney's fees so incurred.

20. Landlord's Lien. Intentionally deleted.
21. Mortgages. Tenant accepts this lease subject and subordinate to any mortgage(s) now or at any time hereafter constituting a lien or charge upon the Property or the Premises, provided, however, that if the holder of any such mortgage elects to have Tenant's interest in this lease superior to any such instrument, then by notice to Tenant from such holder, this lease shall be deemed superior to such lien, whether this lease was executed before or after said mortgage. Tenant shall at any time hereafter on demand execute any instruments, releases or other documents which may be required by any mortgagee for the purpose of subjecting and subordinating this lease to the lien of any such mortgage, provided if such mortgagee provides in said document that, if it succeeds to the interest of Landlord hereunder, and Tenant is not then in default, Tenant's possession of the Premises shall not be disturbed.
22. Landlord's Default. In the event of any default by Landlord, Tenant's exclusive remedy shall be an action for damages (Tenant hereby waiving the benefit of any laws granting it a lien upon the property of Landlord and/or upon rent due Landlord), but prior to any such action Tenant will give Landlord written notice specifying such default with particularity, and Landlord shall thereupon have thirty (30) days in which to cure any such default. Unless and until Landlord fails to so cure any default after such notice, Tenant shall not have any remedy or cause of action by reason thereof. All obligations of Landlord hereunder will be construed as covenants, not conditions; and all such obligations will be binding upon Landlord only during the period of its ownership of the Premises and not thereafter.
23. Mechanic's Liens and Personal Property Taxes.

1. Tenant shall have no authority, express or implied, to create or place any lien or encumbrance of any kind or nature whatsoever upon, or in any manner to bind, the interest of Landlord or Tenant in the Building or the Premises or to charge the rentals payable hereunder for any claim in favor of any person dealing with Tenant, including those who may furnish materials or perform labor for any construction or repairs. Tenant covenants and agrees that it will pay or cause to be paid all sums legally due and payable by it on account of any labor performed or materials furnished in connection with any work performed on the Premises on which any lien is or can be validly and legally asserted against its leasehold interest in the Premises or the improvements thereon and that it will save and hold Landlord harmless from any and all loss, cost or expense based on or arising out of asserted claims or liens against the leasehold estate or against the right, title and interest of the Landlord in the Building or the Premises or under the terms of this lease. Tenant agrees to give Landlord immediate written notice of the placing of any lien or encumbrance against the Building or the Premises.
2. Tenant shall be liable for all taxes levied or assessed against personal property, furniture or fixtures placed by Tenant in the Premises. If any such taxes for which Tenant is liable are levied or assessed against Landlord or Landlord's property and if Landlord elects to pay the same or if the assessed value of Landlord's property is increased by inclusion of personal property, furniture or fixtures placed by Tenant in the Premises, and Landlord elects to pay the taxes based on such increase, Tenant shall pay to Landlord upon demand that part of such taxes.

24. Notices. Each provision of this instrument or of any applicable governmental laws, ordinances, regulations and other requirements with reference to the sending, mailing or delivery of any notice or the making of any payment by Landlord to Tenant or with reference to the sending, mailing or delivery of any notice or the making of any payment by Tenant to Landlord shall be deemed to be complied with when and if the following steps are taken:

1. All rent and other payments required to be made by Tenant to Landlord hereunder shall be payable to Landlord at the address for Landlord herein below set forth or at such other address as Landlord may specify from time to time by written notice delivered in accordance herewith. Tenant's obligation to pay rent and any other amounts to landlord under the terms of this lease shall not be deemed satisfied until such rent and other amounts have been actually received by Landlord.
2. All payments required to be made by Landlord to Tenant hereunder shall be payable to Tenant at the address herein below set forth, or at such other address within the continental United States as Tenant may specify from time to time by written notice delivered in accordance herewith.
3. Any notice or document required or permitted to be delivered hereunder shall be deemed to be delivered whether actually received or not (i) ten (10) days after deposit in the United States Mail, postage prepaid, Certified or Registered Mail, addressed to the parties hereto at the respective addresses set out below, or at such other address as they have theretofore specified by written notice delivered in accordance herewith; (ii) when personally delivered; or (iii) one (1) business day after deposit, fees prepaid, with a national overnight air carrier (it being understood and agreed that, for the purposes of this Lease, a "business day" shall be a day which is not a Saturday, a Sunday or a legal holiday of the State of Minnesota):

