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-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QM6Z4wCU8V4Xv3uIh0AaYIfYEbI5OPMtI1Lp2UHZ9kRHy/AkxDeFTpqRCsSKFw3Y P5S4UJNpfCkdrNztNvb26Q== 0001193125-09-105302.txt : 20090508 0001193125-09-105302.hdr.sgml : 20090508 20090508155334 ACCESSION NUMBER: 0001193125-09-105302 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20090331 FILED AS OF DATE: 20090508 DATE AS OF CHANGE: 20090508 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIONBRIDGE TECHNOLOGIES INC /DE/ CENTRAL INDEX KEY: 0001058299 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 043398462 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26933 FILM NUMBER: 09810575 BUSINESS ADDRESS: STREET 1: 1050 WINTER STREET STREET 2: 1050 WINTER STREET CITY: WALTHAM STATE: MA ZIP: 02154 BUSINESS PHONE: 7818906612 MAIL ADDRESS: STREET 1: 1050 WINTER STREET CITY: WALTHAM STATE: MA ZIP: 02451 FORMER COMPANY: FORMER CONFORMED NAME: LIONBRIDGE TECHNOLOGIES HOLDINGS INC DATE OF NAME CHANGE: 19990611 10-Q 1 d10q.htm FORM 10-Q Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2009

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 000-26933

LIONBRIDGE TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)


Delaware		04-3398462
(State of Incorporation)		(I.R.S. Employer Identification No.)

1050 Winter Street, Waltham, MA 02451

(Address of Principal Executive Offices)

Registrant’s Telephone Number, Including Area Code: 781-434-6000

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

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

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

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

The number of shares outstanding of the registrant’s common stock, par value $0.01 per share, as of April 30, 2009 was 57,386,036.

LIONBRIDGE TECHNOLOGIES, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2009

TABLE OF CONTENTS


		Page
PART I: FINANCIAL INFORMATION

ITEM 1	Condensed Consolidated Financial Statements:	3

	Condensed Consolidated Balance Sheets (unaudited) as of March 31, 2009 and December 31, 2008	3

	Condensed Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2009 and 2008	4

	Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2009 and 2008	5

	Notes to Condensed Consolidated Financial Statements (unaudited)	6

ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

ITEM 3	Quantitative and Qualitative Disclosures About Market Risk	25

ITEM 4	Controls and Procedures	26

PART II: OTHER INFORMATION

ITEM 1	Legal Proceedings	27

ITEM 1A	Risk Factors	28

ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	28

ITEM 6	Exhibits	28

SIGNATURE		30

EXHIBIT INDEX		31

PART I. FINANCIAL INFORMATION

Item 1.

Consolidated Financial Statements

LIONBRIDGE TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)


	March 31, 2009			December 31, 2008
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	19,917		$	37,978
Accounts receivable, net of allowance of $685 at March 31, 2009 and December 31, 2008		54,438			67,184
Work in process		18,858			17,893
Other current assets		9,749			9,615

Total current assets		102,962			132,670
Property and equipment, net		13,196			14,077
Goodwill		9,675			9,675
Other intangible assets, net		18,620			20,000
Other assets		8,049			7,760

Total assets	$	152,502		$	184,182


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt	$	20		$	22
Accounts payable		18,483			20,218
Accrued compensation and benefits		16,307			20,122
Accrued outsourcing		8,448			9,252
Accrued merger and restructuring		1,127			811
Income taxes payable		2,498			3,434
Accrued expenses and other current liabilities		8,369			11,371
Deferred revenue		7,585			10,277

Total current liabilities		62,837			75,507

Long-term debt, less current portion		41,700			55,700
Deferred income taxes, long-term		771			737
Other long-term liabilities		13,088			12,568
Contingencies (Note 11)
Stockholders’ equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized; no shares issued and outstanding		—			—
Common stock, $0.01 par value; 100,000,000 shares authorized; 57,407,036 and 57,214,003 shares issued and outstanding at March 31, 2009 and December 31, 2008, respectively		574			572
Additional paid-in capital		256,350			255,126
Accumulated deficit		(236,482	)		(231,406	)
Accumulated other comprehensive income		13,664			15,378

Total stockholders’ equity		34,106			39,670

Total liabilities and stockholders’ equity	$	152,502		$	184,182

The accompanying notes are an integral part of the condensed consolidated financial statements.

LIONBRIDGE TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts in thousands, except per share data)


	Three Months Ended March 31,
	2009			2008
Revenue	$	88,403		$	117,048
Operating expenses:
Cost of revenue (exclusive of depreciation and amortization included below)		61,173			80,875
Sales and marketing		7,693			8,817
General and administrative		18,803			23,175
Research and development		1,185			1,112
Depreciation and amortization		1,141			1,139
Amortization of acquisition-related intangible assets		1,380			2,113
Merger, restructuring and other charges		993			206

Total operating expenses		92,368			117,437

Loss from operations		(3,965	)		(389	)
Interest expense:
Interest on outstanding debt		537			1,122
Amortization of deferred financing costs and discount on debt		44			44
Interest income		59			147
Other expense, net		5			2,411

Loss before income taxes		(4,492	)		(3,819	)
Provision for income taxes		584			616

Net loss	$	(5,076	)	$	(4,435	)


Net loss per share of common stock:
Basic and diluted	$	(0.09	)	$	(0.08	)
Weighted average number of common shares outstanding:
Basic and diluted		55,857			56,147

The accompanying notes are an integral part of the condensed consolidated financial statements.

LIONBRIDGE TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in thousands)


	Three Months Ended March 31,
	2009			2008
Cash flows from operating activities:
Net loss	$	(5,076	)	$	(4,435	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		1,123			1,603
Amortization of deferred financing charges		44			44
Depreciation and amortization		1,141			1,139
Amortization of acquisition-related intangible assets		1,380			2,113
Deferred income taxes		—			117
Net realized and unrealized foreign currency gains on forward contracts		—			(3,386	)
Other		26			16
Changes in operating assets and liabilities:
Accounts receivable		10,229			10,400
Work in process		(1,426	)		(6,384	)
Other current assets		(639	)		(3,090	)
Other assets		(607	)		468
Accounts payable		(293	)		1,235
Income tax payable		(901	)		(1,184	)
Accrued compensation and benefits		(2,146	)		(2,808	)
Accrued outsourcing		(396	)		855
Accrued merger and restructuring		198			(539	)
Accrued expenses and other liabilities		(2,581	)		1,394
Deferred revenue		(2,397	)		(4,501	)

Net cash used in operating activities		(2,321	)		(6,943	)


Cash flows from investing activities:
Purchases of property and equipment		(736	)		(2,646	)
Net proceeds from foreign currency forward contracts		—			3,720

Net cash provided by (used in) investing activities		(736	)		1,074


Cash flows from financing activities:
Proceeds from issuance of short-term debt		—			7,400
Payments of short-term debt		—			(7,400	)
Payments of long-term debt		(14,000	)		(32	)
Proceeds from issuance of common stock under stock option plans		—			12
Shares repurchased		—			(2,329	)
Payments of capital lease obligations		(45	)		(51	)

Net cash used in financing activities		(14,045	)		(2,400	)

Net decrease in cash and cash equivalents		(17,102	)		(8,269	)
Effects of exchange rate changes on cash and cash equivalents		(959	)		2,055
Cash and cash equivalents at beginning of period		37,978			32,248

Cash and cash equivalents at end of period	$	19,917		$	26,034

The accompanying notes are an integral part of the condensed consolidated financial statements.

LIONBRIDGE TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements include the accounts of Lionbridge Technologies, Inc. and its wholly owned subsidiaries (collectively, “Lionbridge” or the “Company”). These financial statements are unaudited. However, in the opinion of management, the consolidated financial statements include all adjustments, all of a normal nature, necessary for their fair presentation. Interim results are not necessarily indicative of results expected for a full year. The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all information and footnotes necessary for a complete presentation of the operations, financial position and cash flows of the Company in conformity with U.S. generally accepted accounting principles. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the U.S. These statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

The Company’s preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reported periods. Estimates are used when accounting for collectibility of receivables, calculating service revenue using a proportional performance assessment and valuing intangible assets, deferred tax assets and net assets of businesses acquired. Actual results could differ from these estimates.

2. STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

Stock Option Plans

The Company has stock-based compensation plans for salaried employees and non-employee members of the Board of Directors. The plans provide for discretionary grants of stock options, restricted stock and stock units, and other stock-based awards. The plans are administered by the Nominating and Compensation Committee of the Board of Directors, which consists of non-employee directors.

In November 2005, the stockholders of Lionbridge Technologies, Inc. approved the Lionbridge 2005 Incentive Plan (the “2005 Plan”), which had been previously adopted by the Lionbridge Board of Directors on October 7, 2005, for officers, employees, non-employee directors and other key persons of Lionbridge and its subsidiaries. On May 1, 2009, the stockholders of the Company approved an amendment to the 2005 Plan increasing the maximum number of shares of common stock available for issuance under the 2005 Plan by 4,500,000 shares to 8,500,000 shares. At March 31, 2009, there were 196,697 options available for future grant under the 2005 Plan. Options to purchase common stock are granted at the discretion of the Board of Directors and the Nominating and Compensation Committee. Generally, stock options vest over a four-year period: 25% of the option shares vest one year from the date of grant and the remaining option shares vest at the rate of 12.5% each six month period thereafter. Stock options generally expire five to seven years from the date of grant under the 2005 Plan. Under the terms of the 2005 Plan, the exercise price of incentive and non-qualified stock option grants must not be less than 100% of the fair market value of the common stock on the date of grant. Options are amortized using a straight-line basis over the option vesting period.

Lionbridge’s 1998 Stock Option Plan (the “1998 Plan”) provides for the issuance of incentive and nonqualified stock options. The maximum number of shares of common stock available for issuance under the Plan is 11,722,032 shares and the 1998 Plan expired on January 26, 2008. At March 31, 2009 there were no options available for future grant under the 1998 Plan. Options to purchase common stock are granted at the discretion of the Board of Directors and the Nominating and Compensation Committee. Generally, stock options vest over a four-year period: 25% of the option shares vest one year from the date of grant and the remaining option shares vest at the rate of 12.5% each six month period thereafter. Stock options generally expire ten years (five years in certain cases) from the date of grant under the 1998 Plan. Under the terms of the 1998 Plan, the exercise price of incentive stock options granted must not be less than 100% (110% in certain cases) of the fair market value of the common stock on the date of grant, as determined by the Board of Directors. The exercise price of nonqualified stock options may be less than the fair market value of the common stock on the date of grant, as determined by the Board of Directors, but in no case may the exercise price be less than the statutory minimum, the par value per share of Lionbridge’s common stock.

Restricted Stock Awards

Lionbridge issued 280,125 and 3,592 shares of restricted common stock and restricted stock units under the Company’s 2005 Incentive Plan and the 1998 Stock Plan, respectively, in the three-month period ended March 31, 2009 with a fair market value of $475,000. Of the total 283,717 shares of restricted common stock and restricted stock units issued in the three-month period ended March 31, 2009, 280,125 have restrictions on disposition which lapse over four years from the date of grant on each anniversary date and 3,592 have restrictions on disposition which lapse over thirteen months from the date of grant.

Stock-based Compensation

The Company recognizes expense for stock options, market-based restricted stock awards and time-based restricted stock awards pursuant to the guidance of Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”). Total compensation expense related to stock options, market-based restricted stock awards and time-based restricted stock awards was $1.1 million and $1.6 million for the three-month periods ended March 31, 2009 and 2008, respectively, classified in the statement of operations line items as follows:


	Three Months Ended March 31,
	2009		2008
Cost of revenue	$	23,000	$	36,000
Sales and marketing		172,000		230,000
General and administrative		893,000		1,299,000
Research and development		35,000		38,000

Total stock-based compensation expense	$	1,123,000	$	1,603,000

As of March 31, 2009, future compensation cost related to non-vested stock options, less estimated forfeitures, is approximately $1.9 million and will be recognized over an estimated weighted average period of approximately 1.9 years. Lionbridge currently expects to amortize $4.1 million of unamortized compensation in connection with restricted stock awards outstanding as of March 31, 2009 over an estimated weighted average period of approximately 2.4 years.

3. WORK IN PROCESS

Work in process represents revenue not yet billed. Work in process is calculated for each individual project based on the proportional delivery of services at the balance sheet date. Billing of amounts in work in process occurs according to customer-agreed payment schedules or upon completion of specified project milestones. All of Lionbridge’s projects in work in process are expected to be billed and collected within one year.

4. DEBT

On December 21, 2006, the Company entered into a revolving credit facility (the “Credit Agreement”) with HSBC Bank USA, National Association. The Credit Agreement was subsequently amended on January 22, 2007 to add certain additional non-U.S. subsidiaries of the Company as Borrowers or Guarantors. The Credit Agreement replaced the Company’s Term Loan B and Revolving Credit Facility with Wachovia Bank, National Association that had been in place since September 1, 2005. The Credit Agreement provides for a five-year $100.0 million revolving credit facility. At March 31, 2009, $41.7 million was outstanding with an interest rate of 2.0%. The Company is required to maintain leverage and fixed charge coverage ratios and to comply with other covenants in its revolving credit agreement. The leverage ratio is calculated by dividing the Company’s total outstanding indebtedness at each quarter end by its adjusted earnings before interest, taxes, depreciation and certain other non-cash expenses during the four consecutive quarterly periods then ended. The fixed charge coverage ratio is calculated by dividing the Company’s adjusted earnings before interest, taxes, depreciation and certain other non-cash expenses minus capital expenditures for each consecutive four quarterly periods by its interest paid or payable and cash paid on taxes during each such consecutive four quarterly periods. The Company was in compliance with both of these ratios as well as all other bank covenants as of March 31, 2009.

5. COMPREHENSIVE INCOME (LOSS)

Total comprehensive income (loss) consists of net loss, the net change in the funded status of defined benefit postretirement plans, unrealized losses on a cash flow hedge and the net change in foreign currency translation adjustment. Total comprehensive loss was $6.5 million for the three-month period ended March 31, 2009 and total comprehensive income was $3.4 million for the three-month period ended March 31, 2008.

6. NET INCOME (LOSS) PER SHARE

Basic earnings per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding. For the purposes of calculating diluted earnings per share, the denominator includes both the weighted average number of shares of common stock outstanding and the number of dilutive common stock equivalents such as stock options, unvested restricted stock and warrants, as determined using the treasury stock method.

Shares used in calculating basic and diluted earnings per share for the three-month periods ended March 31, 2009 and 2008, respectively, are as follows:


	Three Months Ended March 31,
	2009	2008
Weighted average number of shares of common stock outstanding—basic	55,857,000	56,147,000
Dilutive common stock equivalents relating to options, restricted stock and warrants	—	—

Weighted average number of shares of common stock outstanding—diluted	55,857,000	56,147,000

Options, unvested restricted stock and warrants to purchase 7,491,000 and 8,330,000 shares of common stock for the three-month periods ended March 31, 2009 and 2008, respectively, were not included in the calculation of diluted net income per share, as their effect would be anti-dilutive.

7. MERGER, RESTRUCTURING AND OTHER CHARGES

Due to the deterioration in worldwide economic conditions during 2008, Lionbridge implemented cost reduction actions to improve its operating cost structure, reduce overhead and better position itself competitively. During the three-month period ended March 31, 2009 Lionbridge recorded $993,000 of restructuring and other charges. The $993,000 of restructuring and other charges recorded in the three-month period ended March 31, 2009 included $854,000 for workforce reductions in Europe, the United States and Asia consisting of seventy-four technical staff, ten administrative staff and ten sales staff and $139,000 recorded for vacated facilities, recorded pursuant to the guidance in FASB Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS No. 146”), and related literature. Of these charges, $690,000 related to the Company’s Global Language and Content (“GLC”) segment, $259,000 related to the Global Development and Testing (“GDT”) segment, $32,000 related to Corporate and Other and $12,000 related to the Interpretation segment. The Company made $644,000 of cash payments in the three-month period ended March 31, 2009, with $428,000, $193,000, $12,000 and $11,000 related to the GLC, GDT, Interpretation and Corporate and Other segments, respectively. The Company expects that the cost reduction actions implemented during 2008 and the first quarter of 2009 will have a positive impact on future operating results.

During the three-month period ended March 31, 2008 Lionbridge recorded $206,000 of restructuring and other charges. The $206,000 of restructuring and other charges recorded in the three-month period ended March 31, 2008 included $53,000 for workforce reductions in Europe consisting of two technical staff, $101,000 recorded for vacated facilities, $52,000 of additional costs recorded for a previously vacated facility in order to reflect a new sublease arrangement, recorded pursuant to the guidance in FASB Statement of Financial Accounting Standards No. 146, “Accounting for Costs associated with Exit or Disposal Activities” (“SFAS No. 146”), and related literature. Of these charges, $164,000 related to the Company’s Global Language and Content (“GLC”) segment and $42,000 related to the Global Development and Testing (“GDT”) segment. The Company made $639,000 of cash payments in the three-month period ended March 31, 2008, $634,000 and $5,000 related to the GLC and GDT segments, respectively.

The following table summarizes the accrual activity for the three months ended March 31, 2009 and 2008, respectively, by initiative:


	2009			2008
Beginning balance, January 1	$	933,000		$	2,365,000
Employee severance:
Merger and restructuring charges recorded (1)		854,000			53,000
Cash payments related to liabilities assumed and recorded on business combinations		—			—
Cash payments related to liabilities recorded on exit or disposal activities		(475,000	)		(350,000	)

		379,000			(297,000	)


	2009			2008
Vacated facility/Lease termination:
Merger and restructuring charges recorded (1)		139,000			125,000
Cash payments related to liabilities assumed and recorded on business combinations		(85,000	)		(208,000	)
Cash payments related to liabilities recorded on exit or disposal activities		(84,000	)		(81,000	)

		(30,000	)		(164,000	)

Ending balance, March 31	$	1,282,000		$	1,904,000

(1)	Charges recorded pursuant to the guidance in SFAS No. 146 and related literature.

At March 31, 2009, the Company’s consolidated balance sheet includes accruals totaling $1.3 million primarily related to employee termination costs and vacated facilities. Lionbridge currently anticipates that $1.2 million of these will be fully utilized within twelve months. The remaining $80,000 relates to lease obligations on unused facilities expiring through 2011 and is included in long-term liabilities.

8. INCOME TAXES

On January 1, 2007, Lionbridge adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), and recognized a $185,000 increase in the liability for unrecognized tax benefits, which was accounted for as a reduction to retained earnings. The balance of unrecognized tax benefits at March 31, 2009, not including interest and penalties, was $3.3 million, of which $3.3 million would affect earnings if recognized. Lionbridge also recognizes interest accrued related to unrecognized tax benefits in tax expense. Penalties, if incurred, would also be recognized as a component of tax expense. At March 31, 2009, Lionbridge had approximately $824,000 of interest and penalties accrued related to unrecognized tax benefits of which $824,000 would affect earnings if recognized.

In addition to the above, in connection with the Company’s 2005 acquisition of Bowne Global Solutions (“BGS”), Bowne & Co., Inc. (“Bowne”) agreed to indemnify the Company for any tax liabilities accruing on or prior to the acquisition date of September 1, 2005. The Company determined that its gross unrecognized tax affected benefits related to the acquisition of BGS and subject to indemnification were approximately $4.0 million. Accordingly, the Company adjusted its balance sheet by recording a long-term Indemnification Receivable and related FIN 48 liability as of January 1, 2007 for this amount. At March 31, 2009 the gross unrecognized tax affected benefits are $2.8 million and related accrued interest and penalties are $817,000. The net increase in the liability during the three months ended March 31, 2009 was as follows:


	Total		Lionbridge		Indemnification
Balance at January 1, 2009	$	5,612,000	$	2,859,000	$	2,753,000
Additions based on tax positions related to the current year		407,000		407,000		—
Additions for tax positions of prior years		—		—		—
Reductions for tax positions of prior years		—		—		—
Settlements		—		—		—
Reductions due to lapse of applicable statute of limitations		—		—		—

Balance at March 31, 2009	$	6,019,000	$	3,266,000	$	2,753,000

The components of the provision for income taxes are as follows for the three-month periods ended March 31, 2009 and 2008:


	Three Months Ended March 31,
	2009			2008
Current:
Federal	$	—		$	—
State		52,000			6,000
Foreign		729,000			493,000

Total current provision	$	781,000		$	499,000
Deferred:
Federal	$	—		$	117,000
Foreign		(197,000	)		—

Total deferred provision (benefit)	$	(197,000	)	$	117,000

Total provision for income taxes	$	584,000		$	616,000

The tax provision for the three-month period ended March 31, 2009 consists primarily of taxes on income in foreign jurisdictions, a deferred tax benefit of $197,000 related to the recognition of deferred tax assets in certain foreign jurisdictions and taxes, interest and penalties recorded was in relation to the Company’s uncertain tax positions. The Company reasonably anticipates that the unrecognized tax benefit relative to FIN 48 will not change significantly within the next twelve months. The tax provision for the three-month period ended March 31, 2008 consists primarily of taxes on income in foreign jurisdictions and deferred taxes related to tax deductible goodwill acquired from the BGS acquisition and taxes, interest and penalties recorded in relation to the Company’s uncertain tax positions.

The tax provisions for the three-month period ended March 31, 2008 included non-cash tax expense that was offset by pre-acquisition foreign net operating loss carryforwards. Effective January 1, 2009, with the adoption of SFAS 141R, the tax benefit of any pre-acquisition net operating loss for which a full valuation allowance was recorded in purchase accounting will reduce income tax expense when realized. The effective rate does not reflect a benefit of U.S. operating loss carryforward amounts due to a full valuation reserve against the U.S. deferred asset.

At March 31, 2009, no provision for U.S. income and foreign withholding taxes has been made for unrepatriated foreign earnings because it is expected that such earnings will be reinvested indefinitely or the distribution of any remaining amount would be principally offset by foreign tax credits.

Under the provisions of the Internal Revenue Code, certain substantial changes in Lionbridge’s ownership may limit in the future the amount of net operating loss carryforwards that could be used annually to offset future taxable income and income tax liability.

The Company conducts business globally and in the normal course of business is subject to examination by local, state and federal jurisdictions in the United States as well as in multiple foreign jurisdictions. Currently, no Internal Revenue Service audits are underway and audits in foreign jurisdictions are in varying stages of completion. Open audit years are dependent upon the tax jurisdiction and range from 1998 to 2008.

9. SEGMENT INFORMATION

Lionbridge has determined that its operating segments are those that are based on its method of internal reporting, which separately presents its business based on the service performed by individual geographical location. The Company is reporting its results among the following three business segments:

Global Language and Content (“GLC”)—this segment includes Lionbridge’s globalization, translation and localization services, as well as content development and technical documentation. The GLC segment includes product and content globalization services. Globalization is the process of adapting content and products to meet the language and cultural requirements of users throughout the world. Lionbridge GLC solutions enable the translation, adaptation and worldwide multilingual release of clients’ products, content and related technical support, training materials, and sales and marketing information. Lionbridge GLC solutions also include the development of eLearning content and technical documentation.

Global Development and Testing (“GDT”)—this segment includes Lionbridge’s development, engineering and testing services for software, hardware, websites, search engines and content. Specifically, GDT includes the development and maintenance of applications as well as testing to ensure the quality, interoperability, usability and performance of clients’ software, hardware, consumer technology products, web sites and content. Lionbridge’s testing services also include product certification and competitive analysis. Lionbridge offers its testing services under the VeriTest brand.

Interpretation—this segment includes interpretation services provided by Lionbridge to government organizations and businesses that require human interpreters.

The Company’s internal reporting does not include the allocation of certain expenses to the operating segments but instead includes those other expenses in unallocated other expense. Unallocated expenses consist of depreciation and amortization, interest expense and income tax. Other unallocated items primarily include corporate expenses, such as merger and restructuring, foreign exchange gains and losses and governance expenses, as well as finance, information technology, human resources, legal, sales administration, treasury and marketing expenses. The Company determines whether a cost is charged to a particular business segment or is retained as an unallocated cost based on whether the cost relates to a corporate function or to a direct expense associated with the particular business segment. For example, corporate finance, corporate information technology and corporate human resource expenses are unallocated, whereas operating segment finance, information technology and human resource expenses are charged to the applicable operating segment.

The table below presents information about the reported net loss of the Company for the three-month periods ended March 31, 2009 and 2008. Asset information by reportable segment is not reported, since the Company does not produce such information internally.


	GLC		GDT		Interpretation		Corporate and Other			Total
Three Months Ended March 31, 2009
External revenue	$	62,667,000	$	19,331,000	$	6,405,000	$	—		$	88,403,000
Cost of revenue (exclusive of depreciation and amortization)		43,868,000		12,667,000		4,638,000		—			61,173,000
Depreciation and amortization		721,000		246,000		36,000		1,518,000			2,521,000
Other operating expenses		17,491,000		3,350,000		808,000		—			21,649,000

Segment contribution		587,000		3,068,000		923,000		(1,518,000	)		3,060,000
Interest expense and other unallocated items		—		—		—		(7,552,000	)		(7,552,000	)

Income (loss) before income taxes		587,000		3,068,000		923,000		(9,070,000	)		(4,492,000	)
Provision for income taxes		—		—		—		(584,000	)		(584,000	)

Net income (loss)		587,000		3,068,000		923,000		(9,654,000	)		(5,076,000	)

Three Months Ended March 31, 2008
External revenue	$	87,362,000	$	22,824,000	$	6,862,000	$	—		$	117,048,000
Cost of revenue (exclusive of depreciation and amortization)		60,947,000		14,563,000		5,365,000		—			80,875,000
Depreciation and amortization		848,000		165,000		43,000		2,196,000			3,252,000
Other operating expenses		20,389,000		4,067,000		732,000		—			25,188,000

Segment contribution		5,178,000		4,029,000		722,000		(2,196,000	)		7,733,000
Interest expense and other unallocated items		—		—		—		(11,552,000	)		(11,552,000	)

Income (loss) before income taxes		5,178,000		4,029,000		722,000		(13,748,000	)		(3,819,000	)
Provision for income taxes		—		—		—		(616,000	)		(616,000	)

Net income (loss)		5,178,000		4,029,000		722,000		(14,364,000	)		(4,435,000	)

10. GOODWILL AND OTHER INTANGIBLE ASSETS

Lionbridge’s market value, such as a reduction in stock price to a price near or below the book value of the Company for an extended period of time. When Lionbridge determines that the carrying value of goodwill may not be recoverable based upon one or more of these indicators of impairment, the Company initially assesses any impairment using fair value measurements based on projected discounted cash flow valuation models. In addition, in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”), goodwill is reviewed for impairment on an annual basis. At December 31, 2008, the Company performed its annual test of goodwill to determine if an impairment existed. It was determined that the carrying value of the Company’s goodwill related to its GLC reporting unit exceeded the implied fair value of goodwill. As a result, Lionbridge recorded a goodwill impairment charge of $120.6 million for the year ended December 31, 2008.

The Company evaluates whether there has been an impairment in the carrying value of its long-lived assets in accordance with SFAS No. 144, “Accounting for Impairment of Long-Lived Assets,” (“SFAS No. 144”) if circumstances indicate that a possible impairment may exist. An impairment in the carrying value of an asset is assessed when the undiscounted expected future operating cash flows derived from the asset grouping are less than its carrying value. If it is determined that the asset is impaired then it is written down to its estimated fair value. Factors that could lead to an impairment of acquired customer relationships (recorded with the acquisition of BGS in September 2005) include a worsening in customer attrition rates compared to historical attrition rates, or lower than initially anticipated cash flows associated with customer relationships.

Other intangible assets arose from the acquisition of BGS and consist of the following, which have been or are being amortized on a straight-line basis over the following estimated useful lives, except for the BGS customer relationships, of which a portion is being amortized using an economic consumption method:


		Estimated Useful Life
BGS:
Customer relationships		3 to 12 years
Customer contracts		3 to 5 years
Internally developed software		1 to 4 years

The following table summarizes other intangible assets at March 31, 2009 and December 31, 2008, respectively.


	March 31, 2009						December 31, 2008
	Gross Carrying Value		Accumulated Amortization		Balance		Gross Carrying Value		Accumulated Amortization		Balance
BGS acquired customer relationships	$	32,000,000	$	17,007,000	$	14,993,000	$	32,000,000	$	16,148,000	$	15,852,000
BGS acquired customer contracts		14,000,000		10,390,000		3,610,000		14,000,000		9,875,000		4,125,000
BGS acquired technology		2,317,000		2,300,000		17,000		2,317,000		2,294,000		23,000

	$	48,317,000	$	29,697,000	$	18,620,000	$	48,317,000	$	28,317,000	$	20,000,000

Lionbridge currently expects to amortize the following remaining amounts of intangible assets held at March 31, 2009 in the fiscal periods as follows:


Year ending December 31,
2009	$	4,140,000
2010		4,893,000
2011		2,332,000
2012		1,921,000
2013		1,583,000
Thereafter		3,751,000

	$	18,620,000

11. CONTINGENCIES

On or about July 24, 2001, a purported securities class action lawsuit captioned “Samet v. Lionbridge Technologies, Inc. et al.” (01-CV-6770) was filed in the United States District Court for the Southern District of New York (the “Court”) against the Company, certain of its officers and directors, and certain underwriters involved in the Company’s initial public offering. The complaint in this action asserted, among other things, that omissions regarding the underwriters’ alleged conduct in allocating shares in Lionbridge’s initial public offering to the underwriters’ customers. In March 2002, the United States District Court for the Southern District of New York entered an order dismissing without prejudice the claims against Lionbridge and its officers and directors (the case remained pending against the underwriter defendants).

On April 19, 2002, the plaintiffs filed an amended complaint naming as defendants not only the underwriter defendants but also Lionbridge and certain of its officers and directors. The amended complaint asserts claims under both the registration and antifraud provisions of the federal securities laws relating to, among other allegations, the underwriters’ alleged conduct in allocating shares in the Company’s initial public offering and the disclosures contained in the Company’s registration statement. On July 15, 2002, the Company, together with the other issuers named as defendants in these coordinated proceedings, filed a collective motion to dismiss the complaint on various legal grounds common to all or most of the issuer defendants. In October 2002, the claims against officers and directors were dismissed without prejudice. In February 2003, the Court issued its ruling on the motion to dismiss, ruling that the claims under the antifraud provisions of the securities laws could proceed against the Company and a majority of the other issuer defendants.

In June 2003, Lionbridge elected to participate in a proposed settlement agreement with the plaintiffs in this litigation. If the proposed settlement had been approved by the Court, it would have resulted in the dismissal, with prejudice, of all claims in the litigation against Lionbridge and against any other of the issuer defendants who elected to participate in the proposed settlement, together with the current or former officers and directors of participating issuers who were named as individual defendants. This proposed issuer settlement was conditioned on, among other things, a ruling by the District Court that the claims against Lionbridge and against the other issuers who had agreed to the settlement would be certified for class action treatment for purposes of the proposed settlement, such that all investors included in the proposed classes in these cases would be bound by the terms of the settlement unless an investor opted to be excluded from the settlement.

On December 5, 2006, the U.S. Court of Appeals for the Second Circuit issued a decision in In re Initial Public Offering Securities Litigation that six purported class action lawsuits containing allegations substantially similar to those asserted against the Company may not be certified as class actions due, in part, to the Appeals Court’s determination that individual issues of reliance and knowledge would predominate over issues common to the proposed classes. On January 8, 2007, the plaintiffs filed a petition seeking rehearing en banc of the Second Circuit Court of Appeals’ decision. On April 6, 2007 the Court of Appeals denied the plaintiffs’ petition for rehearing of the Court’s December 5, 2006 ruling but noted that the plaintiffs remained free to ask the District Court to certify classes different from the ones originally proposed which might meet the standards for class certification that the Court of Appeals articulated in its December 5, 2006 decision. In light of the Court of Appeals’ December 5, 2006 decision regarding certification of the plaintiffs’ claims, the District Court entered an order on June 25, 2007 terminating the proposed settlement between the plaintiffs and the issuers, including Lionbridge.

On August 14, 2007, the plaintiffs filed amended complaints in the six focus cases. The issuer defendants and the underwriter defendants separately moved to dismiss the claims against them in the amended complaints in the six focus cases. On March 26, 2008, the District Court issued an order in which it denied in substantial part the motions to dismiss the amended complaints in the six focus cases.

On February 25, 2009, the parties advised the District Court that they have reached an agreement-in-principle to settle the litigation in its entirety. A stipulation of settlement was filed with the District Court on April 2, 2009. The proposed global settlement remains subject to preliminary and final approval by the District Court. The litigation process is inherently uncertain and unpredictable, however, and there can be no guarantee as to the ultimate outcome of this pending lawsuit. While Lionbridge cannot guarantee the outcome of these proceedings, the Company believes that the final result of this lawsuit will have no material effect on its consolidated financial condition, results of operations, or cash flows.

12. FAIR VALUE MEASUREMENTS

On January 1, 2008, Lionbridge adopted SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), for the Company’s financial assets and liabilities. The adoption of SFAS No. 157 did not materially impact Lionbridge’s financial position, results of operations or liquidity. In accordance with FASB Staff Position No. FAS 157-2, “Effective Date of FASB Statement No. 157” (“FSP FAS 157-2”), Lionbridge elected to defer until January 1, 2009 the adoption of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis. The adoption of SFAS No. 157 for those assets and liabilities within the scope of FSP FAS 157-2 did

not have a material impact on Lionbridge’s financial position, results of operations or liquidity. Lionbridge did not have any nonfinancial assets or nonfinancial liabilities that would be recognized or disclosed on a recurring basis as of March 31, 2009.

SFAS No. 157 provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. SFAS No. 157 defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. SFAS No. 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs required by the standard that Lionbridge uses to measure fair value, as well as the assets and liabilities that the Company values using those levels of inputs.


Level 1:		Quoted prices in active markets for identical assets or liabilities. Lionbridge does not have any financial assets or liabilities as of March 31, 2009 designated as Level 1.

Level 2:		Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities. Lionbridge’s Level 2 assets and liabilities are an interest rate swap and foreign exchange forward contracts whose fair value we determine using pricing models predicated upon observable market inputs. Lionbridge did not have any foreign exchange forward contracts outstanding at March 31, 2009.

Level 3:		Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Lionbridge does not have any financial assets and liabilities as of March 31, 2009 designated as Level 3.

The following tables set forth the financial assets and liabilities as of March 31, 2009 and December 31, 2008 that Lionbridge measured at fair value on a recurring basis by level within the fair value hierarchy. As required by SFAS No. 157, assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement.


	Level 1		Level 2		Level 3		Balance as of March 31, 2009
Liabilities:
Interest rate swap	$	—	$	679,000	$	—	$	679,000


	Level 1		Level 2		Level 3		Balance as of December 31, 2008
Liabilities:
Interest rate swap	$	—	$	684,000	$	—	$	684,000

13. RECENT ACCOUNTING PRONOUNCEMENTS

In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141R”). This statement establishes principles and requirements for how the acquirer in a business combination (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree, (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141R is effective for fiscal years beginning after December 15, 2008. The adoption of SFAS No. 141R did not have an impact on the Company’s financial position and results of operations.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities”, an amendment of FASB SFAS No. 133 (“SFAS No. 161”). SFAS No. 161 requires enhanced disclosures regarding an entity’s derivative and hedging activities. These enhanced disclosures include information regarding how and why an entity uses derivative instruments; how derivative instruments and related hedge items are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, and its related interpretations; and how derivative instruments and related hedge items affect an entity’s financial position, financial performance and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The adoption of SFAS No. 161 did not have a material impact on our financial position, results of operations or liquidity.

In April 2009, the FASB issued Staff Position (“FSP”) No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP 107-1 and APB 28-1”), which require disclosure in the body or in the accompanying notes of the Company’s summarized financial information for interim reporting periods and in its financial statements for annual reporting periods the fair value of all financial instruments for which it is practicable to estimate that value, whether recognized or not in the statement of financial position, as required by SFAS No. 107. FSP FAS 107-1 and APB 28-1 will be effective for interim reporting periods ending after June 15, 2009. The Company is currently evaluating the future impact FSP FAS 107-1 and APB 28-1 will have on its financial statements.

In April 2009, the FASB issued FSP No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP 157-4”), which clarifies the interaction of the factors that should be considered when evaluating whether there has been a significant decrease in the volume and level of activity for an asset or liability when compared with normal market activity for the asset or liability (or similar assets or liabilities). If there has been a significant decrease in the volume and level of activity for the asset or liability, further analysis of the transactions or quoted prices is required, and a significant adjustment to the transactions or quoted prices may be necessary to estimate fair value. FSP 157-4 will be effective for interim and annual reporting periods ending after June 15, 2009, and should be applied prospectively. The Company is currently evaluating the future impact FSP 157-4 will have on its financial statements.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The matters discussed in this Form 10-Q include forward-looking statements that involve risks or uncertainties. These statements are neither promises nor guarantees, but are based on various assumptions by management regarding future circumstances many of which Lionbridge has little or no control over. A number of important risks and uncertainties, including those identified under the caption “Risk Factors” in Lionbridge’s Annual Report on Form 10-K, filed March 13, 2009 (SEC File No. 000-26933) and subsequent filings as well as risks and uncertainties discussed elsewhere in this Form 10-Q could cause Lionbridge’s actual results to differ materially from those in the forward-looking statements. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. The forward-looking statements in this Form 10-Q are made as of the date of this filing only, and Lionbridge does not undertake to update or supplement these statements due to changes in circumstances or otherwise.

Introduction

Lionbridge is a leading provider of globalization, development and testing services that enable clients to develop, release, manage and maintain their enterprise content and technology applications globally. The Company reports financial performance in the following three segments: Global Language and Content (“GLC”), Global Development and Testing (“GDT”) and Interpretation.

Lionbridge GLC solutions enable the globalization and worldwide multilingual release of clients’ products, content and related technical support, training materials, and sales and marketing information. Globalization is the process of adapting content and products to meet the language and cultural requirements of users throughout the world. Lionbridge GLC solutions are based on the Company’s internet technology platform and global service delivery model which make the translation process more efficient for Lionbridge clients and translators. As part of its GLC solutions, Lionbridge also develops eLearning content and technical documentation.

Through its GDT solutions, Lionbridge develops, re-engineers and optimizes IT applications and performs testing to ensure the quality, interoperability, usability and performance of clients’ software, consumer technology products, web sites, and content. Lionbridge’s testing services, which are offered under the VeriTest brand, also include product certification and competitive analysis. Lionbridge has deep domain experience developing, testing and maintaining applications in a cost-efficient, blended on-site and offshore model.

Lionbridge’s interpretation business (“Interpretation”) pertains to the Company’s interpretation services for government organizations and businesses that require human interpreters for non-English speaking individuals.

Lionbridge provides a full suite of language, testing and development outsourcing services to businesses in diverse end markets including technology, mobile and electronics, life sciences, consumer, publishing, manufacturing, automotive and government. Lionbridge’s solutions include product and content globalization; content and eLearning courseware development, interpretation services, application development and maintenance, software and hardware testing, product certification and competitive analysis. Lionbridge’s services enable global organizations to increase market penetration and speed adoption of global content and products, enhance return on enterprise application investments, increase workforce productivity and reduce costs. Lionbridge also provides interpretation services to government organizations and businesses that require human interpreters for non-English speaking individuals.

For the three-month period ended March 31, 2009, Lionbridge’s loss from operations was $4.0 million, with a net loss of $5.1 million. For the year ended December 31, 2008, the Company’s loss from operations was $114.2 million (which included a goodwill impairment charge of $120.6 million) with a net loss of $119.3 million. As of March 31, 2009, the Company had an accumulated deficit of $236.5 million.

The Company expects that the deterioration in worldwide economic conditions that began to emerge during the second half of 2008 and intensified during the first quarter of 2009 will continue throughout 2009. These conditions have adversely affected the Company’s overall financial performance during the first quarter of 2009 and will likely continue to affect the Company’s performance in 2009 if customers continue to reduce demand for the Company’s service offerings and delay or postpone projects. Given the concentration of revenue among relatively few customers in the GLC segment, the Company expects that the impact of reduced customer demand will be experienced most significantly within the GLC segment. The Company’s GDT and Interpretation segments employ a cost structure that can be adjusted more quickly to respond to

changes in customer demand for services within those segments. As the Company expects continued instability in worldwide economic conditions to continue during the remainder of 2009, and that these conditions will influence customer demand for the Company’s services, the Company has undertaken a number of cost-cutting and restructuring activities to adjust its cost structure more quickly to respond to the variable demand for the Company’s services.

Certain segments of Lionbridge’s business, its GLC segment in particular, are sensitive to fluctuations in the value of the U.S. Dollar relative to the Euro, as a large portion of its cost of revenue and general and administrative expenses are payable in Euros, while the majority of its revenues are recorded in U.S. Dollars. During the quarter ended March 31, 2009, the value of the U.S. Dollar relative to the Euro strengthened by 12% from the same period of the prior year. The impact of this significant strengthening in the value of the U.S. Dollar relative to the Euro is reflected in the Company’s financial results for the three-month period ended March 31, 2009 when compared to the corresponding period of 2008. While the strengthening in the U.S. Dollar has contributed to decreased revenue for the quarter ended March 31, 2009, particularly in the GLC segment, the Company’s operating income and net income were positively impacted due to lower costs related to Euro-denominated payment obligations to third party outsourcers, lease obligations and compensation when compared to the corresponding period of 2008. The lower costs associated with the strengthening of the U.S. Dollar during the quarter ended March 31, 2009 as compared to the corresponding period in 2008 more than offset the currency related decline in revenue during the period.

Revenue Recognition

Lionbridge recognizes revenue as services are performed and amounts are earned in accordance with the Securities and Exchange Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements,” as amended by SAB No. 104, “Revenue Recognition.” Lionbridge considers amounts to be earned when (1) persuasive evidence of an arrangement has been obtained; (2) services are delivered; (3) the fee is fixed or determinable; and (4) collectibility is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the fee charged for services rendered and products delivered and the collectibility of those fees.

Lionbridge’s revenue is recorded from the provision of services to customers for GLC, GDT and Interpretation services which include content development, product and content globalization, interpretation, software and hardware testing, product certification and application development and maintenance.

Content development, software and hardware testing, interpretations and application development and maintenance projects are normally time and expense priced contracts, and revenue is recognized using a time and expense basis over the period of performance, primarily based on labor costs incurred to date.

Product and content globalization and product certification projects are fixed price contracts and revenue is recognized as services are delivered. Depending on specific contractual provisions and nature of the deliverable, revenue is recognized on (1) a proportional performance model based on level of effort, (2) as milestones are achieved or (3) when final deliverables have been met. Amounts billed in excess of revenue recognized are recorded as deferred revenue.

The delivery of Lionbridge’s GLC services involves and is dependent on the translation of content by subcontractors and in-house employees. As the time and cost to translate each word of content within a project is relatively uniform, labor input is reflective of the delivery of the contracted service and an appropriate metric for the measurement of proportional performance in delivering such services. The use of a proportional performance assessment of service delivery requires significant judgment relative to estimating total contract costs, including assumptions relative to the length of time to complete the project, the nature and complexity of the work to be performed, anticipated increases in employee wages and prices for subcontractor services, and the availability of subcontractor services. When adjustments in estimated project costs are identified, anticipated losses, if any, are recognized in the period in which they are determined.

Lionbridge’s GLC agreements with its customers may provide the customer with a fixed and limited time period following delivery during which Lionbridge will attempt to address any non-conformity to previously agreed upon objective specifications relating to the work, either in the form of a limited acceptance period or a post-delivery warranty period. Management believes recognition of revenue at the time the services are delivered is appropriate, because its obligations under such provisions are limited in time, limited in scope, and historically have not involved significant costs. In the future, if the post delivery acceptance or warranty provisions become more complex or include subjective acceptance criteria, Lionbridge may have to revise its revenue recognition policy appropriately, which could affect the timing of revenue recognition.

Lionbridge provides integrated full-service offerings throughout a client’s product and content lifecycle, including GLC and GDT services. Such multiple-element service offerings are governed by the Emerging Issues Task Force Issue 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” For these arrangements where the GLC and GDT

services have independent value to the customer, and there is evidence of fair value for each service, the combined service arrangement is bifurcated into separate units for accounting treatment. In instances where it is not possible to bifurcate a project, direct and incremental costs attributable to each component are deferred and recognized together with the service revenue upon delivery. The determination of fair value requires the use of significant judgment. Lionbridge determines the fair value of service revenues based upon its recent pricing for those services when sold separately and/or prevailing market rates for similar services.

Revenue includes reimbursement of travel and out-of-pocket expenses with equivalent amounts of expense recorded in cost of revenue.

Estimates for incentive rebates and other allowances are recorded as a reduction of revenues in the period the related revenues are recorded. These estimates are based upon contracted terms, historical experience and information currently available to management with respect to business and economic trends. Revisions of these estimates are recorded in the period in which the facts that give rise to the revision become known.