LANDLORD:	TENANT:
St. Paul Properties, Inc.	Protein Design Labs, Inc.
385 Washington Street	38401 Campus Drive
St. Paul, Minnesota 55102	Fremont, California 94555
Attention: Vice-President, Asset Management	Attention: General Counsel
With a copy to:	With a copy to:
United Properties, LLC	Vice President, Manufacturing
3500 West 80th Street, Suite 200	3955 Annapolis Lane
Bloomington, Minnesota 55431	Plymouth, Minnesota 55447
Attention: Vice-President, Property Management

If and when included within the term "Landlord," as used in this instrument, there are more than one person, firm or corporation, all shall jointly arrange among themselves for their joint execution of such a notice specifying some individual at some specific address for the receipt of notices and payments to Landlord; if and when included within the term "Tenant," as used in this instrument, there are more than one person, firm or corporation, all shall jointly arrange among themselves for their joint execution of such a notice specifying some individual at some specific address within the continental United States for the receipt of notices and payments to Tenant. All parties included within the terms "Landlord" and "Tenant," respectively, shall be bound by notices given in accordance with the provisions of this paragraph to the same effect as if each had received such notice.

25. Miscellaneous.

1. Words of any gender used in this lease shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, unless the context otherwise requires.
2. The terms, provisions and covenants and conditions contained in this lease shall apply to, inure to the benefit of, and be binding upon, the parties hereto and upon their respective heirs, legal representatives, successors and permitted assigns, except as otherwise herein expressly provided. Landlord shall have the right to assign any of its rights and obligations under this lease. The term "Landlord" shall mean only the owner, at any time of the Premises, and in the event of the transfer by such owner of its interest in the Premises, Landlord's grantee or Landlord's successor shall upon such transfer, become "Landlord" hereunder, thereby freeing and relieving the grantor or assignor of all covenants and obligations of "Landlord" hereunder; but such covenants and obligations shall be binding during the lease term upon each new owner for the duration of such owner's ownership, provided, however, that no successor Landlord shall be responsible for the return of any security deposit provided for pursuant to Paragraph 2B unless such successor receives the deposit. Tenant agrees to furnish promptly upon demand, a corporate resolution, proof of due authorization by partners, or other appropriate documentation evidencing the due authorization of Tenant to enter into this lease. Nothing herein contained shall give any other tenant in the Building any enforceable rights either against Landlord or Tenant as a result of the covenants and obligations of either party set forth herein.
3. The captions inserted in this lease are for convenience only and in no way define, limit or otherwise describe the scope or intent of this lease, or any provision hereof, or in any way affect the interpretation of this lease.
4. Tenant agrees from time to time within ten (10) days after request of Landlord, to deliver to landlord, or Landlord's designee an estoppel certificate in a form designated by Landlord. It is understood and agreed that Tenant's obligation to furnish such estoppel certificates in a timely fashion is a material inducement for Landlord's execution of this lease.
5. This lease may not be altered, changed or amended except by an instrument in writing signed by both parties hereto.
6. All obligations of Tenant hereunder not fully performed as of the expiration or earlier termination of the term of this lease shall survive the expiration or earlier termination of the term hereof, including without limitation, all payment obligations with respect to Operating Costs and all obligations concerning the condition of the Premises. Upon the expiration or earlier termination of the term hereof, Tenant shall pay to Landlord the amount as estimated by landlord, necessary (i) to repair and restore the Premises as provided herein; and (ii) to discharge Tenant's obligation for Operating Costs or other amounts due Landlord. All such amounts shall be used and held by Landlord for payment of such obligations of Tenant, with Tenant being liable for any additional costs upon demand by Landlord, or with any excess to be returned to Tenant after all such obligations have been determined and satisfied. Any security deposit held by Landlord shall be credited against the amount payable by Tenant under this subparagraph.
7. If there be more than one Tenant, the obligations hereunder imposed upon Tenant shall be joint and several.
8. Tenant represents and warrants that it has dealt with no broker, agent or other person in connection with this transaction or that no broker, agent or other person brought about this transaction, other than United Properties LLC, acting as Landlord's broker, whose fees shall be paid by Landlord, and Tenant agrees to indemnify and hold harmless from and against any claims by any other broker, agent or other person claiming a commission or other form of compensation by virtue of having dealt with Tenant with regard to this leasing transaction.
9. If any clause or provision of this lease is illegal, invalid or unenforceable under present or future laws effective during the term of this lease, then and in that event, it is the intention of the parties hereto that the remainder of this lease shall not be affected thereby, and it is also the intention of the parties to this lease that in lieu of each clause or provision of this lease that is illegal, invalid or unenforceable, there be added as a part of this lease contract a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and be legal, valid and enforceable.
10. Because the Premises are on the open market and are presently being shown, this lease shall be treated as an offer and shall not be valid or binding unless and until accepted by Landlord in writing.

26. Hazardous Waste

1. The term "Hazardous Substances," as used in this lease shall mean pollutants, contaminants, toxic or hazardous wastes, or any other substances, the removal of which is required or the use of which is restricted, prohibited or penalized by any "Environmental Law," which term shall mean any federal, state or local law or ordinance relating to pollution or protection of the environment. Tenant hereby agrees that (i) no activity will be conducted on the Premises that will produce any Hazardous Substance, except for such activities that are part of the ordinary course of Tenant's activities (the "Permitted Activities") provided said Permitted Activities are conducted in accordance with all Environmental Laws and have been approved in advance in writing by Landlord: (ii) the Premises will not be used in any manner for the storage of any Hazardous Substances except for the temporary storage of such materials that are used in the ordinary course of Tenant's business (the "Permitted Material") provided such Permitted Materials are properly stored in a manner and location meeting all Environmental Laws and approved in advance in writing by Landlord; (iii) no portion of the Premises will be used as a landfill or a dump; (iv) Tenant will not install any underground tanks of any type; (v) Tenant will not cause any surface or subsurface conditions to exist or come into existence that constitute, or with the passage of time may constitute, a public or private nuisance; (vi) Tenant will not permit any Hazardous Substances to be brought onto the Premises, except for the Permitted Materials described above, and if so brought or found located thereon, the same shall be immediately removed, with proper disposal, and all required cleanup procedures shall be diligently undertaken pursuant to all Environmental Laws. If, at any time during or after the term of the lease, the Premises is found to be so contaminated or subject to said conditions, Tenant agrees to indemnify and hold Landlord harmless from all claims, demands, actions, liabilities, costs, expenses, including reasonable attorneys' fees, damages and obligations of any nature arising from or as a result of the use of the premises by Tenant. The foregoing indemnification shall survive the termination or expiration of this Lease.

27. Right of Termination. Tenant shall have a one-time option to terminate this Lease effective on the last day of the forty-eighth full calendar month of the lease term (the "Termination Date") by giving written notice thereof (the "Termination Notice") to Landlord not later than the last day of the thirty-ninth full calendar month of the Term; provided however, the following shall be conditions precedent to the exercise of such option: (a) Tenant shall not be in default under any of the terms and conditions of this Lease as of the date of the Termination Notice or as of the Termination Date; and (b) simultaneously with its delivery of the Termination Notice, Tenant delivers to Landlord a termination fee in the amount of the sum of (i) $66,000.00; plus (ii) the Unamortized Transaction Costs (as hereinafter defined), payable by wire transfer or by cashier's check payable to Landlord's order; and (c) Tenant delivers to Landlord evidence reasonably satisfactory to Landlord that the reason for Tenant's termination is that Tenant then owns a building not located in Plymouth Business Center and intends to move to such building Tenant's operations conducted in the Premises. If Tenant satisfies the foregoing conditions, base rent, additional rent and Operating Costs shall be paid through and apportioned as of the Termination Date and neither Landlord nor Tenant shall have any rights, estates, liabilities or obligations accruing under the Lease after the Termination Date, except such rights and obligations which, by the terms of this Lease, expressly survive the expiration or termination of this Lease. The right to terminate granted herein shall be personal to Tenant and shall not accrue to any assignee, sublessee or successor to the interest of Tenant under the Lease. For the purposes of this Lease, Unamortized Transaction Costs shall mean leasing commissions (together with interest thereon at the rate of twelve percent (12%) per annum) and legal fees incurred by Landlord in connection with this Lease, amortized on a straight-line basis over eighty-four (84) months.
28. Roof Penetrations