Valuation of Goodwill and Other Intangible Assets

Lionbridge assesses the impairment of goodwill and other intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Such events or conditions could include an economic downturn in the industries to which Lionbridge provides services; increased competition; an increase in operating or other costs; additional volatility in international currencies; the pace of technological improvements; or other information regarding Lionbridge’s market value, such as a reduction in stock price to a price near or below the book value of the Company for an extended period of time. When Lionbridge determines that the carrying value of goodwill may not be recoverable based upon one or more of these indicators of impairment, the Company initially assesses any impairment using fair value measurements based on projected discounted cash flow valuation models. In addition, in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”), goodwill is reviewed for impairment on an annual basis. At December 31, 2008, the Company performed its annual test of goodwill to determine if an impairment existed. It was determined that the carrying value of the Company’s goodwill related to its GLC reporting unit exceeded the implied fair value of goodwill. As a result, Lionbridge recorded a goodwill impairment charge of $120.6 million for the year ended December 31, 2008.

Merger, Restructuring and Other Charges

Language and Content (“GLC”) segment and $42,000 related to the Global Development and Testing (“GDT”) segment. The Company made $639,000 of cash payments in the three-month period ended March 31, 2008, $634,000 and $5,000 related to the GLC and GDT segments, respectively.

Stock Option Plans

Restricted Stock Awards

Stock-based Compensation


	Three Months Ended March 31,
	2009		2008
Cost of revenue	$	23,000	$	36,000
Sales and marketing		172,000		230,000
General and administrative		893,000		1,299,000
Research and development		35,000		38,000

Total stock-based compensation expense	$	1,123,000	$	1,603,000

Results of Operations

The following table sets forth for the periods indicated certain unaudited consolidated financial data as a percentage of total revenue.


	Three Months Ended March 31,
	2009		2008
Revenue	100.0	%	100.0	%
Operating expenses:
Cost of revenue (exclusive of depreciation and amortization included below)	69.2		69.1
Sales and marketing	8.7		7.5
General and administrative	21.3		19.8
Research and development	1.3		0.9
Depreciation and amortization	1.3		1.0
Amortization of acquisition-related intangible assets	1.6		1.8
Merger, restructuring and other charges	1.1		0.2

Total operating expenses	104.5		100.3

Loss from operations	(4.5	)	(0.3	)
Interest expense:
Interest in outstanding debt	0.6		1.0
Amortization of deferred financing costs	—		—
Interest income	0.1		0.1
Other expense, net	—		2.1

Loss before income taxes	(5.0	)	(3.3	)
Provision for income taxes	0.7		0.5

Net loss	(5.7	)%	(3.8	)%

Revenue. The following table shows Global Language and Content (“GLC”), Global Development and Testing (“GDT”), and Interpretation revenues in dollars and as a percentage of total revenue for the three months ended March 31, 2009 and 2008, respectively:


	Three Months Ended March 31,
	2009				2008
GLC	$	62,667,000	71	%	$	87,362,000	75	%
GDT		19,331,000	22	%		22,824,000	19	%
Interpretation		6,405,000	7	%		6,862,000	6	%

Total revenue	$	88,403,000	100	%	$	117,048,000	100	%

Revenue for the quarter ended March 31, 2009 was $88.4 million, a decrease of $28.6 million, or 24.5%, from $117.0 million for the quarter ended March 31, 2008. Revenue decline during the first quarter of 2009 in each of the GLC, GDT and Interpretation segments was $24.7 million, $3.5 million and $457,000, respectively, as compared to the quarter ended March 31, 2008. The Company’s decline in revenue was primarily driven by decreased demand as a result of the recessionary global economic environment and as a result of the strengthened U.S. Dollar. The Company’s revenue decreased approximately $22.8 million as a result of the global economic slowdown and approximately $5.8 million due to the strengthening of the U.S. dollar against most foreign currencies. Lionbridge conducts a large portion of its business in international markets. Approximately 45% of its revenue for the quarter ended March 31, 2009 is denominated in foreign currencies. The principal foreign currency applicable to Lionbridge’s business is the Euro. Approximately 32% of revenue was denominated in Euro for the quarter ended March 31, 2009, and a majority of this revenue is concentrated in the GLC business. During the quarter ended March 31, 2009, the U.S. dollar strengthened significantly against most foreign currencies, in particular the Euro. A fluctuation in foreign currency exchange rates primarily affects the GLC business.

Revenue from the Company’s GLC business for the quarter ended March 31, 2009 decreased $24.7 million, or 28.3%, to $62.7 million from $87.4 million for the quarter ended March 31, 2008. As compared to the quarter ended March 31, 2008, revenues decreased approximately $19.4 million due to the global economic slowdown resulting in decreased demand for the Company’s services, particularly from existing customers and approximately $5.3 million due to the strengthening in the U.S. Dollar’s exchange rates, in particular against the Euro.

Revenue from the Company’s GDT business was $19.3 million for the quarter ended March 31, 2009, a decrease of $3.5 million, or 15.3%, from $22.8 million for the quarter ended March 31, 2008. The period-over-period decrease in GDT revenue was primarily due to decreased revenue from large programs from existing customers. Revenue in the GDT business is not materially impacted by fluctuations in foreign currency exchange rates.

Revenue from the Company’s Interpretation business for the quarter ended March 31, 2009 was $6.4 million, a decrease of $457,000, or 6.7% from $6.9 million for the quarter ended March 31, 2008. The period-over-period decrease in Interpretation revenue was primarily due to decreased revenue from smaller limited term engagements for existing customers, partially offset by increased volume from a large existing program for an existing customer.

Cost of Revenue. Cost of revenue, excluding depreciation and amortization, consists primarily of expenses incurred for translation services provided by third parties as well as salaries and associated employee benefits for personnel related to client engagements. The following table shows GLC, GDT and Interpretation cost of revenues, the percentage change from the three-month period of the prior year and as a percentage of revenue for the three months ended March 31, 2009 and 2008, respectively:


	Three Months Ended March 31, 2009			% Change Q1 08 to Q1 09		Three Months Ended March 31, 2008
GLC:
Cost of revenue	$	43,868,000		(28.0	)%	$	60,947,000
Percentage of revenue		70.0	%				69.8	%

GDT:
Cost of revenue		12,667,000		(13.0	)%		14,563,000
Percentage of revenue		65.5	%				63.8	%

Interpretation:
Cost of revenue		4,638,000		(13.6	)%		5,365,000
Percentage of revenue		72.4	%				78.2	%

Total cost of revenue	$	61,173,000				$	80,875,000

Percentage of revenue		69.2	%				69.1	%

For the quarter ended March 31, 2009, as a percentage of revenue, cost of revenue increased slightly to 69.2% as compared to 69.1% for the three months ended March 31, 2008. The increase was primarily the result of a decrease in revenue due to the economic slowdown partially offset by cost saving initiatives implemented in 2008, continued benefits realized from the deployment and use of Lionbridge’s language management technology platform and from the strengthening of the U.S. Dollar against most foreign currencies, particularly the Euro.

Each segment provides distinctive services with different gross margins. For the quarter ended March 31, 2009, GLC, GDT and Interpretation accounted for approximately 70.9%, 21.9% and 7.2% of the total revenue. For the quarter ended March 31, 2008, GLC, GDT and Interpretation accounted for approximately 74.6%, 19.5% and 5.9% of the total revenue.

For the quarter ended March 31, 2009, cost of revenue decreased $19.7 million, or 24.4%, to $61.2 million as compared to $80.9 million for the corresponding period of the prior year. The decrease was primarily associated with the $28.6 million decrease in revenue as compared to the corresponding period of the prior year. The decrease also includes approximately $6.8 million due to the strengthened U.S. Dollar against most foreign currencies, particularly the Euro.

For the quarter ended March 31, 2009, cost of revenue as a percentage of revenue in the Company’s GLC business increased slightly to 70.0% as compared to 69.8% for the corresponding period of the prior year. Cost of revenue decreased $17.1 million to $43.9 million compared to $60.9 million for the same quarter of the prior year. The decrease in cost is

primarily associated with the $24.7 million decrease in revenue as compared to corresponding period of the prior year. The decrease also includes approximately $5.8 million due to the strengthened U.S. Dollar against most foreign currencies, particularly the Euro.

Cost of revenue as a percentage of revenue in the Company’s GDT business increased to 65.5% for the quarter ended March 31, 2009 as compared to 63.8% for the quarter ended March 31, 2008. The increase was primarily due to work mix variance in services from an existing customer, partially offset by the strengthening of the U.S. Dollar against the Indian Rupee and the Euro in the quarter ended March 31, 2009 as compared to the same period of the prior year. For the quarter ended March 31, 2009, GDT cost of revenue decreased $1.9 million, or 13.0%, to $12.7 million as compared to $14.6 million for the corresponding quarter of the prior year. This decrease was primarily associated with the $3.5 million decrease in revenue period-over-period. The decrease also includes approximately $761,000 due to the strengthening of the U.S. Dollar against foreign currencies as noted above.

Cost of revenue as a percentage of revenue in the Company’s Interpretation business decreased to 72.4% for the quarter ended March 31, 2009 as compared to 78.2% for the quarter ended March 31, 2008. This decrease is primarily due to reductions in negotiated rates with interpreters and an effort to recruit local interpreters which has resulted in lower travel costs as compared to the corresponding quarter of the prior year. The Company’s Interpretation business is not materially impacted by foreign currency exchange rate fluctuations.

Sales and Marketing. Sales and marketing expenses consist primarily of salaries, commissions and associated employee benefits, travel expenses of sales and marketing personnel, promotional expenses, sales force automation/CRM system expense, training, and the costs of programs aimed at increasing revenue, such as advertising, trade shows, public relations and other market development programs. The following table shows sales and marketing expenses in dollars, the dollar change from the three-month period of the prior year and as a percentage of revenue for the three months ended March 31, 2009 and 2008, respectively:


	Three Months Ended March 31,
	2009			2008
Total sales and marketing expenses	$	7,693,000		$	8,817,000
Decrease from prior year		1,124,000
Percentage of revenue		8.7	%		7.5	%

Sales and marketing expenses decreased $1.1 million, or 12.7%, to $7.7 million for the quarter ended March 31, 2009 as compared to $8.8 million for the quarter ended March 31, 2008. As a percentage of revenue, sales and marketing expenses increased to 8.7% as compared to 7.5% for the quarter ended March 31, 2008. This increase is primarily associated with the $28.6 million decrease in revenue as compared to the corresponding period of the prior year. Approximately $617,000 of the decrease in sales and marketing expenses for the quarter ended March 31, 2009, as compared to the quarter ended March 31, 2008, is due to the strengthening of the U.S. Dollar against foreign currencies.

General and Administrative. General and administrative expenses consist of salaries of the management, purchasing, process and technology, finance and administrative groups, and associated employee benefits and travel; facilities costs; information systems costs; professional fees; business reconfiguration costs and all other site and corporate costs. The following table shows general and administrative expenses in dollars, the dollar change from the three-month period of the prior year and as a percentage of revenue for the three months ended March 31, 2009 and 2008, respectively:


	Three Months Ended March 31,
	2009			2008
Total general and administrative expenses	$	18,803,000		$	23,175,000
Decrease from prior year		4,372,000
Percentage of revenue		21.3	%		19.8	%

General and administrative expenses decreased $4.4 million, or 18.9%, to $18.8 million for the quarter ended March 31, 2009 as compared to $23.2 million for the quarter ended March 31, 2008. The majority of this decrease is the result of cost saving initiatives implemented during 2008 and in the first quarter of 2009, primarily employee compensation and benefits, and lower stock-based compensation expense. In addition, approximately $1.7 million of the decrease is attributable to the strengthening of the U.S. Dollar’s exchange rate against most foreign currencies, in particular the Euro and Indian Rupee. Approximately 58.0% of general and administrative expenses are denominated in non-U.S. Dollars, primarily the Euro and Indian Rupee, and of that amount a majority of these expenses relate to rent and compensation expense in the quarter ended March 31, 2009, as compared to the quarter ended March 31, 2008. As a percentage of revenue, general and administrative expenses increased to 21.3% for the quarter ended March 31, 2009, as compared to 19.8%, for the same period of the prior year. This increase is primarily associated with the $28.6 million decrease in revenue as compared to the corresponding period of the prior year.

Research and Development. Research and development expenses relate primarily to the Company’s web-based hosted language management technology platform used in the globalization process and the research and development of a globalization management system. The cost consists primarily of salaries and associated employee benefits and third-party contractor expenses. The following table shows research and development expense in dollars, the dollar change from the three-month period of the prior year and as a percentage of revenue for the three months ended March 31, 2009 and 2008, respectively:


	Three Months Ended March 31,
	2009			2008
Total research and development expense	$	1,185,000		$	1,112,000
Increase from prior year		73,000
Percentage of revenue		1.3	%		0.9	%

Research and development expense increased to $1.2 million for the quarter ended March 31, 2009 as compared to $1.1 million for the corresponding period of the prior year. The increase is attributable principally to the Company’s continued development of its language management technologies, including Logoport™ and Freeway™. This increase was partially offset by the strengthening of the U.S. Dollar against foreign currencies as approximately 83.0% of research and development expenses are denominated in non-U.S. Dollars, primarily the Euro.

Depreciation and Amortization. Depreciation and amortization consist of the expense related to property and equipment that is being depreciated over the estimated useful lives of the assets using the straight-line method. The following table shows depreciation and amortization expense in dollars, the dollar change from the three-month period of the prior year and as a percentage of revenue for the three months ended March 31, 2009 and 2008, respectively:


	Three Months Ended March 31,
	2009			2008
Total depreciation and amortization expense	$	1,141,000		$	1,139,000
Increase from prior year		2,000
Percentage of revenue		1.3	%		1.0	%

Depreciation and amortization remained consistent at $1.1 million for the quarter ended March 31, 2009 as compared to same period for the prior year.

Amortization of Acquisition-related Intangible Assets. Amortization of acquisition-related intangible assets consists of the amortization of identifiable intangible assets resulting from acquired businesses. Amortization expense for the three months ended March 31, 2009 and 2008 of $1.4 million and $2.1 million, respectively relates solely to the amortization of identifiable intangible assets acquired from BGS. The $733,000 decrease of amortization expense in the three-month period ended March 31, 2009 as compared to the corresponding period of the prior year is due to the intangible assets related to BGS acquired customer relationships and contracts which were fully amortized as of December 31, 2008.

Interest Expense. Interest expense primarily represents interest paid or payable on debt and the amortization of deferred financing costs. Interest expense for the quarter ended March 31, 2009 of $581,000 decreased $585,000 from $1.2 million for the quarter ended March 31, 2008. The decrease reflects the impact of approximately $16.2 million lower average borrowings during the quarter ended March 31, 2009 as compared to the corresponding period of the prior year, coupled with lower interest rates.

Other Expense, Net. Other expense, net primarily reflects the foreign currency transaction gains or losses arising from exchange rate fluctuations on transactions denominated in currencies other than the functional currencies of the countries in which the transactions are recorded. The Company recognized $5,000 in other expense, net, in the quarter ended March 31, 2009, as compared to $2.4 million in other expense, net, in the corresponding quarter of the prior year. The variations are primarily attributable to the variances among the Euro and other currencies against the U.S. Dollar in the periods, as compared to the net position and variance during the corresponding periods of the prior year. In addition, Lionbridge’s net realized and unrealized foreign currency gains were $3.4 million on forward contracts in the quarter ended March 31, 2008.

Provision for Income Taxes. The following table shows the provision for income taxes expense in dollars, the dollar change from the three-month period of the prior year and as a percentage of revenue for the three months ended March 31, 2009 and 2008, respectively:


	Three Months Ended March 31,
	2009			2008
Total provision for income taxes	$	584,000		$	616,000
Decrease from prior year		32,000
Percentage of revenue		0.7	%		0.5	%

The provision for income taxes consists primarily of taxes resulting from profits in foreign jurisdictions, taxes, interest and penalties associated with uncertain tax positions, and deferred tax liabilities related to the tax deductible goodwill from the BGS acquisition. The tax provision decreased $32,000 to $584,000 for the quarter ended March 31, 2009 from $616,000 in the corresponding quarter of the prior year. These decreases are primarily due to lower foreign profits which are subject to tax by the foreign jurisdictions due to treatment of the foreign subsidiaries as service providers that earn a profit based on a cost-plus model.

Liquidity and Capital Resources

The following table shows cash and cash equivalents and working capital at March 31, 2009 and at December 31, 2008:


	March 31, 2009		December 31, 2008
Cash and cash equivalents	$	19,917,000	$	37,978,000
Working capital		40,125,000		57,163,000

Lionbridge’s working capital decreased $17.0 million to $40.1 million at March 31, 2009, as compared to $57.2 million at December 31, 2008. The decrease was primarily due to a decrease in cash and accounts receivable, offset by increased work in process, accounts payable, accrued expenses and deferred revenue. The decrease in accounts receivable was primarily due to the continuous effort of accelerated billing and collections, as well as a slowdown in revenue in the first quarter of 2009, due to the declining economic environment year-over-year.

As of March 31, 2009, cash and cash equivalents totaled $19.9 million, a decrease of $18.1 million from $38.0 million at December 31, 2008. This decrease was primarily due to cash used in the business of $2.3 million, $14.0 million used to pay down long-term debt, $736,000 used to purchase property and equipment and a $959,000 decrease in cash due to the impact of foreign currency fluctuations.

Accounts receivable and work in process totaled $73.3 million at March 31, 2009, a decrease of $11.8 million as compared to $85.1 million at December 31, 2008. Other current assets increased $134,000 to $9.7 million as compared to $9.6 million at December 31, 2008. Current liabilities totaled $62.8 million at March 31, 2009, a decrease of $12.7 million as compared to $75.5 million at December 31, 2008. These changes were driven by the net impact of accelerated billing and collections, as well as a slowdown in revenue in the first quarter of 2009, due to the declining economic environment year-over-year.

The following table shows the net cash used in operating activities, net cash provided by (used in) investing activities, and net cash used in financing activities for the three months ended March 31, 2009 and 2008, respectively:


	Three Months Ended March 31,
	2009			2008
Net cash used in operating activities	$	(2,321,000	)	$	(6,943,000	)
Net cash provided by (used in) investing activities		(736,000	)		1,074,000
Net cash used in financing activities		(14,045,000	)		(2,400,000	)

Net cash used in operating activities was $2.3 million for the three months ended March 31, 2009, as compared to $6.9 million for the corresponding period of the prior year. The $2.3 million cash used in operating activities was due to a net loss of $5.1 million (inclusive of $3.7 million in depreciation, amortization, stock-based compensation and other non-cash

expenses), an $8.8 million net decrease in accounts receivable and work in process, reflecting improved cash management in the three-month period ended March 31, 2009 as compared to the corresponding period of 2008, a $1.2 million increase in other operating assets, a $6.1 million decrease in accounts payable, accrued expenses and other operating liabilities, and a $2.4 million decrease in deferred revenue.

In the three months ended March 31, 2008, the net cash used in operating activities was $6.9 million. The $6.9 million cash used in operating activities was due to net loss of $4.4 million (inclusive of $1.6 million in depreciation, amortization, stock-based compensation and other non-cash expenses, net of realized and unrealized foreign currency gains on forward contracts of $3.4 million), a $4.0 million net decrease in accounts receivable and work in process, a $2.6 million increase in other operating assets, a $1.0 million decrease in accounts payable, accrued expenses and other operating liabilities, and a $4.5 million decrease in deferred revenue.

Lionbridge has not experienced any significant trends in accounts receivable and work in process other than changes relative to the change in revenue, as previously noted. Fluctuations in accounts receivable from period to period relative to changes in revenue are a result of timing of customer invoicing and receipt of payments from customers.

Net cash used in investing activities increased $1.8 million to $736,000 for the three months ended March 31, 2009, as compared to $1.1 million cash provided by investing activities for the corresponding period of the prior year. The primary investing activity in the three months ended March 31, 2009 was $736,000 for the purchase of property and equipment.

In the three months ended March 31, 2008, the net cash provided by investing activities was $3.7 million of net proceeds from foreign currency forward contracts partially offset by $2.6 million for the purchase of property and equipment.

Net cash used in financing activities for the three months ended March 31, 2009 was $14.0 million, an increase of $11.6 million as compared to $2.4 million net cash used in financing activities for the corresponding period of 2008. Cash used in financing activities consisted of $14.0 million of payments of long-term debt and $45,000 for payments of capital lease obligations.

In the three months ended March 31, 2008, the net cash used in financing activities was $2.4 million. Cash used in financing activities consisted of $7.4 million of payments of short-term debt, $32,000 of payments of long-term debt, $2.3 million of payments for the repurchase of shares, $51,000 for payments of capital lease obligations, $7.4 million of proceeds from the issuance of short-term debt and $12,000 of proceeds from the issuance of common stock under option plans.

Lionbridge anticipates that its present cash and short-term investments position and available financing under its Credit Agreement should provide adequate cash to fund its currently anticipated cash needs for the next twelve months and foreseeable future. However, due to deterioration in global economic and market conditions, should the Company require additional funding, the Company’s access to capital markets as a means of funding any anticipated cash needs could be limited. Moreover, due to current economic and market conditions as well as the instability in the U.S. and worldwide credit markets, the Company may not be able to access additional debt financing on the same or substantially similar terms as those in the Credit Agreement. To the extent that capital recoveries or operating results are less than expected, management is committed to pursuing alternative financing arrangements or reducing expenditures as necessary to meet the Company’s cash requirements through 2009. As of March 31, 2009, the Company was in compliance with all debt covenants and expects to remain in compliance for the upcoming year.

Contractual Obligations

As of March 31, 2009, there were no material changes in Lionbridge’s contractual obligations as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. In January 2007, Lionbridge adopted FIN 48 which resulted in an increase to the Company’s income tax liabilities of approximately $185,000 to $1.5 million from the amount recorded at December 31, 2006. Tax provisions during the three months ended March 31, 2009, primarily related to transfer pricing and accrued interest, have increased these balances by $515,000 to $4.1 million.

Additionally, in connection with the acquisition of BGS, the Company has recorded a FIN 48 tax liability of approximately $4.0 million related to tax liabilities accruing on or prior to the acquisition date of September 1, 2005 that Bowne & Co., Inc. agreed to indemnify. As of March 31, 2009 the FIN 48 tax liability balance is approximately $3.6 million. Accordingly, the Company adjusted its balance sheet by recording a long-term Indemnification Receivable and related FIN 48 liability for this amount. The timing of settlement of these tax liabilities is uncertain at this time.

Off-Balance Sheet Arrangements

The Company does not have any special purpose entities or off-balance sheet financing arrangements.

Recent Accounting Pronouncements

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities”, an amendment of FASB SFAS No. 133 (SFAS No. 161). SFAS No. 161 requires enhanced disclosures regarding an entity’s derivative and hedging activities. These enhanced disclosures include information regarding how and why an entity uses derivative instruments; how derivative instruments and related hedge items are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, and its related interpretations; and how derivative instruments and related hedge items affect an entity’s financial position, financial performance and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The adoption of SFAS No. 161 did not have a material impact on our financial position, results of operations or liquidity.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Lionbridge conducts its business globally and its earnings and cash flows are exposed to market risk from changes in interest rates and currency exchange rates. The Company manages its risk to foreign currency transaction exposure and interest rates through risk management programs that include the use of derivative financial instruments. Lionbridge operates these programs pursuant to documented corporate risk management policies. Lionbridge does not enter into any derivative transactions for speculative purposes. Gains and losses on derivative financial instruments substantially offset gains and losses on underlying hedged exposures.

Interest Rate Risk. Lionbridge is exposed to market risk from changes in interest rates with respect to its revolving loan facility which bears interest at Prime or LIBOR (at the Company’s discretion) plus an applicable margin based on certain financial covenants. As of March 31, 2009, $41.7 million was outstanding under this facility. A hypothetical 10% increase or decrease in interest rates would have approximately an $84,000 impact on the Company’s interest expense based on the $41.7 million outstanding at March 31, 2009 with an interest rate of 2.0%. On July 20, 2007, the Company entered into a three-year amortizing interest rate swap with a notional amount of $20.0 million that corresponds to a portion of the Company’s floating rate credit facility. On July 31, 2008, the notional amount decreased to $15.0 million. The notional amount effectively converted that portion of the Company’s total floating rate credit facility to fixed rate debt. The fair value of the interest rate derivative was a liability of $679,000 at March 31, 2009. A hypothetical 10% increase or decrease in interest rates would have approximately a $12,000 impact on the derivative’s fair value. The interest rate swap is designated as a cash flow hedge under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”) and there is no hedge ineffectiveness at March 31, 2009. Additionally, Lionbridge is exposed to market risk through its investing activities. The Company’s portfolio consists primarily of short-term time deposits and investments in money market funds that have maturities less than 90 days. A hypothetical 10% increase or decrease in interest rates would not have a material impact on the carrying value of Lionbridge’s investments due to their immediately available liquidity.

Foreign Currency Exchange Rate Risk. Lionbridge conducts a large portion of its business in international markets. Although a majority of Lionbridge’s contracts with clients are denominated in U.S. dollars, 66% and 65% of its costs and

expenses for the three-month periods ended March 31, 2009 and 2008, respectively, were denominated in foreign currencies, primarily operating expenses associated with cost of revenue, sales and marketing and general and administrative. In addition, 16% and 18% of the Company’s consolidated tangible assets were subject to foreign currency exchange fluctuations as of March 31, 2009 and December 31, 2008, respectively, while 9% and 8% of its consolidated liabilities were exposed to foreign currency exchange fluctuations as of March 31, 2009 and December 31, 2008, respectively. In addition, net inter-company balances denominated in currencies other than the functional currency of the respective entity were approximately $37.2 million and $27.4 million as of March 31, 2009 and December 31, 2008, respectively. The principal foreign currency applicable to our business is the Euro. The Company has implemented a risk management program that partially mitigates its exposure to assets or liabilities (primarily cash and cash equivalents, accounts receivable and accounts payable) denominated in currencies other than the functional currency of the respective entity which includes the use of derivative financial instruments principally foreign exchange forward contracts. These foreign exchange forward contracts generally have one-month terms and do not qualify for hedge accounting under SFAS No. 133. The Company had no foreign exchange forward contracts outstanding at March 31, 2009.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures. Lionbridge maintains disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in the Company’s filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported accurately within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to management as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (pursuant to Exchange Act Rule 13a-15). Based upon this evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2009.

Changes in internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended March 31, 2009 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

LIONBRIDGE TECHNOLOGIES, INC.

PART II—OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

The matters discussed in this Form 10-Q include forward-looking statements that involve risks or uncertainties. These statements are neither promises nor guarantees, but are based on various assumptions by management regarding future circumstances many of which Lionbridge has little or no control over. A number of important risks and uncertainties, including those identified under the caption “Risk Factors” in Lionbridge’s Annual Report on Form 10-K, filed March 13, 2009 (SEC File No. 000-26933) (the “2008 Annual Report”) and subsequent filings as well as risks and uncertainties discussed elsewhere in this Form 10-Q, could cause Lionbridge’s actual results to differ materially from those in the forward-looking statements. There have been no material changes in the Company’s risk factors from those disclosed in its 2008 Annual Report.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

During the quarter ended March 31, 2009, the Company withheld 119,967 restricted shares from certain employees to cover certain withholding taxes due from the employees at the time the shares vested. The following table provides information about Lionbridge’s purchases of equity securities for the quarter ended March 31, 2009:


Period	Total Number of Shares Purchased	Average Price Paid Per Share
January 1, 2009 – January 31, 2009	67,494	$	1.43
February 1, 2009 – February 28, 2009	52,473	$	1.42

In addition, upon the termination of employees during the quarter ended March 31, 2009, 24,250 unvested restricted shares were forfeited. The following table provides information about Lionbridge’s forfeited restricted shares for the quarter ended March 31, 2009:


Period		Total Number of Shares Forfeited
March 1, 2009 – March 31, 2009		24,250

Item 6.

Exhibits

(a)

Exhibits.


10.1 *		Lease dated as of February 25, 2009, between Bernardo Summit LLC and Lionbridge Technologies, Inc.

10.2		Independent Directors’ Compensation Policy Amended and Restated as of March 10, 2009 (Filed as Exhibit 10.1 to the Current Report on Form 8-K (File Number: 000-26933) on March 13, 2009, and incorporated herein by reference.

31.1 *		Certification of Rory J. Cowan, the Company’s principal executive officer as required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 *		Certification of Donald M. Muir, the Company’s principal financial officer as required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.



32.1 *		Certifications of Rory J. Cowan, the Company’s principal executive officer, and Donald M. Muir, the Company’s principal financial officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Filed herewith.

LIONBRIDGE TECHNOLOGIES, INC.

SIGNATURE

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


LIONBRIDGE TECHNOLOGIES, INC.

By:		/S/ DONALD M. MUIR
		Donald M. Muir Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)

Dated: May 8, 2009

Exhibit Index


Exhibit Number		Description
10.1 *		Lease dated as of February 25, 2009, between Bernardo Summit LLC and Lionbridge Technologies, Inc.

10.2		Independent Directors’ Compensation Policy Amended and Restated as of March 10, 2009 (Filed as Exhibit 10.1 to the Current Report on Form 8-K (File Number: 000-26933) on March 13, 2009, and incorporated herein by reference.

31.1 *		Certification of Rory J. Cowan, the Company’s principal executive officer as required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 *		Certification of Donald M. Muir, the Company’s principal financial officer as required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 *		Certifications of Rory J. Cowan, the Company’s principal executive officer, and Donald M. Muir, the Company’s principal financial officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Filed herewith.

EX-10.1 2 dex101.htm LEASE Lease

Exhibit 10.1

TRIPLE NET SPACE LEASE

(MULTI-TENANT)

between

BERNARDO SUMMIT LLC,

a California limited liability company,

LANDLORD

and

LIONBRIDGE TECHNOLOGIES, INC.,

a Delaware corporation,

TENANT

for

PREMISES

The Summit

SUITE B, BUILDING 5

SAN DIEGO, CALIFORNIA

TABLE OF CONTENTS


				Page
ARTICLE I		SUMMARY OF BASIC LEASE INFORMATION		1

ARTICLE II		PREMISES		4

	Section 2.01		Demise of Premises	4

	Section 2.02		Common Area	4

	Section 2.03		Parking	5

ARTICLE III		TERM		5

	Section 3.01		Lease Term	5

	Section 3.02		Option to Extend.	5

ARTICLE IV		RENT; TRIPLE NET LEASE		7

	Section 4.01		Base Rent	7

	Section 4.02		First Payment of Rent	8

	Section 4.03		Absolute Triple Net Lease	8

	Section 4.04		Additional Rent	8

	Section 4.05		Operating Expenses; Insurance Expenses	9

	Section 4.06		Tenant’s Right to Review Supporting Data	12

	Section 4.07		Security Deposit	14

ARTICLE V		USE		15

	Section 5.01		Permitted Use and Limitations on Use	15

	Section 5.02		Compliance with Laws	15

	Section 5.03		Delivery of Premises	16

	Section 5.04		Building Security	17

	Section 5.05		Rules and Regulations	17

	Section 5.06		Defective Condition at Delivery Date	17


				Page
ARTICLE VI		MAINTENANCE, REPAIRS AND ALTERATIONS		18

	Section 6.01		Maintenance of Premises and Building	18

	Section 6.02		Maintenance of Project Common Areas	19

	Section 6.03		Alterations, Additions and Improvements	20

	Section 6.04		Covenant Against Liens	21

ARTICLE VII		INSURANCE		21

	Section 7.01		Property/Rental Insurance for Premises	21

	Section 7.02		Property Insurance for Fixtures and Inventory	22

	Section 7.03		Landlord’s Liability Insurance	22

	Section 7.04		Tenant’s Liability Insurance	22

	Section 7.05		Evidence of Insurance	23

	Section 7.06		Mutual Waiver of Claims and Subrogation Rights	23

	Section 7.07		Indemnification and Exculpation	23

ARTICLE VIII		DAMAGE OR DESTRUCTION		24

	Section 8.01		Destruction of the Premises	24

	Section 8.02		Waiver of Civil Code Remedies	26

	Section 8.03		No Abatement of Rentals	26

	Section 8.04		No Liability for Tenant’s Alterations or Personal Property	26

ARTICLE IX		REAL PROPERTY TAXES		26

	Section 9.01		Payment of Taxes	26

	Section 9.02		Proration for Partial Years	28

	Section 9.03		Personal Property Taxes	28

ARTICLE X		UTILITIES		28

ARTICLE XI		ASSIGNMENT AND SUBLETTING		29


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	Section 11.01		Landlord’s Consent Required	29

	Section 11.02		Tenant Affiliates	29

	Section 11.03		No Release of Tenant	29

	Section 11.04		Excess Rent	30

	Section 11.05		Information to be Provided	30

ARTICLE XII		DEFAULTS; REMEDIES		30

	Section 12.01		Defaults	30

	Section 12.02		Remedies	31

	Section 12.03		Default by Landlord	32

	Section 12.04		Late Charges	33

	Section 12.05		Landlord’s Right to Perform Tenant’s Obligations	33

ARTICLE XIII		CONDEMNATION OF PREMISES		33

	Section 13.01		Total Condemnation	33

	Section 13.02		Partial Condemnation	33

	Section 13.03		Award to Tenant	34

ARTICLE XIV		ENTRY BY LANDLORD		34

ARTICLE XV		ESTOPPEL CERTIFICATE		35

	Section 15.01		Tenant’s Statement	35

ARTICLE XVI		LIMITATIONS ON LANDLORD’S LIABILITY		35

ARTICLE XVII		GENERAL PROVISIONS		36

	Section 17.01		Severability	36

	Section 17.02		Agreed Rate Interest on Past-Due Obligations	36

	Section 17.03		Time of Essence	36

	Section 17.04		Submission of Lease	36

	Section 17.05		Incorporation of Prior Agreements and Exhibits	36


		Page
Section 17.06	Notices	37

Section 17.07	Waivers	37

Section 17.08	Recording	37

Section 17.09	Surrender of Possession; Holding Over	38

Section 17.10	Cumulative Remedies	39

Section 17.11	Covenants and Conditions	39

Section 17.12	Binding Effect; Choice of Law	39

Section 17.13	Lease to be Subordinate	39

Section 17.14	Attorneys’ Fees	40

Section 17.15	Signs	40

Section 17.16	Merger	41

Section 17.17	Quiet Possession	41

Section 17.18	Easements	41

Section 17.19	Authority	42

Section 17.20	Force Majeure Delays	42

Section 17.21	Hazardous Materials	42

Section 17.22	Modifications Required by Landlord’s Lender.	44

Section 17.23	Brokers	44

Section 17.24	Survival	44

Section 17.25	List of Exhibits	44

This Triple Net Space Lease (the “Lease”), dated as of the date first written in the Summary of Basic Lease Information set forth in Article I below (the “Summary”), is made by and between BERNARDO SUMMIT LLC, a California limited liability company (“Landlord”) and LIONBRIDGE TECHNOLOGIES, INC., a Delaware corporation (“Tenant”).

ARTICLE I

SUMMARY OF BASIC LEASE INFORMATION


TERMS OF LEASE		DESCRIPTION
Date:		February 25, 2009

Premises (Article II).

Premises:		An approximately 43,768 rentable square feet of space comprising of Suite B of the Building, as further set forth in Exhibit A.

Building:		That certain Building commonly known as Building 5 located at 16550 West Bernardo Drive in San Diego, California 92127.

Lease Term (Article III).

Initial Term:		Thirty-six (36) months, commencing on the Commencement Date and ending on the Expiration Date, unless extended or terminated as provided for herein.

Commencement Date:		April 1, 2009.

Expiration Date:		The day before the third anniversary of the Commencement Date.

Option(s) to Extend:		Tenant is given one (1) option to extend the Lease Term (“Option to Extend”) for a period of thirty-six (36) months (the “Extended Term”) immediately following the date on which the initial Lease Term would otherwise expire.

Base Rent (Section 4.01):


Lease Year	Annual Base Rent		Monthly Installment of Base Rent		Monthly Base Rent Rate per Square Foot of Rentable Area
1	$	498,955.20	$	41,579.60	$	0.95
2	$	514,711.68	$	42,892.64	$	0.98
3	$	530,468.16	$	44,205.68	$	1.01


Extended Term
4-6		Fair Market Rent (as defined in Section 3.02 below)

Tenant’s Share (Section 4.05).		Tenant’s Building Share: 43.4%

		Tenant’s Project Share: 8.74%

Security Deposit: (Section 4.07):		$62,150.56

Permitted Use (Article V):		General office and testing use only, consistent with an industrial building.

Parking Spaces (Section 2.03):		Four (4) parking spaces per one thousand (1,000) square feet of Rentable Area within the Premises

Broker(s) (Section 17.23):

Representing Landlord:		CBRE.

Representing Tenant:		CresaPartners.

Tenant Improvement Allowance
(Section 2 of Exhibit C):		Landlord shall provide a Tenant Improvement Allowance of up to $706,520.00 (i.e. $15 per square foot of Rentable Area plus an additional $50,000.00). Subject to the terms of Section 2.2 of the Work Letter Agreement attached hereto as Exhibit C, Tenant may request an “Additional Tenant Improvement Allowance” in the amount of $218,840.00 (i.e. $5 per square foot of Rentable Area in the Premises. This “additional Tenant Improvement Allowance,” together with interest thereon at


		the rate of seven percent (7%) per annum, shall be amortized over the Lease Term and added to the Base Rent.

Tenant’s Representative (Section 5.1 of Exhibit C):		Mike Labonte of CresaPartners.

Landlord’s Representative (Section 5.2 of Exhibit C):		Janette Sammartino.

ARTICLE II

PREMISES

Section 2.01 Demise of Premises

Landlord hereby leases to Tenant and Tenant leases from Landlord for the Lease Term, at the rental, and upon all of the terms and conditions set forth herein, certain space consisting of approximately Forty-Tree Thousand Seven Hundred Sixty-Eight (43,768) rentable square feet of space (“Premises”), which Premises, commonly referred to as Suite B, comprise a portion that certain Building sometimes known as “Building 5” located at 16550 West Bernardo Drive, San Diego, California 92127 (“Building”) which is one of a number of free standing, office and research and development Project Buildings (“Project Buildings”) on real property situated in the City of San Diego, County of San Diego, State of California and commonly known as The Summit. The Premises are more particularly described and depicted herein in Exhibit “A.” Landlord reserves the right to access and use the restrooms and janitor, telephone and electrical closets (as well as the space above any dropped ceilings) for cabling, wiring, pipes and other Building system elements. The rentable square footage of the Premises, Building and other Project Buildings (the “Rentable Area”) has been determined and certified by Landlord’s architect pursuant to BOMA standards ANSIZ65.1-1996. The Premises, the Project Buildings and appurtenances described herein, including Common Area (defined below), and all other improvements at The Summit together with the land on which the same are located are together designated as the project (“Project”).

Section 2.02 Common Area

During the Lease Term, Tenant shall have the non-exclusive right to use those portions of the Common Area which are provided, from time to time, for use in common by Landlord, Tenant and/or other tenants of the Project. Landlord reserves the right, in its sole discretion, to modify the Common Area (including, without limitation, increasing or reducing the size thereof, adding additional or removing building structures, facilities or other improvements, or changing the use, configuration and elements thereof), to designate certain areas for the exclusive use of Landlord and/or certain tenants of the Project, and to close or restrict access of certain areas from time to time for repair, maintenance or construction or to prevent a dedication thereof; provided that (i) Tenant nevertheless shall have reasonable access to the Premises and to parking areas serving the Building, and (ii) any such modifications, when completed, shall not unreasonably interfere with or restrict Tenant’s access to or possession or use of the Premises. Landlord further reserves the right to establish, repeal and amend from time to time rules and regulations for the use of the Common Area and to grant easements or other rights to use the Common Area to others; provided that no amendment to the rules and regulations shall unreasonably interfere with or restrict Tenant’s access to or possession or use of the Premises or unreasonably and materially increase Tenant’s Share of Operating Expenses; and provided further that, to the extent of any conflict between an express provision of this Lease (other than the attached Rules and Regulations) and such Common Area rules and regulations, this Lease shall control. The “Common Area” shall consist of Project Common Area and Building Common Area (as defined below). The “Project Common Area” shall mean all portions of the Project other than the Project Buildings, including landscaping, sidewalks, walkways, driveways, curbs, parking lots (including striping), roadways within the Project, sprinkler systems, lighting, surface water

drainage systems, as well as additional or different facilities as Landlord in its sold discretion may from time to time designate or install or make available for the use by Tenant in common with others. The “Building Common Area” shall mean those portions of the Building designated as such from time to time by Landlord in its sole discretion, including, without limitation, all mechanical areas, pipe, cabling and wiring shafts, together with their respective enclosing walls, as well as, to the extent not leased to any tenant or occupant of the Building, all entrances, other lobbies, common corridors and hallways, restrooms, janitor closets, telephone closets, electric closets and other public or common areas located in the Building.

Section 2.03 Parking

Landlord shall provide Tenant with the number of parking spaces set forth in the Summary at no additional charge, except to the extent included in Operating Expenses pursuant to Section 4.05 below. The parties acknowledge that the parking spaces shall not be designated for Tenant’s use but shall instead be available to Tenant and Tenant’s customers on an unreserved, non-designated non-exclusive first come-first serve basis. Landlord shall have no liability for the use of any such parking spaces by anyone (besides Landlord) other than Tenant or Tenant’s visitors. In the event Landlord elects or is required by any law to limit or control parking at the Building or the Project, whether by validation of parking tickets or any other method of assessment, Tenant, at its cost, agrees to participate in such validation or assessment program under such reasonable rules and regulations as are from time to time established by Landlord. Except as otherwise expressly provided herein, all costs and expenses associated with parking areas serving the Project shall be included in Operating Expenses.

ARTICLE III

TERM

Section 3.01 Lease Term

The term of this Lease (the “Lease Term”) shall commence on the Commencement Date set forth in the Summary (the “Commencement Date”), and shall expire, unless sooner terminated as provided for herein, on the Expiration Date set forth in the Summary (the “Expiration Date”). At any time following the Commencement Date, Landlord may deliver to Tenant a Memorandum of Commencement of Lease Term substantially in the form attached hereto as Exhibit B as a confirmation of the information set forth therein, which Tenant shall execute and return to Landlord within fifteen (15) business days after receipt thereof.

Section 3.02 Option to Extend.

(a) Exercise

The Option(s) to Extend set forth in the Basic Lease Information, if any, may be exercised by Tenant, if at all, only by delivery of irrevocable written notice (the “Option Notice”) to Landlord given not more than twelve (12) months nor less than six (6) months prior to the end of the initial Lease Term; provided, however, if, as of the date of delivery of the Option Notice or any day thereafter on or before the last day of the initial Lease Term, Tenant (i) is in default under this Lease (beyond the expiration of any applicable notice period provided under this Lease), (ii) has assigned this Lease to anyone other than an Affiliate (as defined in

Section 11.02 below) or (iii) has sublet more than fifty percent (50%) of the Premises to anyone other than an Affiliate, then, at the sole option of Landlord, the Option Notice shall be totally ineffective, and this Lease shall expire on the last day of the initial Lease Term, if not sooner terminated.

(b) Extended Term Rent

In the event Tenant exercises its Option to Extend set forth herein, all the terms and conditions of this Lease shall continue to apply during the Extended Term, except that the Base Rent payable by Tenant during the Extended Term shall be equal to one hundred percent (100%) of Fair Market Rent (as defined below), as determined pursuant to Section 3.03(c) below. “Fair Market Rent” shall mean the effective rental rate, determined on a per rentable square foot basis, being charged (including periodic adjustments thereto as applicable during the period of the Extended Term, to the extent such adjustments are determined to be part of the Fair Market Rent) in transactions entered into within the twelve (12) month period immediately preceding the Negotiation Period, for comparable space in similar buildings in the vicinity of the Building in the Rancho Bernardo/Carmel Mountain Ranch market area (i.e., building s of a similar age and quality considering any recent renovations or modernization), with similar floor plate size and with similar amenities, or, if such comparable space is not available, then making adjustments in the determination of Fair Market Rent to reflect the age, quality, layout and amenities of the Premises and the Building, as contrasted to spaces in other buildings used for comparison purposes, in all instances taking into consideration: size; location; floor level; leasehold improvements or allowances provided or to be provided; lease term; extent of services to be provided; the time that the particular rate under consideration became or is to become effective; and any other relevant terms or conditions applicable to both new and renewing tenants, including tenant concessions and inducements such as (i) the amount of protection received by tenants in connection with the payment of operating and tax expenses (i.e., base year or expense stop), (ii) rental abatement concessions being given such tenants, if any, in connection with such comparable space and in connection with the period of construction of such space, and (iii) all other tenant inducements and landlord concessions and payments including, but not limited to, lease takeover payments, if any, being granted such tenants in connection with such comparable space, and real estate brokerage commissions (which shall be paid to the applicable broker or to Tenant if Tenant does not utilize the services of a broker in connection with such extension). The intent of the parties is that Tenant will obtain the same rent and other economic benefits that landlords would otherwise give in comparable transactions and that Landlord will make and receive the same economic payments and concessions that landlords would otherwise make and receive in comparable transactions.