1. Without limiting the other provisions of this Lease, Tenant, at any time, may request from Landlord permission to puncture or penetrate the roof of the Building or make an alteration, improvement or addition to the roof of the Building including, without limitation, affixing any object of any type to the roof of the Building (any one or more of such actions hereinafter a "Roof Activity"), it being understood and agreed that Tenant shall not, without obtaining Landlord's prior written consent, make or suffer any Roof Activity. Landlord may withhold its consent to the requested Roof Activity if Landlord determines, in Landlord's sole and absolute discretion, that the Roof Activity will have an adverse impact on the Building, including, without limitation, the roof of the Building or any Building System. Notwithstanding the foregoing, Landlord shall not withhold its consent if, together with its request to perform a Roof Activity, or after Landlord's refusal to consent to a Roof Activity, Tenant delivers to Landlord the plans for such Roof Activity, together with a certification from a structural engineer licensed in the State of Minnesota obtained at Tenant's sole cost and expense (a) stating that such engineer has reviewed the as-built plans for the Building and the plans for the Roof Activity and that such Roof Activity shall not have any impact on the structure of the Building, including, without limitation, the roof, exterior walls or foundation; and (b) attaching a copy of such engineer's policy of professional liability insurance. Tenant's violation of the provisions of this Paragraph 28 shall constitute an event of default under this Lease.
2. Subject to the provisions of subparagraph (a) of this Paragraph 28, Tenant may, at Tenant's option, and at Tenant's sole cost and expense, either:

1. remove the HVAC equipment located on the roof of the Building, as of the date of this Lease (the "Existing HVAC Equipment"), using Landlord's roofing contractor for all patching and/or repair work, from the roof of the Building and replace it with an HVAC unit or units selected and installed by Tenant (the "Tenant HVAC Equipment"), using Landlord's roofing contractor. In such case, as a part of Tenant's obligations under Paragraph 7 hereof, on or prior to the Expiration Date or as of the earlier date of termination of this Lease, at Landlord's option, Tenant shall, at Tenant's sole cost and expense, remove Tenant's HVAC Equipment from the roof, using Landlord's roofing contractor for all patching and/or repair work; or
2. leave the Existing HVAC Equipment on the roof of the Building and, in addition, place Tenant HVAC Equipment on the roof of the Building, using landlord's roofing contractor for all patching and/or repair work, which selection and installation shall be subject to the provisions of this Paragraph 28, and as of the Expiration Date or as of the earlier date of termination of this Lease, as to the Tenant HVAC Equipment, the parties shall proceed in accordance with subparagraph (i) above. Other than as set forth in Paragraph 6.E. hereof, and subparagraphs (c) and (d) of this Paragraph 28, Tenant shall have no responsibility for the Existing HVAC Equipment as of the Expiration Date, or as of the earlier date of termination of this Lease.