(i) Negotiation. If Tenant timely and properly exercises the Option to Extend, then, within the first thirty (30) days following the date of delivery of the Option Notice (the “Negotiation Period”), the parties shall meet in good faith to negotiate the Base Rent for the Premises during the Extended Term. If, during the Negotiation Period, the parties agree on the Base Rent for the Premises during the Extended Term, then such agreed amount shall be the Base Rent payable by Tenant during the Extended Term.

(ii) Arbitration. In the event that Tenant exercises Tenant’s Option to Extend in accordance with this Lease and if the parties are unable to agree on the Base Rent for the Premises within the Negotiation Period, then within ten (10) days after the expiration of the Negotiation Period, each party shall separately designate to the other in writing an appraiser to make this determination. Each appraiser designated shall be a member of the Appraisal Institute and shall have at least ten (10) years experience in appraising commercial real property in San Diego County. The failure of either party to appoint an appraiser within the time allowed shall be deemed equivalent to appointing the appraiser appointed by the other party, who shall then determine the Fair Market Rent for the Premises for the Extended Term. Within five (5) business days of their appointment, the two designated appraisers shall jointly designate a third similarly qualified appraiser. The third similarly qualified appraiser will not have worked in any capacity for either party over the immediately preceding five (5) full years. Within thirty (30) days after their appointment, each of the two appointed appraisers shall submit to the third appraiser a sealed envelope containing such appointed appraiser’s good faith determination of the Fair Market Rent for the Premises for the Extended Term; concurrently with such delivery, each such appraiser shall deliver a copy of his or her determination to the other appraiser. The third appraiser shall within ten (10) days following receipt of such submissions, then determine which of the two appraisers’ determinations most closely reflects Fair Market Rent. The determination most closely reflecting the third appraiser’s determination shall be deemed to be the Fair Market Rent for the Premises during the Extended Term; the third appraiser shall have no rights to adjust, amend or otherwise alter the determinations made by the appraisers selected by the parties, but must select one or the other of such appraisers’ submissions. The determination by such third appraiser shall be final and binding upon the parties. Said third appraiser shall, upon selecting the determination which most closely resembles Fair Market Rent, concurrently notify both parties hereto in writing. The parties shall share the appraisal expenses equally. If the Extended Term begins prior to the determination of Fair Market Rent, Tenant shall pay monthly installments of Base Rent equal to one hundred percent (100%) of the monthly installment of Base Rent in effect for the last year of the initial Lease Term. Once a determination is made, any over payment or under payment shall be reimbursed as a credit against, or paid by adding to, the monthly installment of Base Rent next falling due.

ARTICLE IV

RENT; TRIPLE NET LEASE

Section 4.01 Base Rent

(a) Monthly Base Rent.

Commencing on the Commencement Date and continuing throughout the Lease Term, Tenant shall pay to Landlord, without prior notice or demand, base rent (“Base Rent”) as set forth in the Summary, which shall be payable in monthly installments, in advance, on or before the first day of each calendar month of the Lease Term in which Base Rent is due. For purposes hereof, “Lease Year” shall mean each consecutive twelve (12) month period during the Lease Term; provided, however, the first Lease Year shall commence on the Commencement Date and end on the last day of the calendar month immediately preceding the first anniversary of the Commencement Date, and the second and each succeeding Lease Year shall commence on the first day of the next calendar month. In the event that any Lease Year

contains more or less than twelve (12) full calendar months, the annual Base Rent for such Lease Year shall be multiplied by a fraction, the numerator of which shall be the number of months in such Lease Year and the denominator of which shall be twelve (12). In the event that any month in any Lease Year is less than a full calendar month, the Base Rent and Additional Rent for such month shall be multiplied by a fraction, the numerator of which shall be the number of days in such month during the Lease Term and the denominator of which shall be number of days in such calendar month (e.g., if the Lease Term commences September 14, the fraction for such month shall be 14/30).

Section 4.02 First Payment of Rent

Tenant shall pay to Landlord Base Rent for the first full calendar month of the Lease Term, together with Landlord’s estimate of Additional Rent due hereunder for the first full calendar month of the Lease Term, upon Tenant’s execution of this Lease.

Section 4.03 Absolute Triple Net Lease

This Lease is what is commonly called an “Absolute Triple Net Lease,” it being understood that Landlord shall receive the Base Rent set forth in Section 4.01 free and clear of, and in addition to, any and all expenses, costs, impositions, taxes, assessments, liens or charges of any nature whatsoever, subject to the exclusions set forth in Section 4.05 below. Tenant shall pay all Rent in lawful money of the United States of America to Landlord at the notice address stated herein or to such other persons or at such other places as Landlord may designate in writing on or before the due date specified for same without prior demand, set-off or deduction of any nature whatsoever. It is the intention of the parties hereto that this Lease shall not be terminable for any reason by Tenant, except as expressly set forth in this Lease, and that Tenant shall in no event be entitled to any abatement of or reduction in Rent payable under this Lease, except as herein expressly provided in Articles VIII and XIII. Any present or future law to the contrary shall not alter this agreement of the parties.

Section 4.04 Additional Rent

In addition to the Base Rent reserved by Section 4.01, commencing on the Commencement Date and continuing throughout the Lease Term, Tenant shall pay (i) Tenant’s Share of Operating Expenses; (ii) Tenant’s Share of Insurance Expenses; (iii) Tenant’s Share of Real Estate Taxes; and (iv) a management fee (the “Management Fee”), payable on a monthly basis, in advance, at the same time and in the same manner applicable to monthly installments of Base Rent, in an amount equal to three percent (3%) of the then applicable monthly installment of Base Rent. All of the foregoing payments, together with any and all other amounts (other than Base Rent), whether or not contemplated, payable by Tenant pursuant to the terms of this Lease are referred to herein, collectively, as “Additional Rent,” and Base Rent and Additional Rent are referred to herein, collectively, as “Rent.”

Section 4.05 Operating Expenses; Insurance Expenses

(a) Definitions

“Operating Expenses” shall mean all expenses, costs and amounts of every kind and nature which Landlord pays or accrues (whether obligated to do so or undertaken at Landlord’s discretion) during any calendar year during the Lease Term because of or in connection with the ownership, operation, management, maintenance, security, repair, replacement and restoration of the Project, the Building, or any portion thereof, other than Insurance Expenses and Real Property Taxes. Without limiting the generality of the foregoing, Operating Expenses shall specifically include any and all of the following: costs and expenses of cleaning, lighting, maintaining, repairing and replacing all Project Common Area improvements and elements (including, without limitation, light poles and fixtures, storm and sanitary sewers, parking lots, driveways and roads) and all Building Common Area improvements and elements (including, without limitation, elevators, stairways, floors, exterior and interior walls, roof, roof membrane and other elements of the Building which are the responsibility of Landlord to maintain, repair and replace under this Lease); costs of snow removal; costs of parking lot striping; costs of removal of trash, rubbish, garbage and other refuse; costs of painting of exterior and interior walls; costs of removal of graffiti; costs of landscaping; costs of providing security systems and personnel to the extent Landlord determines in its sole discretion to do so; fire protection and fire hydrant charges (including fire protection system signaling devices now or hereafter required, and the costs of maintaining of same); water and sewer charges; utility charges; license and permit fees necessary to operate and maintain the Building and the Project; costs of supplies, tools and materials used in the operation and maintenance of the Building, the Project and the Common Area; the cost (or the reasonable depreciation of the cost) of equipment used in the operation and maintenance of the Building, the Project and the Common Area (which shall be expensed or amortized, respectively, by Landlord in its good faith discretion using commercial real estate management principles, consistently applied) and rent paid for leasing any such equipment; reasonable cost of on-site or off-site space for the storage of any and all items used in conjunction with the operation, management, maintenance and repair of the Project (including, without limitation, tools, machinery, records, decorations, tables, benches, supplies and meters); the cost of making all improvements which are intended to reduce Operating Expenses or to increase public safety, or which may be then required by governmental authority, laws, statutes, ordinances and/or regulations; the cost of all licenses, certificates, permits and inspections; the cost of contesting any governmental enactments which may affect Operating Expenses; costs incurred to comply with any transportation system management program, any present or anticipated conservation program or any other governmental program; payments under any easement, license, operating agreement, declaration, restrictive covenant, or instrument pertaining to the sharing of costs by the Building or the Project; costs, fees, charges or assessments imposed by, or resulting from any mandate imposed on Landlord by, any federal, state or local government for fire and police protection, trash removal, community services, or other services which do not constitute Real Property Taxes hereunder; total compensation and benefits (including premiums for workers’ compensation and other insurance, except to the extent such premiums are included in Insurance Expenses) paid to or on behalf of Landlord’s employees, agents, consultants and contractors, including, without limitation, full or part time on-site management or maintenance personnel. In addition, if, during any Lease Year, (i) Landlord is not furnishing a particular service or work (the costs of which, if furnished by

Landlord, would be included in Operating Expenses) to a tenant (other than Tenant) that has undertaken to perform such service or work in lieu of receiving it from Landlord, or (ii) in Landlord’s commercially reasonable judgment, Tenant is using a disproportionate amount of any particular service or work (the cost of which is included in Operating Expenses), then Operating Expenses for that Lease Year shall be considered to be increased by an amount equal to the additional Operating Expenses that Landlord would reasonably have incurred during this period if Landlord had furnished such service or work to that tenant, or an amount equal to the cost of such increased, disproportionate by Tenant, as relevant Notwithstanding the above, if Tenant’s Share of the cost of any particular capital expenditure to the Building or Common Area exceeds Fifteen Thousand Dollars ($15,000), then such cost, together with interest thereon at the rate actually charged Landlord by any lender or, if no such interest is relevant, with interest thereon at an interest rate equal to the Agreed Rate (as defined in Section 17.02 below), shall be amortized over its useful life, and the amount includible in Operating Expenses shall be limited to the monthly amortized cost thereof. The determination of what constitutes a capital expenditure and the useful life applicable thereto shall be made by Landlord in its good faith discretion using accounting practices commonly utilized in the commercial real estate industry, consistently applied.

“Insurance Expenses” shall mean all expenses, costs and amounts of every kind and nature which Landlord pays or accrues (whether obligated to do so or undertaken at Landlord’s discretion) during any calendar year during the Lease Term because of or with respect to insurance carried by Landlord in connection with the Building or the Project, including, without limitation, all insurance described in Sections 7.01 and 7.03 below.

(b) Exclusions

For purposes of this Lease, the term Operating Expenses shall not include (and Tenant shall have no liability for) any of the following:

(i) Landlord’s non-cash charges, such as depreciation (except for the amortization of capital items as described in Section 4.05(a) above),

(ii) any payments of points, interest or principal relating to any debt secured by the Premises,

(iii) costs associated with the operation of the business of the ownership or entity which constitutes “Landlord,” as distinguished from the costs of Premises operations, including, but not limited to, partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee (except as the actions of Tenant may be in issue), costs of selling syndicating, financing, mortgaging or hypothecating any of Landlord’s interest in the Premises, costs of any disputes between Landlord and its employee (if any) not engaged in Premises operation, or outside fees paid in connection with disputes with other tenants,

(iv) legal fees, space planners’ fees, real estate brokers’ leasing commissions, and advertising expenses incurred in connection with leasing of the Premises,

(v) costs for which Landlord has been reimbursed by its insurance carrier or any tenant’s insurance carrier,

(vi) any bad debt loss, rent loss or reserves for bad debts or rent loss,

(vii) any interest or late fee resulting from any failure of Landlord to pay any item of Operating Expense when it would have been due without such interest or late fee, provided, however, that nothing herein shall be deemed from precluding Landlord from passing through to Tenant as an Operating Expense any cost associated with paying Operating Expenses on any permitted installment or other periodic basis, even if such payment basis results in an increase in the Operating Expense in question,

(viii) overhead and profit increment paid to Landlord or to subsidiaries or affiliates of Landlord for such services in the Premises to the extent the same exceeds the costs of such services rendered by unaffiliated third parties on a competitive basis,

(ix) costs of repairs or rebuilding necessitated by condemnation,

(x) expenses for repairs, replacements or improvements to the extent such expenses have been reimbursed to Landlord through warranties from contractors or suppliers,

(xi) costs incurred due to Landlord’s violation of any terms and conditions of this Lease or of any law,

(xiv) costs of repairs or other work occasioned by fire, earthquake, windstorm or other casualty, except for a reasonable deductible under any insurance policy, and costs of remediating Hazardous Materials (except to the extent that any such costs arise in the course of ordinary maintenance or result from Tenant’s acts or omissions), provided that nothing herein shall be deemed to release Tenant from any of Tenant’s obligations pursuant to Section 17.21 of this Lease,

(xv) reserves of any kind,

(xvi) ground lease rents,

(xvii) transfer taxes, brokerage commissions, title insurance premiums and escrow fees associated with the sale of the Project,

(xviii) any management fee other than the Management Fee, and

(xix) any costs which are otherwise charged to Tenant as an Insurance Expense or a Real Property Tax pursuant to the terms of this Lease.

(xx) any costs associated with correcting any improvements at the Premises which were in violation of any law in effect as of the date such improvement was built.

For purposes hereof, “Tenant’s Building Share” shall mean the percentage derived by the quotient of the Rentable Area of the Premises divided by the Rentable Area of the Building, which Landlord and Tenant acknowledge and agree shall be the percentage

set forth in the Summary. “Tenant’s Project Share” shall mean the percentage derived by the quotient of the Rentable Area of the Premises divided by the Rentable Area of the Project Buildings, which Landlord and Tenant acknowledge and agree shall be the percentage set forth in the Summary. The term “Tenant’s Share” shall refer to either Tenant’s Building Share or Tenant’s Project Share, as applicable. Notwithstanding the foregoing, Tenant’s Share shall be subject to increase or reduction (in an amount Landlord shall, in good faith, determine), based upon any increase or reduction in the Rentable Area of the Building or Project Buildings.

(d) Payment

Commencing on the Commencement Date, and continuing through the Lease Term, Tenant shall pay, on the first day of each calendar month, monthly installments of Tenant’s Share of Operating Expenses, Tenant’s Share of Insurance Expenses and Tenant’s Share of Real Property Taxes in amounts set forth in a written estimate by Landlord. Landlord shall have the right to revise its estimate from time to time during a particular calendar year, in which event, commencing with Tenant’s next installment of Base Rent due, Tenant thereafter shall pay such amounts set forth in such revised estimate (which may include an additional monthly amount based upon any shortfall in Landlord’s previous estimate). Landlord shall furnish to Tenant a statement (hereinafter referred to as “Landlord’s Statement”), within ninety (90) days after the end of each calendar year, which shall set forth the actual amounts of Tenant’s Share of Operating Expenses, Tenant’s Share of Insurance Expenses and Tenant’s Share of Real Property Taxes for such preceding calendar year. In the event that the actual amounts of Tenant’s Share of Operating Expenses, Tenant’s Share of Insurance Expenses and Tenant’s Share of Real Property Taxes for such preceding calendar year, in the aggregate, exceed the estimated amounts paid by Tenant with respect thereto during such preceding calendar year, then Tenant shall pay to Landlord, as Additional Rent, the entire amount of such excess within thirty (30) days after receipt of Landlord’s Statement. In the event that the actual amounts of Tenant’s Share of Operating Expenses, Tenant’s Share of Insurance Expenses and Tenant’s Share of Real Property Taxes for such preceding calendar year, in the aggregate, are less than the estimated amounts paid by Tenant with respect thereto during such preceding calendar year, then Landlord shall apply such difference as a credit to Additional Rent next falling due (or if the Lease Term has expired or terminated and there remains no money due to Landlord, then Landlord shall remit to Tenant the amount of such difference within thirty (30) days after the date of the Landlord’s Statement). Tenant’s Share of Operating Expenses for the ensuing estimation period shall be adjusted upward or downward based upon Landlord’s Statement.

Section 4.06 Tenant’s Right to Review Supporting Data

(a) Exercise of Right by Tenant

Provided that Tenant is not in default under this Lease, and provided further that Tenant strictly complies with the provisions of this Section 4.06, Tenant shall have the right upon thirty (30) days written notice to Landlord to reasonably review supporting data for any portion of a Landlord’s Statement that Tenant claims is incorrect. Landlord shall maintain at all times during the Lease Term, at the office of Landlord, full, complete and accurate books of account and records prepared in accordance with generally accepted accounting principles with respect to Operating Expenses, and shall retain such books and

records, as well as contracts, bills, vouchers and checks and such other documents as are reasonably necessary to properly audit Operating Expenses. In order for Tenant to exercise its right under this Section 4.06, Tenant shall, within one hundred twenty (120) days after any Landlord’s Statement is received, deliver a written notice to Landlord specifying the portions of such Landlord’s Statement that are claimed to be incorrect, and Tenant shall simultaneously pay to Landlord all amounts due from Tenant to Landlord as specified in such Landlord’s Statement. Except as expressly set forth in Section 4.06(c) below, in no event shall Tenant be entitled to withhold, deduct, or offset any monetary obligation of Tenant to Landlord under this Lease, including, without limitation, Tenant’s obligation to make all Base Rent payments and all payments of Additional Rent pending the completion of, and regardless of the results of, any review under this Section 4.06. The right to review granted to Tenant under this Section 4.06 may only be exercised once for any Landlord’s Statement, and if Tenant fails to meet any of the above conditions as a prerequisite to the exercise of such right, the right of Tenant under this Section 4.06 for a particular Landlord’s Statement shall be deemed waived.

(b) Procedures for Review

Tenant agrees that any review of supporting data under this Section shall occur at such location at which Landlord’s records for the Building and the Project are then located. Any review to be conducted under this Section shall be at the sole expense of Tenant and shall be conducted by a firm of certified public accountants of national standing on a non-contingency fee basis. If an audit, review or inspection by a Tenant or Tenant’s accountant or consultant alleges an overbilling, Tenant may submit a claim for the overbilled amount to Landlord, detailing the nature of the overbilling, and if Landlord concurs that its statement is in error, Landlord will promptly reimburse to Tenant, or Tenant will promptly pay to Landlord, any amount which may be determined to have been due as a result of Tenant’s audit. If Landlord does not concur that its statement is in error, the dispute between Landlord and Tenant will be resolved in accordance with Section 4.06(c), below. Additionally, if Landlord is determined to have overcharged Tenant for Operating Expenses by five percent (5%) or more, Landlord shall reimburse Tenant within thirty (30) Days following such determination for the reasonable cost of Tenant’s review of Landlord’s books and records, not to exceed One Thousand Five Hundred Dollars ($1,500) (which cost may not be included as Additional Rent). Tenant acknowledges and agrees that any supporting data reviewed under this Section 4.06 shall constitute confidential information of Landlord, which shall not be disclosed to anyone other than the accountants performing the review and the management of Tenant who receive the results of the review. Except (i) to the extent required by law, (ii) in connection with any legal proceeding concerning this Lease, or (iii) to the extent such information or results are otherwise publicly available, the disclosure of such information or results of the review to any other person, whether or not caused by the conduct of Tenant, shall constitute a material breach of this Lease.

The scope of the dispute shall be described with particularity in Tenant’s notice, which shall be accompanied by all information supporting Tenant’s side of the dispute. Tenant’s sole and exclusive remedy for resolving any such dispute shall be by binding arbitration. The arbitration shall be administered by the office of JAMS in San Francisco,

California, and shall be conducted pursuant to its Streamlined Arbitration Rules and Procedures. The arbitrator’s powers shall be limited to resolving the dispute and awarding costs (including reasonable attorneys’ fees) to the prevailing party.

(d) Effect of Tenant’s Default

In the event that Tenant becomes in default of its obligations under this Lease at any time during the pendency of a review of records under this Section, said right to review shall immediately cease and the matters originally set forth in the Landlord’s statement shall be deemed to be correct.

Section 4.07 Security Deposit

Concurrently with Tenant’s execution of this Lease, Tenant shall deposit with Landlord a cash sum in the amount stated in the Summary of Basic Lease Information (the “Security Deposit”). Landlord shall hold the Security Deposit as security for the full and faithful performance of Tenant’s obligations under this Lease. Landlord shall not be required to pay any interest on the Security Deposit or to keep the Security Deposit separate from Landlord’s own funds. If Tenant fails to perform fully and timely all or any of Tenant’s covenants and obligations hereunder, Landlord may (but shall not be required to), without prejudice to any other remedy it has, apply all or part of the Security Deposit toward the fulfillment of any of Tenant’s unperformed obligations, including, without limitation: (i) any Rent or other sum in default; (ii) any amount that Landlord may spend or become obligated to spend in exercising Landlord’s rights under Article XII; or (iii) any expense, loss or damage that Landlord may suffer because of Tenant’s failure to fully and timely perform any of its obligations hereunder. Tenant waives the provision of California Civil Code § 1950.7, and all other provisions of law now in force or that become in force after the date of execution of this Lease, that provide that Landlord may claim from a security deposit only those sums reasonably necessary to remedy defaults in the payment of accrued Rent, to repair damage caused by Tenant, or to clean the Premises. Landlord and Tenant agree that Landlord may, in addition, claim those sums reasonably necessary to compensate Landlord for any other foreseeable or unforeseeable loss or damage caused by the act or omission of Tenant or Tenant’s officers, agents, employees, independent contractors, or invitees, including future rent payments. If Landlord elects to apply all or a portion of the Security Deposit as permitted hereunder, Tenant shall immediately pay to Landlord sufficient cash to restore the Security Deposit to an amount equal to the greater of (i) the amount of the security Deposit immediately before Landlord’s application of a portion of the Security Deposit or (ii) the amount of the then current monthly Base Rent hereunder. Upon any increase in Base Rent, Landlord may also require Tenant to increase the Security Deposit by the amount of the increase in the monthly Base Rent. Within a reasonable time after Tenant vacates the Premises following the expiration or sooner termination if this Lease, if Tenant is not then in default, Landlord shall return to Tenant any unapplied balance of the Security Deposit within thirty (30) days after the expiration or earlier termination of the Lease.