3. Ownership of the Tenant HVAC Equipment shall pass to Landlord as of the Expiration Date or the earlier termination of the term of this Lease as if by bill of sale, in the then "as-is" condition of the Tenant HVAC Equipment, and without the need for further written instruments; provided however, that Tenant hereby warrants that, as of the date of such passage of ownership, there shall be no liens or encumbrances against the Tenant HVAC Equipment. In addition, Tenant shall not have created or suffered to exist any lien or encumbrance against the Existing HVAC Equipment.
4. Notwithstanding any other provision of this Lease to the contrary, including, without limitation, the provisions of Paragraph 13 hereof, Tenant hereby agrees to defend and does hereby indemnify and hold Landlord harmless from and against any and all claims, proceedings, actions, judgments, costs and expenses, including attorneys' fees through all appellate levels, arising from the removal of the Existing HVAC Equipment above, and the placement, repair, maintenance, operation, replacement or removal of the Tenant HVAC Equipment, it being understood and agreed that the defense, indemnification and hold harmless obligations contemplated by this subparagraph (d) include, without limitation, claims, actions, judgments, costs and expenses, including attorneys' fees through all appellate levels incurred by Landlord as a result of claims of personal or bodily injury or property damage made by third parties. The indemnification obligations under this subparagraph (d) apply to Tenant's decision to proceed in accordance with clause (2) of Paragraph 6.E. hereof.
5. Tenant understands and agrees that the placement of the Tenant HVAC Equipment on the roof of the Building contemplated in this Paragraph 28 or any Roof Activity must be in accordance with all applicable laws, codes and regulations, including, without limitation, laws, codes and regulations of the City of Plymouth. Tenant further understands and agrees that Landlord makes no warranty or representation that the City of Plymouth will provide the necessary consents for the placement of the Tenant HVAC Equipment or any Roof Activity, the risk of obtaining such consents being borne entirely by Tenant. Tenant finally understands and agrees that Tenant's failure to obtain the consent of the City of Plymouth to the placement of any or all of Tenant's HVAC Equipment on the roof or any Roof Activity shall in no way constitute a constructive eviction, work an abatement of rent or otherwise modify Tenant's obligations under this Lease, including, without limitation, the obligation to pay base rent and Operating Costs.
6. All of Tenant's obligations contained in this Paragraph 28 shall survive the expiration or earlier termination of this Lease.

29. Chiller. Landlord and Tenant acknowledge and agree that Tenant intends to place a chiller at the rear of the Premises for Tenant's sole use. Landlord and Tenant further agree that Tenant shall provide plans for the chiller and the placement thereof to Landlord not less than thirty (30) days prior to the date Tenant intends to install the chiller, which plans shall be subject to Landlord's reasonable approval. Landlord may withhold its approval if, in Landlord's sole determination, the placement of the chiller or other attributes of the chiller, will adversely affect Landlord's property or the use and occupation of another Tenant of the Building. Landlord makes no representation or warranty that the City of Plymouth will give its consent to the placement of the chiller, and Tenant agrees that it shall bear full responsibility for obtaining all necessary permits, licenses and approvals from the City of Plymouth for the installation, operation, repair and maintenance of the chiller. The chiller shall be considered an improvement pursuant to this Lease and shall be removed or left at the end of the term of this Lease in accordance with Paragraph 7 hereof. All costs of the chiller, including, without limitation, all costs of obtaining the consent of the City of Plymouth to install the chiller, all costs of the installation, operation, maintenance and repair of the chiller and the removal thereof shall be borne in their entirety by Tenant and no expense arising from the chiller shall be considered a part of Operating Costs hereunder.
30. Animals. Landlord and Tenant agree that Landlord shall not lease the space in the Building to any person or entity who intends to keep or have animals on its premises, and shall provide in the rules and regulations applicable to such premises that the keeping of or having animals on such tenant's premises will be a violation of such tenant's lease, allowing Landlord to terminate such lease. Nothing in the preceding sentence shall be deemed to preclude Landlord or the tenant of the adjacent space from allowing employees, agents, contractors or invitees of the tenant of the adjacent premises to bring into the adjacent premises any seeing-eye or hearing-ear dogs or other animals required by such employees, agents, contractors or invitees to perform their normal life activities. Should Landlord breach the obligations contained in this Paragraph 30, Tenant's sole remedy shall be to seek equitable relief, it being understood and agreed that in no case shall Landlord be liable for damages of any kind or nature or for any costs or fees, including attorneys' fees, incurred by Tenant in pursuing its remedies under this Paragraph 30.
31. Renewal of Lease. Landlord hereby grants to Tenant a one-time option to renew the lease as to the Premises upon the terms and conditions of this Paragraph 31 if:

(a) Tenant is not in default under this lease beyond any time to cure at the time such option is exercised or at the commencement of the renewal term; and

(b) Tenant gives Landlord written notice of the exercise of the renewal of this Lease nine (9) months prior to the end of the Term (the "Renewal Notice of Exercise"), time being of the essence. Tenant's failure to notify Landlord of its intent to exercise the option to renew the Term granted herein on or before the dates specified in this subparagraph (b) for such renewal shall be deemed a waiver of Tenant's right to exercise the option to renew granted herein.