ARTICLE V

USE

Section 5.01 Permitted Use and Limitations on Use

The Premises shall be used and occupied only for the permitted use set forth in the Summary and for no other use or purpose whatsoever. Tenant shall be permitted access to the Premises, the Building and parking facilities serving the Premises during the Term on a twenty-four (24) hours per day, seven (7) days per week basis. Tenant shall be permitted access to the Premises, the Building and parking facilities serving the Premises during the Term on a twenty-four (24) hours per day, seven (7) days per week basis. Tenant shall not use, suffer or permit the use of the Premises in any manner that would constitute waste, nuisance or unlawful acts. Tenant shall not do anything in or about the Premises which would (a) cause structural injury to the Building or the Premises, or (b) cause damage to any part of the Building or the Premises except to the extent reasonably necessary for the installation of Tenant’s trade fixtures and Tenant’s Alterations, and then only in a manner and to the extent consistent with this Lease. Tenant shall not operate any equipment within the Building or the Premises which would (i) materially damage the Building or the Common Area, (ii) overload existing mechanical, electrical or other systems or equipment servicing the Building, (iii) impair the efficient operation of the sprinkler system or the heating, ventilating or air conditioning equipment within or servicing the Building, (iv) damage, overload or corrode the sanitary sewer system, or (v) damage the Common Area or any other part of the Project. Tenant shall not attach, hang or suspend anything from the ceiling, roof, walls or columns of the Building or set any load on the floor in excess of the load limits for which such items are designed nor operate hard wheel forklifts within the Premises. Any dust, fumes, or waste products generated by Tenant’s use of the Premises shall be contained and disposed so that they do not (A) create an unreasonable fire or health hazard, (B) damage the Premises, or (C) result in the violation of any law. Except as approved by Landlord or set forth herein, Tenant shall not change the exterior of the Building, or the outside area of the Premises, or install any equipment or antennas on or make any penetrations of the exterior or roof of the Building. Tenant shall not conduct on any portion of the Premises any sale of any kind (but nothing herein is meant to prohibit sales and marketing activities of Tenant’s products and services in the normal course of business consistent with the permitted use), including any public or private auction, fire sale, going-out-of-business sale, distress sale or other liquidation sale, and any such sale shall be an immediate event of default hereunder without the benefit of a notice and cure period from Landlord, notwithstanding anything to the contrary in this Lease. No materials, supplies, tanks or containers, equipment, finished products or semi-finished products, raw materials, inoperable vehicles or articles of any nature shall be stored upon or permitted to remain within the outside areas of the Premises except in fully fenced and screened areas outside the Building which have been designed for such purpose and have been approved in writing by Landlord for such use by Tenant and for which Tenant has obtained all appropriate permits from governmental agencies having jurisdiction over such articles.

Section 5.02 Compliance with Laws

Tenant shall, at Tenant’s cost and expense, comply promptly with all statutes, ordinances, codes, rules, regulations, orders, covenants and restrictions of record, and requirements

applicable to the Premises and Tenant’s use and occupancy of same in effect during any part of the Lease Term, whether the same are presently foreseeable or not, and without regard to the cost or expense of compliance provided that any Alteration(s) required for compliance shall be subject to the provisions of this Lease. By executing this Lease, Tenant acknowledges that it has reviewed and satisfied itself as to its compliance, or intended compliance with the applicable zoning and permit requirements, hazardous materials and waste requirements, and all other statutes, laws, or ordinances relevant to the uses stated in Section 5.01 above or the occupancy of the Premises.

Section 5.03 Delivery of Premises

(a) Early Entry

Notwithstanding anything herein to the contrary, as of the Delivery Date (as defined below), Tenant and Tenant’s invitees may enter the Premises (and the Common Area of the Building, to the extent reasonably necessary), at Tenant’s sole risk, for the sole purpose of installation of Tenant’s Tenant Improvements, furniture and equipment. Tenant’s occupancy of the Premises prior to the Commencement Date shall be solely for such purposes (and not for the conduct of Tenant’s business) and shall be on all of the terms and conditions of this Lease as though the Lease Term had commenced on the Delivery Date, except the obligation to pay Base Rent and Additional Rent, provided that Tenant shall be responsible for all utilities provided to the Premises during such early entry period. The “Delivery Date” shall mean the date that all of the following have occurred: (a) this Lease is fully executed and delivered by Landlord and Tenant; and (b) Tenant has delivered to Landlord (i) Rent for the first full calendar month of the Lease Term, (ii) evidence of the insurance described in Article VII below, and (iii) the Security Deposit pursuant to Section 4.07 above.

(b) Condition of Premises

As of the Delivery Date, any then-existing Building plumbing, lighting, heating, ventilating, air conditioning, gas, electrical and sprinkler systems serving the Premises shall be in good working condition and repair at Landlord’s sole expense, and not from the Tenant Improvement Allowance. Except as is provided in the preceding sentence, having made such inspection of the Premises, the Building and the Project as it deemed prudent and appropriate (including, without limitation, testing for the presence of mold), Tenant hereby accepts the Premises in their condition existing as of the Delivery Date, “AS-IS” subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use and condition of the Premises, and any covenants or restrictions, liens, encumbrances and title exceptions of record, and accepts this Lease subject thereto and to all matters disclosed thereby and by any exhibits attached hereto. Except as specifically set forth in this Lease and in the Work Letter Agreement for Tenant Improvements and Interior Specification Standards attached hereto as Exhibit C and made a part hereof (“Work Letter”), Landlord shall not be obligated to provide or pay for any improvement work or services related to the improvement of the Premises. Tenant acknowledges that, except as provided for in this Section 5.03(b), neither Landlord nor any agent of Landlord has made any representation or warranty as to the present or future suitability of the Premises for the conduct of Tenant’s business. Neither party has been induced to enter into this Lease by, and neither party is relying

on, any representation or warranty outside those expressly set forth in this Lease. Neither Landlord nor anyone acting on its behalf shall be liable for, nor shall this Lease be subject to rescission on account of, the nondisclosure of any facts. Tenant expressly waives any right to rescission and /or damages based on nondisclosure of any facts.

Section 5.04 Building Security

Tenant acknowledges and agrees that it assumes sole responsibility for security at the Premises for its agents, employees, invitees, licensees, contractors, guests and visitors and will provide such systems and personnel for same including, without limitation, while such person(s) are using the Common Area, as it deems necessary or appropriate and at its sole cost and expense. Notwithstanding anything to the contrary contained in this Lease, neither Landlord nor any of the Landlord Parties (as defined in Section 7.07 below) shall be liable in any manner for any security personnel, services, procedures or equipment in, at, on or about the Premises, the Building or the Project (whether or not provided by Landlord) or for the failure of the same to prevent or control, or to apprehend anyone suspected of, personal injury, property damage or any criminal conduct in, on or about the Building or the Project.

Section 5.05 Rules and Regulations

Landlord may from time to time promulgate reasonable and nondiscriminatory rules and regulations applicable for the care and orderly management of the Premises, the Project and/or its Common Area. Such rules and regulations shall be binding upon Tenant upon delivery of a copy thereof to Tenant, and Tenant agrees to abide by such rules and regulations. A copy of the initial Rules and Regulations is attached hereto as Exhibit G. If there is a conflict between the rules and regulations and any of the provisions of this Lease, the provisions of this Lease shall prevail. Landlord shall not be responsible for the violation of any such rules and regulations by any person, including, without limitation, Tenant or its employees, agents, invitees, licensees, guests, visitors or contractors.

Section 5.06 Defective Condition at Delivery Date

In the event that it is determined, and Tenant notifies Landlord in writing within six (6) months after the Delivery Date, that the Building systems described in Section 5.03(b) above were not in good working condition and repair as of the Delivery Date, and such failure was not caused by Tenant, then it shall be the obligation of Landlord, and the sole right and remedy of Tenant, after receipt of written notice from Tenant setting forth with specificity the nature of the failed performance, to promptly, within a reasonable time and at Landlord’s sole cost, to correct such failure. Tenant’s failure to give such written notice to Landlord within six (6) months after the Delivery Date shall constitute a conclusive presumption that such Building systems are in good working condition and repair, and any required correction after that date shall be performed by the party responsible for such repair pursuant to the terms of this Lease.

ARTICLE VI

MAINTENANCE, REPAIRS AND ALTERATIONS

Section 6.01 Maintenance of Premises and Building

(a) Throughout the Lease Term, Tenant, at its sole cost and expense, shall keep, maintain, repair and replace the Premises and every part thereof (except as provided in 6.01(b) below, and also except for maintenance, repairs or replacement costs caused solely by an act of negligence or intentional misconduct by Landlord during the Lease Term, subject to Section 7.06 below) and all improvements and appurtenances in the Premises, including, without limitation, all interior walls, all doors and the interior of all windows, all wall surfaces and floor coverings, all Alterations, additions and improvements installed by or on behalf of Tenant during the Lease Term, sewer, plumbing, electrical, lighting, heating, ventilation and cooling systems, fixtures and equipment exclusively servicing the Building, base building systems, roof and roof membrane, all fire sprinklers, all fire safety and security systems, fixtures and equipment, all wiring, and all glazing, in the same good order, condition and repair as they are in on the Delivery Date, or as they may be improved after the Delivery Date, normal wear and tear and damage due to casualty not caused by Tenant excepted, provided that, for purposes of this Lease, wear and tear which could have been prevented by first class maintenance practices performed in accordance with industry standards shall not be deemed “normal.”

(b) Landlord shall maintain, repair and replace the exterior walls, structural walls, supporting pillars, foundations, and structural portions of the roof of the Building. All costs and expenses incurred by Landlord in connection with the foregoing obligations shall be included in Operating Expenses; provided, however, that: (i) except as provided for in subitem (ii) below, any cost associated with replacing such items to be maintained or repaired by Landlord shall be borne solely by Landlord, at Landlord’s sole expense, and (ii) if the maintenance, repair or replacement of such items is due to the acts, omissions or negligence of Tenant or any Tenant Parties (as defined in Section 7.07 below), then Landlord shall nevertheless make such repairs at Tenant’s expense, and Tenant, within ten (10) days after receipt of an invoice, shall pay to Landlord all costs and expenses of any such repairs, together with accrued interest at the Agreed Rate from the date of Landlord’s payment. Tenant shall give Landlord written notice of any needed repairs which are the obligation of Landlord hereunder. It shall then be the obligation of Landlord, after receipt of such notice, to perform the same within thirty (30) days after such notice; provided, however, that if the nature of the repairs is such that more than thirty (30) days are reasonably required for performance, then Landlord shall not be deemed to be in default hereunder if Landlord commences such repairs within said thirty (30) day period and thereafter diligently completes them and provided further, that for purposes of this sentence “commences” includes any steps taken by Landlord to investigate, design, consult, bid or seek permit or other governmental approval in connection with such repair. Should Landlord default, as provided in Section 12.03 below, in its obligation to make any of the repairs assumed by it hereunder with respect to the Premises, or with respect to the Building if such repairs shall be reasonably necessary to Tenant’s use and occupancy of the Premises, Tenant shall have the right to perform such repairs, in which event Landlord, within thirty (30) days after written demand accompanied by detailed invoice(s), shall pay to Tenant the reasonable, actual out-of-pocket costs expended by Tenant for such repairs, provided that nothing herein shall be deemed to create a right of setoff or withholding by Tenant of Base Rent or Additional

Rent or any other amounts due herein. Landlord shall not be liable to Tenant for any damage to person or property as a result of any failure to timely perform any of its obligations with respect to the repair, maintenance or replacement of the Premises, the Building, or the Project or any part thereof, and Tenant’s sole right and remedy (together with its rights under Section 12.03 below) shall be the performance of said repairs by Tenant with the right of reimbursement from Landlord, all in accordance with the terms of this Section 6.01(b). Tenant hereby expressly waives all rights under and benefits of Sections 1941 and 1942 of the California Civil Code or under any law, statute or ordinance on the same subject now or hereafter in effect to make repairs and offset the cost of same against Rent or to withhold or delay any payment of Rent or any other of its obligations hereunder as a result of any default by Landlord under this Section 6.01(b).

(c) Tenant agrees to keep the interior of the Premises clean and in sanitary condition as required by the health, sanitary and police ordinances and regulations of any political subdivision having jurisdiction and to remove all trash and debris which may be found in or around the Premises. Tenant further agrees to keep the interior surfaces of the Premises, including, without limitation, windows, floors, walls, doors, showcases and fixtures clean and neat in appearance.

(d) If Tenant refuses or neglects to commence such repairs and/or maintenance for which Tenant is responsible under this Article VI within a ten (10) day period (or within twenty-four (24) hours in the event of an emergency) after written notice from Landlord and thereafter to diligently prosecute the same to completion, then Landlord, upon at least 24 hours prior written notice (except in an emergency when no such notice shall be required), may enter the Premises and cause such repairs and/or maintenance to be made, and Landlord shall not be responsible to Tenant for any loss or damage occasioned thereby, except when due to Landlord’s negligence or willful misconduct, and Tenant, within ten (10) days after receipt of an invoice, shall pay to Landlord all costs and expenses of any such repairs and/or maintenance, together with accrued interest at the Agreed Rate from the date of Landlord’s payment. If Landlord becomes entitled to enter the Premises as aforesaid more than once during any twelve (12) calendar months or more than twice during the Lease Term, then Landlord may elect to enter into a maintenance contract at a market rate for first-rate maintenance with a third party for the performance of all or a part of Tenant’s maintenance obligations, whereupon (i) Tenant shall be relieved from its obligations to perform only those maintenance obligations covered by such maintenance contract, and (ii) Tenant shall bear the entire cost of such maintenance contract which shall be paid in advance, as Additional Rent, on a monthly basis with Tenant’s Base Rent payments.

Section 6.02 Maintenance of Project Common Areas

Landlord shall maintain, repair and replace all features, facilities and improvements in, on or about the Project Common Area, including, without limitation, landscaping, curbs, walkways, driveways, roadways, parking areas, and lighting, sprinkler, drainage, sewer and plumbing systems, fixtures and equipment, to the extent in the Common Area. All costs and expenses incurred by Landlord in connection with the foregoing obligations shall be included in Operating Expenses; provided, however, if such maintenance, repair or replacement is due to the acts, omissions or negligence of Tenant or any Tenant Parties, then Landlord shall nevertheless

make such repairs at Tenant’s expense, and Tenant, within ten (10) days after receipt of an invoice, shall pay to Landlord all costs and expenses of any such repairs, together with accrued interest at the Agreed Rate from the date of Landlord’s payment.

Section 6.03 Alterations, Additions and Improvements

No alterations, additions, or improvements (“Alterations”) shall be made to the Premises by Tenant without the prior written consent of Landlord, which shall not be unreasonably withheld, conditioned or delayed; provided, however, that Tenant, without Landlord’s prior written consent, but upon not less than ten (10) business days prior written notice to Landlord, may make Alterations (including removal and rearrangement of prior Alterations) which (a) do not affect any systems or equipment of the Building or the Project, (b) do not affect the structural integrity or any structural components of the Building or the Project, (c) are not visible from the exterior of the Building, (d) do not require a Building permit, and (e) do not involve the expenditure of more than Twenty-Five Thousand and 00/100 Dollars ($25,000.00) in any given instance or Fifty Thousand and 00/100 Dollars ($50,000.00) in the aggregate during any twelve (12) month period. As a condition to Landlord’s obligation to consider any request for consent hereunder, Tenant hereby agrees to pay Landlord upon demand for the reasonable out-of-pocket costs and expenses of consultants, engineers, architects and others for reviewing plans and specifications and for monitoring the construction of any proposed Alterations. In addition, if Landlord’s consent is granted to any Alterations, then Tenant, within ten (10) days after Tenant executes a construction contract for such Alterations, and as a condition precedent to the commencement of such Alterations, shall pay to Landlord a construction management fee in an amount equal to one percent (1.0%) of all costs of design, demolition, construction and installation of such Alterations (the “Landlord Supervision Fee”), the amount of which Landlord Supervision Fee shall be (i) initially based upon reasonable estimates of such costs, (ii) subject to verification by Landlord, and (iii) further subject to adjustment as provided below. Landlord may require Tenant to remove any such Alterations at the expiration or sooner termination of the Lease Term and to restore the Premises to their prior condition pursuant to the terms of Section 17.09 hereof; provided that, if Tenant makes written request to Landlord concurrently with Tenant’s request for consent to any Alterations, then Landlord shall make its election to require removal of such Alterations, if at all, at the time consent to such Alterations is given. All Alterations to be made to the Premises shall be designed by and made under the supervision of a California licensed architect and/or California licensed structural engineer (each of whom has been approved by Landlord) and shall be made in accordance with plans and specifications which have been furnished to and approved by Landlord in writing prior to commencement of work. All Alterations shall be constructed and installed, at the sole cost and expense of Tenant, by California licensed contractors approved by Landlord, in compliance with all applicable law, and in good and workmanlike manner, and shall have been approved in writing by the City of San Diego and any other applicable governmental agencies. Subject to Landlord’s right (by notifying Tenant in writing at the time of Landlord’s approval thereof) to require Tenant to remove Alterations in accordance with this Section 6.03 (in which case Tenant shall retain ownership thereof), all Alterations, including, without limitation, all lighting, electrical, heating, ventilation, air conditioning and full height partitioning and carpeting installations made by Tenant, together with all property that has become an integral part of the Premises, shall not be deemed trade fixtures and shall become the property of Landlord at the expiration or sooner termination of the Lease. Tenant shall retain title to all furniture and trade

fixtures placed on the Premises. Within sixty (60) days after completion of any Alterations, Tenant shall provide Landlord with (A) a complete set of both hard copies and CAD digital files of “as built” plans for such Alterations, and (B) a statement of all final costs of design, demolition, construction and installation of such Alterations, together with all supporting documentation therefor and, if the Landlord Supervision Fee paid in connection with such Alterations was understated, an amount equal to the actual Landlord Supervision Fee (based upon the statement of final costs) less any amount previously paid to Landlord on account thereof.

Section 6.04 Covenant Against Liens

Tenant shall not allow any liens arising from any act or omission of Tenant to exist, attach to, be placed on, or encumber Landlord’s or Tenant’s interest in the Premises, the Building or the Project, or any portion of either, by operation of law or otherwise. Tenant shall not suffer or permit any lien of mechanics, material suppliers, or others to be placed against the Premises, the Building or the Project, or any portion of either, with respect to work or services performed or claimed to have been performed for Tenant or materials furnished or claimed to have been furnished to Tenant or the Premises. Landlord has the right at all times to post and keep posted on the Premises any notice that it considers necessary for protection from such liens. At least ten (10) days before beginning construction of any Alterations, Tenant shall give Landlord written notice of the expected commencement date of that construction to permit Landlord to post and record a notice of nonresponsibility. If any such lien attaches or if Tenant receives notice of any such lien, Tenant shall cause the lien to be released and removed of record, by recordation of a lien release bond or otherwise, within thirty (30) days after receipt of notice thereof. Despite any other provision of this Lease, if the lien is not released and removed within thirty (30) days after Tenant’s receipt of notice of such lien, then Landlord may immediately take all action necessary to release and remove the lien, without any duty to investigate the validity of such lien. All expenses (including reasonable attorney fees and the cost of any bond) incurred by Landlord in connection with a lien incurred by Tenant or its removal shall be considered Additional Rent under this Lease and be immediately due and payable by Tenant. Notwithstanding the foregoing, if Tenant shall, in good faith, contest the validity of any such lien, claim or demand, then Tenant shall, at its sole expense, defend and protect itself, Landlord and the Premises, the Building and the Project against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof. If Landlord elects to participate in or is made a party to any such action, Tenant shall reimburse Landlord’s attorneys’ fees and costs within ten (10) days after demand.

ARTICLE VII

INSURANCE

Section 7.01 Property/Rental Insurance for Premises

At all times during the Lease Term, Landlord shall keep the Premises (including the Tenant Improvements, but excluding any Alterations or other property required to be insured by Tenant pursuant to Section 7.02 below), the Building and the Project insured at full replacement value against loss or damage by fire and those risks normally included in special form (causes of loss) property insurance. In addition, Landlord may keep the Premises (including the Tenant

Improvements, but excluding any Alterations or other property required to be insured by Tenant pursuant to Section 7.02 below), the Building and the Project insured against, without limitation, (i) earthquake and earthquake sprinkler leakage, (ii) flood, (iii) loss of rents (including scheduled rent increases) and extra expenses, (iv) boiler and machinery, and (v) fire damage legal liability form, including waiver of subrogation. The amount of such insurance and the deductibles thereof shall be of Landlord’s may choosing in its sole discretion. Insurance shall include a Building Ordinance and Increased Cost of Construction Endorsement insuring the increased cost of reconstructing the Premises, the Building and the Project due to the need to comply with applicable statutes, ordinances and requirements of all municipal, state and federal authorities now in force, or which may be in force hereafter. Tenant shall pay Tenant’s Share of any deductibles within ten (10) days after receipt of an invoice. All premiums for all such insurance shall be included in Insurance Expenses recoverable by Landlord in accordance with Article IV.

Section 7.02 Property Insurance for Fixtures and Inventory

At all times during from and after the Delivery Date through and including the expiration or earlier termination of this Lease, Tenant shall, at its sole expense, maintain special form (causes of loss) property insurance, which includes the same coverage as required of Landlord in Section 7.01 above, on any trade fixtures, furnishings, merchandise, equipment, artwork or other personal property in or on the Premises, and on all Alterations (whether or not presented to Landlord for its consent). The amount of such insurance shall not be less than one hundred percent (100%) of replacement cost, with commercially reasonable deductibles, and Landlord shall not have any responsibility, nor pay any cost, for maintaining any insurance required by this Section 7.02. Tenant shall pay all deductibles under such policies in the event of a loss.

Section 7.03 Landlord’s Liability Insurance

During the Lease Term, Landlord shall maintain a policy or policies of commercial general liability insurance covering Landlord (and such others as designated by Landlord) against claims and liability for bodily injury, personal injury and property damage (including loss of use thereof) on our about the Building and the Project, with combined single limit coverage in an amount determined by Landlord in its sole discretion; provided that if such policy is a blanket policy that covers properties (other than the Building or the Project) owned by Landlord, only that portion allocable to the Building or the Project, as the case may be, shall be payable hereunder. All premiums for all such insurance shall be included in Insurance Expenses recoverable by Landlord in accordance with Article IV.

Section 7.04 Tenant’s Liability Insurance

At all times during from and after the Delivery Date through and including the expiration or earlier termination of this Lease, Tenant shall obtain and keep in force a policy or policies of commercial general liability insurance covering Tenant, and naming Landlord and any Landlord Parties and any lenders or ground Landlords whose names are provided to Tenant as additional insureds, against claims and liability for bodily injury, personal injury and property damage (including loss of use thereof) based upon, involving or arising out of (a) Tenant’s operations and contractual liabilities, or (b) ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing a single

limit coverage in amount of not less than Two Million Dollars ($2,000,000) per occurrence; provided, however, the limits of such insurance shall not limit the liability of Tenant nor relieve Tenant of any obligation under this Lease. Such insurance shall include, subject to the terms and conditions of the standard ISO General Liability Insurance Policy reasonably satisfactory to Landlord (i) a Broad Form endorsement covering the provisions of this Lease and the performance by Tenant of its indemnity agreements contained in this Lease, including, without limitation, Section 7.07 below, (ii) coverage for Additional Landlords or Premises, and (iii) coverage for “amendment of the pollution exclusion” to provide coverage for damage caused by heat, smoke, fumes from a fire. All insurance to be carried by Tenant shall be primary to, and not contributory with, any similar insurance carried by Landlord (whose insurance shall be considered excess insurance only).

Section 7.05 Evidence of Insurance

Tenant shall furnish to Landlord prior to the Delivery Date, and at least thirty (30) days prior to the expiration date of any policy, evidence in the form of a standard certificate of insurance reasonably satisfactory to Landlord that the property insurance and liability insurance required to be maintained by Tenant is in full force and effect for the twelve (12) month period following such expiration date; that Landlord has been named as an additional insured to the extent of contractual liability assumed in this Lease, including, without limitation, Section 7.07 below; and that all such policies will not be canceled unless thirty (30) days’ prior written notice of the proposed cancellation has been given to Landlord. The insurance shall be issued by insurer carriers approved by Landlord; provided, however, that such approval shall not be unreasonably withheld so long as Tenant’s insurance carrier has a Best’s Insurance Guide rating not less than A- VIII and is licensed to do business in California. Landlord shall furnish to Tenant reasonable evidence of its insurance coverage required hereunder within fifteen (15) business days after demand made not more than once in any calendar year.

Section 7.06 Mutual Waiver of Claims and Subrogation Rights

Landlord and Tenant hereby release and relieve the other, and waive their entire claim of recovery for loss or damage to property arising out of or incident to any peril covered by the insurance policies required to be carried pursuant to Sections 7.01 and 7.02 above (but only to the extent of insurance proceeds either actually received by the waiving party or which would have been received if the required insurance had been carried by the waiving party), when such property constitutes the Premises, or is in, on or about the Premises, whether or not such loss or damage is due to the negligence of Landlord or Tenant, or their respective agents, employees, guests, licensees, invitees, or contractors. Tenant and Landlord waive all rights of subrogation against each other on behalf of, and shall obtain a waiver of all subrogation rights from, all property and casualty insurers referenced above.

Section 7.07 Indemnification and Exculpation

(a) Except as otherwise provided in Section 7.07(b), Tenant shall indemnify, defend, protect and hold free and harmless Landlord, its partners, subpartners, members, parent organizations, affiliates, subsidiaries, principal shareholders and other constituent entities, and their respective officers, directors, servants, employees, agents and independent contractors

(collectively, “Landlord Parties”) from any and all liability, claims, loss, damages, causes of action (whether in tort or contract, law or equity, or otherwise), costs, expenses, charges, assessments, fines, and penalties of any kind, including without limitation, reasonable attorneys’, experts’ and arbitrators’ fees and costs and court costs, incurred in connection with or arising from (i) any cause in, on or about the Premises, (ii) any acts, omissions or negligence of Tenant, its partners, subpartners, members, parent organizations, affiliates, subsidiaries, principal shareholders, other constituent entities or any other person or entity claiming by, through or under Tenant, or any of their respective officers, directors, servants, employees, agents, independent contractors, licensees, invitees, visitors or guests (collectively, “Tenant Parties”), in, on or about the Premises, and (iii) any breach or default in the timely observance or performance of any obligation on Tenant’s part to be observed or performed under this Lease.

(b) Notwithstanding the foregoing, Tenant’s indemnity contained in Section 7.07(a) above shall not apply to the negligence or willful misconduct of Landlord or Landlord’s Parties.

(c) Tenant hereby waives all claims against Landlord for damages to goods, wares and merchandise and all other personal property in, on or about the Premises and for injury or death to persons in, on or about the Premises, from any cause arising at any time to the fullest extent permitted by law. Notwithstanding the foregoing, Tenant’s waiver contained in this Section 7.07(c) shall not apply to the gross negligence or willful misconduct of Landlord or any of Landlord’s Parties. Notwithstanding the provisions of Section 7.07(b) above, or any other provision of this Lease, in no event shall any Landlord Parties be liable under any circumstances for (i) injury or damage to, or interference with, Tenant’s business (including, but not limited to, loss of profits, loss of rents or other revenues, loss of business opportunity, loss of goodwill or loss of use) or other consequential damages, in each case however occurring, or (ii) any damage which is or could be covered by the insurance Tenant is required to carry under this Lease.

ARTICLE VIII

DAMAGE OR DESTRUCTION

Section 8.01 Destruction of the Premises

(a) In the event all or any part of the Premises or the Common Area serving or providing access to the Premises are damaged during the Lease Term from any fire or other casualty, then Landlord shall promptly conduct the repair and diligently pursue the same to completion, subject to reasonable delays for insurance adjustment and other matters beyond Landlord’s reasonable control (in which event the provisions of Section 17.20 below shall apply), and subject to all other terms and conditions of this Article VIII; provided, however, Tenant (and not Landlord) shall promptly repair all damage to those items as to which Tenant is required to maintain property insurance under Section 7.02 above. Except as otherwise provided in Section 8.01(b) below, no such damage shall terminate this Lease. If such fire or other casualty shall have damaged the Premises or Common Areas necessary to Tenant’s occupancy, then Landlord shall allow Tenant a proportionate abatement of Rent to the extent Landlord actually receives proceeds of rental interruption insurance purchased by Landlord as part of Insurance Expenses (or would have received such proceeds had Landlord maintained the insurance required of Landlord pursuant to Section 7.01(iii) above), during the time and to the extent the

Premises are unfit for occupancy for the purposes permitted under this Lease, and not occupied by Tenant as a result thereof; provided that, in any event, Tenant’s right to abate Rent shall terminate as of the later to occur of (i) the date on which Landlord completes its repairs under this Section 8.01(a), or (ii) the date (as reasonably determined by Landlord) on which Tenant should have completed its repairs under this Section 8.01(a) assuming Tenant used reasonable diligence in pursuing the same. Unless this Lease is terminated pursuant to Section 8.01(b), Tenant shall pay Tenant’s Share of any insurance deductible to Landlord within ten (10) days after written demand.

(b) Notwithstanding the terms of Section 8.01(a) above, Landlord may elect not to repair or restore the Premises, the Building and/or the Project, and instead to terminate this Lease, by notifying Tenant in writing of such termination within sixty (60) days after the date of discovery of the damage, such notice to include a termination date giving Tenant not less than thirty (30) days to vacate the Premises, but Landlord may so elect only if the Building or the Project shall be damaged by fire or other casualty, whether or not the Premises are affected, and one or more of the following conditions is present: (i) in Landlord’s reasonable judgment, repairs cannot reasonably be completed within one hundred eighty (180) days after the date of discovery of the damage (when such repairs are made without the payment of overtime or other premiums); (ii) the holder of any mortgage on the Building or the Project or ground lessor with respect to the Building or the Project shall require that the insurance proceeds or any portion thereof be used to retire the mortgage debt, or shall terminate the ground lease, as the case may be; (iii) the damage is not fully covered by Landlord’s insurance policies (other than deductible amounts actually paid by Tenant and other tenants of the Building or the Project) and Landlord terminates the leases of all of the other tenants of the Building; (iv) Landlord decides to rebuild the Building or the Project so that they will be substantially different structurally or architecturally; or (v) the damage occurs during the last six (6) months of the Lease Term and, in Landlord’s reasonable judgment, repairs cannot reasonably be completed within sixty (60) days after the date of discovery of the damage (when such repairs are made without the payment of overtime or other premiums).

(c) Notwithstanding the terms of Section 8.01(a) above, Tenant may elect to terminate this Lease, by notifying Landlord in writing of such termination within sixty (60) days after the date of discovery of the damage, such notice to include a termination date giving Tenant not less than thirty (30) days nor more than ninety (90 ) days to vacate the Premises, but Tenant may so elect only if the Building shall be damaged by fire or other casualty, whether or not the Premises are affected, and one or more of the following conditions is present: (i) in Landlord’s reasonable judgment, repairs cannot reasonably be completed within one hundred eighty (180) days after the date of discovery of the damage (when such repairs are made without the payment of overtime or other premiums) (ii) the damage was not caused by the actions or omissions of Tenant or any Tenant Parties, and (iii) more than thirty-five percent (35%) of the Building was affected by the casualty and Tenant is not, in fact, using the portion of the Building affected by the Premises. In addition, Tenant may terminate this Lease if the Building is damaged by a casualty, and the damage occurs during the last twelve (12) months of the Lease Term and, in Landlord’s reasonable judgment, repairs cannot reasonably be completed within sixty (60) days after the date of discovery of the damage (when such repairs are made without the payment of overtime or other premiums).

Section 8.02 Waiver of Civil Code Remedies

Tenant hereby expressly waives any rights to terminate this Lease upon damage or destruction to the Premises, including without limitation any rights pursuant to the provisions of Section 1932, Subdivisions 1 and 2 and Section 1933, Subdivision 4, of the California Civil Code, as amended from time to time, and the provisions of any similar law hereinafter enacted.

Section 8.03 No Abatement of Rentals

Except as otherwise expressly provided in Section 8.01(a) above, the Base Rent, Additional Rent and other charges due under this Lease shall not be reduced or abated by reason of any damage or destruction to the Premises, and Landlord shall be entitled to all proceeds of the insurance maintained pursuant to Section 7.01 above. Landlord shall not be liable for any inconvenience or annoyance to Tenant or its visitors, or injury to Tenant’s business (including, without limitation, loss of business, profits or goodwill), resulting in any way from any damage or the repair thereof.

Section 8.04 No Liability for Tenant’s Alterations or Personal Property

In no event shall Landlord have any liability for, nor shall it be required to repair or restore, any injury or damage to Tenant’s Alterations or personal property or to any other personal property of other in or upon the Premises, the Building or the Project.

ARTICLE IX

REAL PROPERTY TAXES

Section 9.01 Payment of Taxes

(a) For all periods of time during the Lease Term, Tenant shall pay Tenant’s Share of Real Property Taxes as is provided for in Section 4.05 above. “Real Property Taxes” shall mean all expenses Landlord pays under this Article IX, including without limitation, real property taxes, including, without limitation, any escaped or supplemental tax and any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license, fee, charge, excise or imposition imposed, assessed or levied on or with respect to the Building or the Project or any part thereof, or any legal or equitable interest of Landlord therein, by any Federal, State, County, City or other political subdivision or public authority having the direct or indirect power to tax, including, without limitation, any improvement district or any community facilities district, as well as any government or private cost sharing agreement assessments made for the purpose of augmenting or improving the quality of services and amenities normally provided by government agencies and any tax, fee, charge, imposition or excise described in subsection 9.01(b) below. Notwithstanding anything to the contrary contained herein, “Real Property Taxes” shall not include: (i) any net income taxes, franchise taxes, or any succession, estate or inheritance taxes of Landlord, (ii) any federal or state income taxes or gift, capital stock, conveyance or transfer taxes levied or assessed on Landlord or against the Project, or (iii) penalties incurred as a result of Landlord’s negligence, inability or unwillingness to make payments of, and/or to file any tax or informational returns with respect to any Real Property Taxes, when due. If Landlord receives a refund of Real Property Taxes or a credit against its future Real Property Taxes for any calendar year during the Lease Term for which Tenant paid

Tenant’s Share of Taxes, Landlord shall, at its election, either pay to Tenant, or credit against subsequent payments of Rent due hereunder, an amount equal to Tenant’s Share of the refund, net of any reasonable expenses incurred by Landlord in achieving such refund; provided, however, if this Lease shall have expired or is otherwise terminated, Landlord shall refund in cash any such refund or credit due to Tenant within thirty (30) days after Landlord’s receipt of such refund or its receipt of such credit against future Real Property Taxes. Landlord’s obligation to so refund to Tenant any such refund or credit of Taxes shall survive such expiration or termination.

(b) Except as otherwise expressly provided hereinbelow, if at any time during the Lease Term, the State of California or any political subdivision of the state, including any county, city, city and county, public corporation, district, or any other political entity or public corporation of this state, levies or assesses against Landlord a tax, fee, charge, imposition or excise on rents under leases of space in the Building or the Project, the square footage of the Building or the Project, the act of entering into leases of space in the Building or the Project, or the occupancy of tenants of the Building or the Project, or levies or assesses against Landlord any other tax, fee, or excise, however described, including, without limitation, a so-called value added, business license, transit, commuter, environmental or energy tax fee, charge or excise or imposition related to the Building or the Project, as a direct substitution in whole or in part for, or in addition to, any Real Property Taxes (collectively, “Additional Real Property Taxes”), then the same shall be included in “Real Property Taxes” for all purposes hereunder; provided that, notwithstanding the foregoing, if any such Additional Real Property Taxes pertain solely to (i) Rent under this Lease (as opposed to under all leases of space in the Building or the Project), (ii) the square footage of the Premises (as opposed to the square footage of the Building or the Project), (iii) the act of entering into this Lease, or (iv) the occupancy of Tenant (as opposed to all tenants or occupants of the Building or the Project) (as opposed to all leases of space in the Building or the Project), then such Additional Real Property Taxes shall not be included in “Real Property Taxes,” and shall be the sole obligation and liability of Tenant and shall be paid by Tenant, as Additional Rent, ten (10) days before delinquency (or, if such Additional Real Property Taxes are levied against Landlord or Landlord’s property, then Landlord shall pay the same before delinquency and Tenant shall reimburse Landlord the amount of the same within ten (10) days after written demand accompanied by a copy of Landlord’s tax bill); and further provided that, if any such Additional Real Property Taxes pertain not only to the Project, but to additional property of Landlord located outside the Project as well, then “Real Property Taxes” shall only include a portion of such Additional Real Property Taxes, which portion shall be computed upon the amounts and at the rates that otherwise would be payable if the Project were the only property of Landlord.

(c) Landlord shall provide Tenant with copies of all tax and assessment bills on the Premises promptly upon Landlord’s receipt of Tenant’s written request therefor, and Landlord shall also provide to Tenant evidence of payment promptly upon Landlord’s receipt of Tenant’s written request therefor.

(d) With respect to taxes and assessments which may lawfully be paid in installments, “Real Property Taxes” for any period during the Lease Term shall include only such portion of the same which is payable within such period and any interest payable thereon computed (whether or not such is the case) as if Landlord had elected to pay the same over the longest period permitted by law.

(e) If Landlord shall obtain any abatement or refund on account of any Real Property Taxes or other Additional Real Property Taxes as to which Tenant shall have made payments hereunder, then Landlord shall promptly refund to Tenant an equitable portion of any such abatement or refund, after deducting therefrom the reasonable costs and expenses incurred by Landlord in obtaining such abatement or refund.

Section 9.02 Proration for Partial Years

If any Real Property Taxes paid by Tenant shall cover any period prior to the Commencement Date or after the Expiration Date, then Tenant’s Share of such Real Property Taxes shall be prorated on a day-for-day basis to cover only the period of time within the applicable tax fiscal year during which this Lease shall be in effect.

Section 9.03 Personal Property Taxes

(a) Tenant shall pay prior to delinquency all taxes imposed, assessed against and levied upon trade fixtures, furnishings, equipment and all other personal property of Tenant contained in the Premises or elsewhere. When possible, Tenant shall cause said trade fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Landlord.

(b) If any of Tenant’s said personal property shall be assessed with Landlord’s real property, Tenant shall pay to Landlord, as Additional Rent, the amount of taxes attributable to Tenant’s personal property within ten (10) days after receipt of a written statement thereof.

(c) If Tenant shall fail to pay any such taxes, Landlord shall have the right to pay the same, in which case Tenant shall repay such amount to Landlord, as Additional Rent, with Tenant’s next installment of Rent, together with interest at the Agreed Rate.

ARTICLE X

UTILITIES

Tenant shall pay, prior to delinquency and throughout the Lease Term, all charges for water, gas, heating, ventilation, air conditioning, cooling, sewer, telephone, electricity, garbage, janitorial service and all other services and utilities supplied to the Premises, including Tenant’s Share of any such services or utilities which are not separately metered for or billed to the Premises. All charges for utilities and services which are provided by Landlord directly to Tenant or the Premises shall be paid by Tenant to Landlord within ten (10) days after receipt of an invoice therefor. All other charges for utilities and services shall be included in Operating Expenses recoverable by Landlord in accordance with Article IV. The disruption, failure, lack or shortage of any service or utility with respect to the Premises, the Building or the Project due to any cause whatsoever shall not affect any obligation of Tenant hereunder, and Tenant shall faithfully keep and observe all the terms, conditions and covenants of this Lease and pay all Rent due hereunder, all without diminution, credit or deduction; provided, however, if such disruption, failure, lack or shortage is caused by Landlord’s failure to observe or perform its obligations

hereunder, then, within five (5) business days after receipt of written notice from Tenant specifying such failure, Landlord shall initiate the cure of such failure and thereafter shall diligently prosecute said cure to completion.

ARTICLE XI

ASSIGNMENT AND SUBLETTING

Section 11.01 Landlord’s Consent Required

Except as provided in Section 11.02, Tenant shall not voluntarily or by operation of law assign, transfer, mortgage, sublet, license or otherwise transfer or encumber all or any part of Tenant’s interest in this Lease or in the Premises or any part thereof, without Landlord’s prior written consent; provided, however, Landlord shall not unreasonably withhold its consent to an assignment of this Lease or a subletting of all or a portion of the Premises. Landlord shall respond in writing to Tenant’s request for consent hereunder within fifteen (15) days of Landlord’s receipt of Tenant’s written request therefor, provided that such request is accompanied by any materials reasonably requested by Landlord in connection with such transfer, and any attempted assignment, transfer, mortgage, encumbrance, subletting or licensing without such consent shall be void, and shall constitute a breach of this Lease. Tenant shall reimburse Landlord upon demand for Landlord’s reasonable costs and expenses (including attorneys’ fees, architect fees and engineering fees) involved in reviewing any request for consent whether or not such consent is granted.

Section 11.02 Tenant Affiliates

Tenant, without Landlord’s prior written consent, but upon not less than ten (10) business days prior written notice to Landlord, may assign this Lease, or sublet all or any portion of the Premises, to any business entity which controls, is controlled by, or is under common control with Tenant, or to any business entity resulting from the merger or consolidation with Tenant, or to any person or entity which acquires all of Tenant’s stock (“Affiliate”), provided that said assignee or sublessee (i) has a net worth equal to or greater than that of Tenant as of the date of this Lease or the date on which such transfer occurs, whichever is greater, and (ii) assumes, in full, the obligations of Tenant under this Lease.

Section 11.03 No Release of Tenant

Regardless of whether or not Landlord’s consent is required or obtained, no subletting or assignment (including, without limitation, to an Affiliate) shall release Tenant of Tenant’s obligations under this Lease or alter the primary liability of Tenant to pay the Rent and to perform all other obligations to be performed by Tenant hereunder. The acceptance of Rent by Landlord from any other person shall not be deemed consent to any subsequent assignment or subletting. In the event of any default in the payment of Rent or performance of any obligation hereunder by any assignee or successor of Tenant, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against said assignee or successor.

Section 11.04 Excess Rent

In the event Landlord shall consent to a sublease or an assignment, Tenant shall pay to Landlord, as Additional Rent, fifty percent (50%) of all sums (including the fair market value of all non-cash consideration) collected or received by Tenant from a sublessee or assignee which are in excess of the Base Rent and Additional Rent due and payable with respect to the subject space pursuant to Article IV for the time period encompassed by the sublease or assignment term, after first deducting reasonable leasing commissions, reasonable attorney’s fees not in excess of $2,500 and tenant improvement costs paid by Tenant with respect to such sublease or assignment, the amount of such commissions, attorney’s fees and tenant improvement costs being amortized over the term of such sublease or assignment for the purposes of this Section 11.04. With respect to an assignment, Tenant shall make such payment on the effective date of such assignment. With respect to a sublease, Tenant shall make such payment, in advance, on a monthly basis with its regularly scheduled Base Rent payments.

Section 11.05 Information to be Provided

Tenant’s written request to Landlord for consent to an assignment or subletting or other form of transfer shall be accompanied by (a) the name and legal composition of the proposed transferee; (b) the nature of the proposed transferee’s business to be carried on in the Premises; (c) the terms and provisions of the proposed transfer agreement (including, without limitation, a description of the portion of the Premises to be transferred, and the effective date of the proposed transfer); (d) a copy of all executed and/or proposed documentation pertaining to the proposed transfer; and (e) such financial and other reasonable information as Landlord may request concerning the proposed transferee.

ARTICLE XII

DEFAULTS; REMEDIES

Section 12.01 Defaults

The occurrence of any one or more of the following events shall constitute a material default and breach of this Lease by Tenant:

(a) The failure by Tenant to make any payment of Base Rent as and when due within five (5) business days following written notice from Landlord that the same is past due. It is expressly understood that a material default and breach will occur for Tenant’s failure to timely pay Base Rent without any obligation by Landlord to deliver any notice, written or otherwise, if Landlord has previously given Tenant written notice under this Article XII once in any twelve (12) month period preceding the current failure by Tenant to timely pay an installment of Base Rent;

(b) The failure by Tenant to make any payment of any other sum owing under this Lease as and when due, if such failure continues for a period of three (3) days after written notice thereof from Landlord to Tenant. In the event that Landlord serves Tenant with a Notice to Pay Rent or Quit in the form required by applicable law, such Notice shall constitute the notice required by this paragraph;

(c) Tenant’s failure to provide (i) any instrument or assurance as required by Section 7.05 or (ii) estoppel certificate as required by Section 15.01 or (iii) any document subordinating this Lease to a Lender’s deed of trust as required by Section 17.13, if any such failure continues for ten (10) business days after written notice of the failure. In the event Landlord serves Tenant with a Notice to Perform Covenant or Quit in the form required by applicable law, such Notice shall constitute the notice required by this paragraph;

(d) The failure by Tenant to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Tenant, other than described in paragraphs (a), (b), (c) or (d) of this Section 12.01, if such failure continues for a period of fifteen (15) business days after written notice thereof from Landlord to Tenant; provided, however, that if the nature of Tenant’s default is such that more than fifteen (15) business days are reasonably required for its cure, then Tenant shall not be deemed to be in default if Tenant commences such cure within said fifteen (15) business day period and thereafter diligently prosecutes such cure to completion. In the event Landlord serves Tenant with a Notice to Perform Covenant or Quit in the form required by applicable law, such Notice shall constitute the notice required by this paragraph;

(e) (i) The making by Tenant of any general arrangement or assignment for the benefit of creditors; (ii) the filing by Tenant of a voluntary petition in bankruptcy under Title 11 U.S.C. or the filing of an involuntary petition against Tenant which remains uncontested for a period of sixty (60) days; (iii) the appointment of a trustee or receiver to take possession of substantially all of Tenant’s assets located at the Premises or of Tenant’s interest in this Lease; or (iv) the attachment, execution or other judicial seizure of substantially all of Tenant’s assets located at the Premises or of Tenant’s interest in this Lease, provided, however, in the event that any provisions of this Section 12.01(e) is contrary to any applicable law, such provision shall be of no force or effect;

(f) The discovery by Landlord that any financial statement given to Landlord by Tenant, or any guarantor of Tenant’s obligations hereunder, was materially false; and

(g) The occurrence of a material default and breach by Tenant under any other Lease between Tenant and Landlord for premises in the Building or Project.