If Tenant elects to renew this Lease under this Paragraph 31, the following terms and conditions shall apply:

(w) the renewal term in question shall commence upon the expiration of the term and continue thereafter for a period of five (5) years;

(x) base rent for the Premises for the renewal term shall be Market Rent (as defined in Paragraph 32 of this lease);

(y) Paragraph 6.E.(z) of this lease shall be amended to require the reports described therein on November 30, 2010 and November 30, 2013; and

(z) all of the other terms and conditions contained in this lease, as it may have been amended from time to time, shall be as set out in this lease, it being understood that there shall be no rights of renewal or extension except as provided in this Paragraph 31, and, upon the exercise of the right of renewal granted by this Paragraph 31, this Paragraph 31 shall be of no further force or effect and Tenant shall have no right to further renew or extend the term at the expiration of the renewal term.

Within fifteen (15) days after request thereof from Landlord, Tenant shall execute and deliver to Landlord those instruments which Landlord may request to evidence the renewal described in this Paragraph 31. The rights of Tenant under this Paragraph 31 shall not be severed from this Lease or separately sold, assigned, or otherwise transferred, and shall expire on the expiration or earlier termination of this Lease. Notwithstanding the foregoing, the renewal option contemplated by this Paragraph 31 shall automatically terminate and become null and void and of no further force and effect upon the earliest to occur of (i) the expiration or termination of this Lease, (ii) the termination of Tenant's right to possession of the Premises, or (iii) the failure of Tenant to timely or properly exercise the rights granted by this Paragraph 31. The right contemplated by this Paragraph shall not survive the expiration or termination of this Lease, and shall not be available to any assignee, sublessee, or successor to Tenant's interests hereunder.

32. Market Rent. "Market Rent" means the amount of base rent, which may or may not include concessions, improvements and other matters (exclusive of Operating Costs) which Landlord would receive by then renting similar space (including similar square footage) for premises in the project in which the Building is located. Within forty-five (45) days after Tenant exercises its right to renew the term pursuant to Paragraph 31, Landlord shall give Tenant notice of Market Rent for the renewal term (the "Market Rent Notice"). If Tenant does not agree with Landlord's determination of Market Rent as set forth in the Market Rent Notice, Tenant shall so notify Landlord in writing within ten (10) days after Tenant's receipt of the Market Rent Notice ("Tenant's Notice"). Landlord and Tenant shall, for ten (10) days after Landlord's receipt of Tenant's Notice, negotiate in good faith to come to an agreement as to Market Rent for the renewal term. If Landlord and Tenant are unable to agree upon Market Rent within said ten day period, then, notwithstanding the provisions of Paragraph 31, Tenant shall have the right to rescind the Renewal Notice of Exercise by written notice (the "Rescission Notice") to Landlord given not later than twenty (20) days after the date of Tenant's Notice, it being understood and agreed that if the Rescission Notice is not given within such time period, Tenant shall be deemed to have waived its right to rescind the Renewal Notice of Exercise. In such case, to the extent that the Renewal Notice of Exercise has been effectively exercised by Tenant pursuant to Paragraph 31, Landlord and Tenant shall execute and deliver an amendment to this Lease which amendment shall be executed and delivered within ten (10) days following the determination of the Market Rent. Tenant's failure to give Tenant's Notice within the time period provided above shall be deemed an acceptance of Landlord's determination of Market Rent, the term shall be deemed renewed pursuant to the Renewal Notice of Exercise, and base rent for the renewal term shall be as set forth in the Market Rent Notice. Notwithstanding anything in this Paragraph 32 to the contrary, in no event shall Market Rent be less than the amount per annum payable during the last month of the term ending February 28, 2009.