Section 12.02 Remedies

In the event of any such material default and breach by Tenant, Landlord may at any time thereafter, and without limiting Landlord in the exercise of any right or remedy which Landlord may have by reason of such default and breach:

(a) Terminate Tenant’s right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Tenant shall immediately surrender possession of the Premises to Landlord. In such event Landlord shall be entitled to recover from Tenant all damages incurred by Landlord by reason of Tenant’s default including, but not limited to, (i) the cost of recovering possession of the Premises including reasonable attorney’s fees related thereto; (ii) the worth at the time of the award of any unpaid Rent that had been earned at the time of the termination, to be computed by allowing interest at the Agreed Rate but in no

case greater than the maximum amount of interest permitted by law, (iii) the worth at the time at the time of the award of the amount by which the unpaid Rent that would have been earned between the time of the termination and the time of the award exceeds the amount of unpaid Rent that Tenant proves could reasonably have been avoided, to be computed by allowing interest at the Agreed Rate but in no case greater than the maximum amount of interest permitted by law, (iv) the worth at the time of the award of the amount by which the unpaid Rent for the balance of the Lease Term after the time of the award exceeds the amount of unpaid Rent that Tenant proves could reasonably have been avoided, to be computed by discounting that amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award plus one percent (1%), (v) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to perform obligations under this Lease, including, but not limited to, brokerage commissions and advertising expenses, expenses of remodeling the Premises for a new tenant (whether for the same or a different use), and any special concessions made to obtain a new tenant, and (vi) any other amounts, in addition to or in lieu of those listed above, that may be permitted by applicable law.

(b) Maintain Tenant’s right to possession as provided in Civil Code Section 1951.4 (lessor may continue lease in effect after lessee’s breach and abandonment and recover rent as it becomes due, if lessee has the right to sublet or assign, subject only to reasonable limitations), in which case this Lease shall continue in effect whether or not Tenant shall have abandoned the Premises. In such event Landlord shall be entitled to enforce all of Landlord’s rights and remedies under this Lease, including the right to recover the Rent as it becomes due hereunder.

(c) Pursue any other remedy now or hereafter available to Landlord under the laws or judicial decisions of the state of California.

Section 12.03 Default by Landlord

Landlord shall not be in default under this Lease unless Landlord fails to perform obligations required of Landlord within fifteen (15) business days after receipt of written notice from Tenant to Landlord and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have theretofore been furnished to Tenant in writing, specifying that Landlord has failed to perform such obligation; provided, however, that if the nature of Landlord’s obligation is such that more than fifteen (15) business days are reasonably required for performance then Landlord shall not be in default if Landlord commences performance within such fifteen (15) business day period and thereafter diligently prosecutes the same to completion. In the event Landlord does not commence performance of any maintenance or repair required of Landlord hereunder within the fifteen (15) business day period provided herein, and in the event that such maintenance or repair relates to improvements which are wholly within the Premises (not including any Building core systems or equipment), Tenant may perform such maintenance or repair, and Tenant shall be entitled to prompt reimbursement by Landlord of Tenant’s reasonable costs and expenses in taking such action, together with interest thereon at the Agreed Rate. Tenant waives any right to terminate this Lease or to vacate the Premises on Landlord’s default under this Lease. Tenant’s sole remedy on Landlord’s default is an action for damages or injunctive or declaratory relief.

Section 12.04 Late Charges

Tenant hereby acknowledges that late payment by Tenant to Landlord of Rent and other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed on Landlord by the terms of any mortgage or trust deed covering the Premises. Accordingly, if any installment of Rent or any other sum due from Tenant shall not be received by Landlord or Landlord’s designated agent within five (5) days after such amount is due and owing, Tenant shall pay to Landlord a late charge equal to five percent (5%) of the amount which is past due. Notwithstanding the above, once every twelve (12) months during the Lease Term, Tenant shall be entitled to written notice of non-receipt of Rent from Landlord, and Tenant shall not be liable for any late charge, interest or other late fee hereunder if such Rent is received by Landlord within three (3) business days after Tenant’s receipt of such written notice from Landlord. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant’s default with respect to such overdue amount, nor prevent Landlord from exercising any of the other rights and remedies granted hereunder.

Section 12.05 Landlord’s Right to Perform Tenant’s Obligations

All obligations to be performed or observed by Tenant under this Lease shall be performed or observed by Tenant at Tenant’s expense and without any reduction of Rent. Landlord may perform or observe any obligation of Tenant which is in default hereunder after the specified cure period, without waiving Landlord’s other rights and remedies for Tenant’s failure to perform or observe any obligations under this Lease and without releasing Tenant from any such obligations. Within thirty (30) days after receiving a statement from Landlord, Tenant shall pay to Landlord the amount of expense reasonably incurred by Landlord in performing or observing Tenant’s obligation.

ARTICLE XIII

CONDEMNATION OF PREMISES.

Section 13.01 Total Condemnation

If the entire Premises shall be taken by condemnation at any time during the Lease Term (whether by exercise of governmental power or the sale or transfer by Landlord to any condemnor under threat of condemnation or while proceedings for condemnation are pending) such that there does not remain a portion suitable for occupation, then this Lease shall terminate as of the date transfer of possession is required. Upon such condemnation, all Rent shall be paid up to the date transfer of possession is required, and Tenant shall have no claim against Landlord or the award for the value of the unexpired portion of the Lease Term.

Section 13.02 Partial Condemnation

Except as otherwise provided in this Section 13.02, if any portion of the Premises is taken by condemnation during the Lease Term (whether by exercise of governmental power or the sale

or transfer by Landlord to any condemnor under threat of condemnation or while proceedings for condemnation are pending) and Tenant cannot reasonably conduct its business, then Tenant may terminate this Lease. In addition, if more than thirty-three percent (33%) of the total Rentable Area of the Premises is taken by condemnation, then Landlord shall have the right to terminate this Lease effective as of the date transfer of possession is required. Tenant and Landlord may elect to exercise their respective rights to terminate this Lease pursuant to this Section 13.02, if at all, by delivering written notice to the other party within thirty (30) days after receipt of notice of such condemnation. All Rent shall be paid up to the date of termination, and Tenant shall have no claim against Landlord for the value of the unexpired portion of the Lease Term. If this Lease shall not be terminated, then the Rent reserved herein shall be prorated on the basis the of the Rentable Area of the portion of the Premises retained by Tenant in proportion to the Rentable Area contained in the Premises immediately prior to the partial taking. If Tenant’s continued use of the Premises requires alterations and repair by reason of a partial taking, all such alterations and repair shall be made by Tenant at Tenant’s expense. Tenant waives all rights it may have under California Code of Civil Procedure Section 1265.130 or otherwise, to terminate this Lease based on partial condemnation.

Section 13.03 Award to Tenant

In the event of any condemnation (whether total or partial), Tenant shall have the right to claim and recover from the condemning authority such compensation as may be separately awarded or recoverable by Tenant for loss of Tenant’s improvements, business fixtures, or equipment belonging to Tenant immediately prior to the condemnation. In the event of any condemnation (whether total or partial), the entire condemnation award shall belong to Landlord (including, without limitation, any “bonus value” of the leasehold estate - OR - amount attributable to any excess of the market value of the Premises for the remainder of the Lease Term over the then present value of the Rent payable for the remainder of the Lease Term), and Tenant shall have no right to recover from Landlord or from the condemning authority for any claims arising out of such taking; provided, however, notwithstanding the foregoing, as long as the award payable to Landlord is not reduced thereby, Tenant shall have the right to make a separate claim in the condemnation proceeding for, and to recover from the condemning authority, such compensation as may be separately awarded or recoverable by Tenant for (a) loss of Tenant’s business fixtures, or equipment belonging to Tenant immediately prior to the condemnation, and (b) the taking of the unamortized value (using the Lease Term as the amortization period) of any Tenant Improvements paid for by Tenant which are not removed by Tenant.

ARTICLE XIV

ENTRY BY LANDLORD

Tenant shall permit Landlord and its employees, agents and contractors upon advance notice (except in case of emergency, in which event no notice shall be necessary) to enter the Premises and all parts thereof (i) at all reasonable times for any of the following purposes: to inspect the Premises; to maintain the Premises; to make such repairs to the Premises as Landlord is obligated or may elect to make; and to make repairs, alterations or additions to any other portion of the Building; and (ii) upon forty-eight (48) hours notice (which may be oral) for any of the following purposes: to show the Premises and to post “For Lease” signs for the purposes

of re-letting the Premises during the last twelve (12) months of the Lease Term; to show the Premises to prospective lenders or purchasers of the Building; and to post notices of nonresponsibility. Landlord shall have such right of entry without any abatement of Rent to Tenant. Tenant hereby waives any claims for damages or for any injuries or inconvenience to or interference with Tenant’s business, lost profits, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby, except that such waiver shall not apply to any actual, out-of-pocket damages incurred by Tenant in connection with Landlord’s entry in the Building when such loss or damage is due to Landlord’s negligence or willful misconduct.

ARTICLE XV

ESTOPPEL CERTIFICATE

Section 15.01 Tenant’s Statement

Tenant shall, at any time upon not less than fifteen (15) days’ prior written notice from Landlord, execute, acknowledge and deliver to Landlord a statement (i) certifying, if true, that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying, if true, that this Lease, as so modified, is in full force and effect) and the date to which the Rent and other charges are paid in advance, if any; (ii) acknowledging, if true, that there are not, to Tenant’s knowledge, any uncured defaults on the part of Landlord or Tenant hereunder, or specifying such defaults if any are known or claimed; and (iii) certifying or acknowledging, if true, such other matters as are requested by any prospective lender or purchaser of the Building which are reasonably related to the loan or sale transaction. Any such statement may be conclusively relied upon by any prospective lender or purchaser of the Building.

ARTICLE XVI

LIMITATIONS ON LANDLORD’S LIABILITY

If Landlord shall fail to perform any covenant, term or condition of this Lease upon Landlord’s part to be performed, and if as a consequence of such default Tenant shall recover a money judgment against Landlord, such judgment shall be satisfied only out of the interest of Landlord in the Building. Neither Landlord nor any Landlord Parties shall have any personal liability therefor, and Tenant hereby expressly waives and releases such personal liability on behalf of itself and all persons claiming by, through or under Tenant. The limitations of liability contained in this Article XVI shall inure to the benefit of Landlord’s and all Landlord Parties’ present and future partners, beneficiaries, officers, directors, trustees, shareholders, agents and employees, and their respective partners, heirs, successors and assigns. Under no circumstances shall any present or future partner of Landlord (if Landlord is a partnership), or trustee or beneficiary (if Landlord or any partner of Landlord is a trust), have any liability for the performance of Landlord’s obligations under this Lease. Notwithstanding any contrary provision herein, neither Landlord nor any Landlord Parties shall be liable under any circumstances for injury or damage to, or interference with, Tenant’s business, including but not limited to, loss of profits, loss of rents or other revenues, loss of business opportunity, loss of goodwill or loss of use, in each case, however occurring.

ARTICLE XVII

GENERAL PROVISIONS

Section 17.01 Severability

The invalidity of any provision of this Lease shall in no way affect the validity of any other provision hereof.

Section 17.02 Agreed Rate Interest on Past-Due Obligations

Except as expressly herein provided, any amount due to either party not paid when due shall bear interest at the Bank of America prime rate plus two percent (2%) (“Agreed Rate”). Payment of such interest shall not excuse or cure any default by Tenant under this Lease. Despite any other provision of this Lease, the total liability for interest payments shall not exceed the limits, if any, imposed by the usury laws of the State of California. Any interest paid in excess of those limits shall be refunded to the payor by application of the amount of excess interest paid against any sums outstanding in any order that payee requires. If the amount of excess interest paid exceeds the sums outstanding, the portion exceeding those sums shall be refunded in cash to the payor by the payee.

Section 17.03 Time of Essence

Time is of the essence in the performance of all obligations under this Lease.

Section 17.04 Submission of Lease

The submission of this Lease to Tenant shall be for examination purposes only, and does not and shall not constitute a reservation of or option for Tenant to lease, or otherwise create any interest of Tenant in the Premises or any other premises situated in the Project. Execution of this Lease by Tenant shall be irrevocable. The return to Landlord of Tenant-executed copies of this Lease shall not be binding upon Landlord, notwithstanding any preparation or anticipatory reliance or expenditures by Tenant or any time interval, until Landlord has in fact executed and actually delivered a fully-executed copy of this Lease to Tenant.

Section 17.05 Incorporation of Prior Agreements and Exhibits

This Lease (including Exhibits A, B, C, D, E, F, G and H and Schedules 1, 2 and 3) contains all agreements of the parties with respect to any matter mentioned herein. No prior agreement or understanding pertaining to any such matter shall be effective. This Lease may be modified in writing only, signed by the parties in interest at the time of the modification. Except as otherwise stated in this Lease, Tenant hereby acknowledges that neither the Landlord nor any employees or agents of the Landlord has made any oral or written warranties or representations to Tenant relative to the condition or use by Tenant of said Premises and Tenant acknowledges that Tenant assumes all responsibility regarding the Occupational Safety Health Act, the legal use and adaptability of the Premises and the compliance thereof with all applicable laws and regulations in effect during the Lease Term except as otherwise specifically stated in this Lease.

Section 17.06 Notices

(a) Written Notice

Any notice required or permitted to be given hereunder shall be in writing and shall be given by a method described in paragraph (b) below and shall be addressed to Tenant or to Landlord, as the case may be, at the respective address noted below next to the signature of such party. Either party may, by notice to the other party, specify a different address for notice purposes. A copy of all notices required or permitted to be given hereunder to Tenant or to Landlord, as the case may be, shall be concurrently transmitted to such other persons at such addresses as may hereafter be designated by Tenant or Landlord, respectively, by notice to the other party; provided, however, no delay or failure of delivery to any such persons shall affect the validity of the delivery of such notice to Tenant or to Landlord, as the case may be.

(b) Methods of Delivery

(i) When personally delivered to the recipient, notice is effective upon delivery. Delivery to the person apparently designated to receive deliveries at the subject address (e.g., a receptionist) shall constitute personal delivery if made during business hours.

(ii) When mailed by certified mail with return receipt requested, notice is effective upon receipt if delivery is confirmed by a return receipt.

(iii) When delivered by recognized overnight courier service (e.g., Federal Express, Airborne, United Parcel Service, DHL WorldWide Express) with charges prepaid or charged to the sender’s account, notice is effective upon delivery if delivery is confirmed by the courier service.

Any correctly addressed notice that is refused, unclaimed, or undeliverable because of an act or omission of the party to be notified shall be considered to be effective as of the first date that the notice was refused, unclaimed, or considered undeliverable by the postal authorities, messenger, or overnight courier service.

Section 17.07 Waivers

No waiver of any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach of the same or any other provisions. Any consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of consent to or approval of any subsequent act. The acceptance of Rent hereunder by Landlord shall not be a waiver of any preceding breach by Tenant of any provision hereof, other than the failure of Tenant to pay the particular Rent so accepted, regardless of Landlord’s knowledge of such preceding breach at the time of acceptance of such Rent.

Section 17.08 Recording

Tenant may not record this Lease or a “short form” memorandum of this Lease.

Section 17.09 Surrender of Possession; Holding Over

(a) At the expiration or earlier termination of this Lease, Tenant shall remove shall remove all of Tenant’s equipment, trade fixtures, supplies, wall decorations, signage, film or other protective coatings added to the exterior windows by Tenant and other personal property from the Premises, the Building and the Common Area and shall vacate the Premises, and surrender to Landlord possession of the Premises and all improvements therein, broom clean and in as good order and condition as when possession was taken by Tenant, excepting only normal wear and tear and damage due to casualty not caused by Tenant or Tenant’s agents, employees or contractors, and deliver to Landlord copies of all service contracts and maintenance records kept by Tenant with respect to the Premises. Notwithstanding the foregoing, Tenant shall not be required to remove from the Premises at the expiration or termination of this Lease any of Tenant’s initial Tenant Improvements to the Premises to the extent such Tenant Improvements were approved by Landlord as part of the Approved Working Drawings (as defined in Section 3.3 of the Work Letter Agreement attached hereto as Exhibit C). Except for such normal wear and tear and damage due to casualty not caused by Tenant or Tenant’s agents, employees or contractors, Tenant shall: (i) repair all damage to the Premises, the interior and exterior of the Building and the Common Area caused by Tenant’s removal of its property; (ii) patch and refinish, to Landlord’s reasonable satisfaction, all penetrations made by Tenant or any Tenant Parties to the roof, floor, interior or exterior walls or ceiling of the Premises and the Building, whether or not such penetrations were made with Landlord’s approval; (iii) repair or replace all stained or damaged ceiling tiles, wall coverings and floor coverings to the reasonable satisfaction of Landlord; and (iv) repair all damage caused by Tenant to the exterior surface of the Building and to the paved surfaces of the Common Area and, where necessary, replace or resurface same. Upon the expiration or earlier termination of this Lease, Landlord may reenter the Premises and remove all persons and property therefrom. If Tenant shall fail to surrender to Landlord the Premises, the Building and the Common Area in the condition required by this Section 17.09(a) at the expiration or earlier termination of this Lease, then Landlord, at Tenant’s expense, may remove Tenant’s signs, property and/or improvements not so removed and make such repairs and replacements not so made or hire, at Tenant’s expense, independent contractors to perform such work. Tenant shall be liable to Landlord for all costs incurred by Landlord in returning the Premises, the Building and the Common Area to the required condition, together with interest thereon at the Agreed Rate from the date incurred by Landlord until paid. Tenant shall pay to Landlord the amount of all costs so incurred (including, without limitation, costs of disposal, storage and insurance), together with interest at the Agreed Rate, within five (5) business days after receipt of an invoice therefor.

(b) If Tenant, with Landlord’s prior written consent, remains in possession of the Premises after expiration of the Lease Term, and if Landlord and Tenant have not executed an express written agreement as to such holding over, then such occupancy shall be a tenancy from month-to-month on every applicable term, condition and agreement contained herein (including the payment of Additional Rent), except that monthly Base Rent shall be payable at a rate equivalent to one hundred twenty-five percent (125%) of the monthly Base Rent in effect immediately prior to such expiration.

Section 17.10 Cumulative Remedies

No remedy or election hereunder by Landlord or Tenant shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.

Section 17.11 Covenants and Conditions

Each provision of this Lease to be observed or performed by Tenant shall be deemed both a covenant and a condition.

Section 17.12 Binding Effect; Choice of Law

Subject to any provisions hereof restricting assignment or subletting by Tenant and subject to the provisions of Article XVI, this Lease shall bind the parties, their personal representatives, successors and assigns. This Lease shall be governed by the laws of the State of California.

Section 17.13 Lease to be Subordinate

Tenant agrees that this Lease is and shall be, at all times, subject and subordinate to (a) the lien of any mortgage, deed of trust or other encumbrances now existing or hereafter executed which Landlord may create against the Premises, the Building or the Project, including all modifications, renewals, extensions and replacements thereof, and (b) all ground or underlying leases now existing or hereafter executed affecting the Building or the Project, including all modifications, renewals, extensions and replacements thereof; provided, however, that regardless of any default under any such mortgage, deed of trust or other encumbrance or any sale of the Premises under such mortgage, deed of trust or other encumbrance, and regardless of any default under any such ground or underlying lease or any termination of any such ground or underlying lease, so long as Tenant timely performs all covenants and conditions of this Lease and continues to make all timely payments hereunder, this Lease and Tenant’s possession and rights hereunder shall not be disturbed by any mortgagee, beneficiary, or ground or underlying lessor, or anyone claiming under or through any such mortgagee, beneficiary, or ground or underlying lessor. Tenant shall execute and deliver any commercially reasonable documents confirming the subordination of this Lease within ten (10) days after delivery of same by Landlord, so long as the mortgagee, beneficiary, or ground or underlying lessor agrees therein that this Lease will not be terminated if Tenant is not in default following either the foreclosure of any such mortgage, deed or trust or other encumbrance (or the granting of a deed in lieu thereof) or the termination of any such ground or underlying lease. Tenant hereby agrees that any Subordination, Nondisturbance and Attornment Agreement (“SNDA”) which is substantially in the form attached hereto as Exhibit E shall be deemed to be commercially reasonable for purposes of the immediately preceding sentence. Notwithstanding any subordination of this Lease, in the event of either the foreclosure of any such mortgage, deed or trust or other encumbrance (or the granting of a deed in lieu thereof) or the termination of any such ground or underlying lease, Tenant shall attorn to, and become the tenant of, the successor to Landlord (i.e., such mortgagee, beneficiary or other successor to Landlord by foreclosure or deed in lieu thereof, or such ground or underlying lessor, as the case may be), at the option of such successor to Landlord; provided however, in no event shall any such successor to Landlord (i) be liable for

any previous act or omission of Landlord under this Lease, (ii) be subject to any offset, defense or counterclaim against Landlord which shall theretofore have accrued to Tenant under this Lease, (iii) have any obligation with respect to any security deposit or letter of credit, unless the same shall have been paid or physically delivered to such successor, or (iv) be bound by any Rent paid more than one month in advance to Landlord or any prior landlord or owner. Notwithstanding anything herein to the contrary, Landlord shall use commercially reasonable efforts to obtain from Landlord’s existing lender, at Tenant’s sole expense, a SNDA in the form attached hereto as Exhibit E or on such other standard form as is then used by such lender. If Landlord is unable to obtain such an agreement, notwithstanding such commercially reasonable efforts, then such failure shall not affect the validity of this Lease.

Section 17.14 Attorneys’ Fees

In the event any action or proceeding is brought by any party to enforce or interpret the provisions of this Lease, or if any other action or proceeding is brought arising out of or relating to this Lease, the prevailing party in such action or proceeding shall be entitled to recover the reasonable fees of its attorneys, experts and arbitrators, and other costs of suit.

Section 17.15 Signs

Tenant shall not place any signs outside the Premises (or visible from outside the Premises) without Landlord’s prior written consent, which consent shall not be unreasonably withheld or delayed; provided, however, any such signage shall be subject to the terms of this Section 17.15. Tenant’s identification signage and other signage, including any directional signage outside the Premises (or visible from outside the Premises), shall be referred to herein, collectively, as “Tenant’s Signage.” All aspects of Tenant’s Signage, including, but not limited to, location, quality, design, color, style, lighting, size and specifications, as applicable, shall be (i) consistent with Landlord’s signage policy set forth on Exhibit D attached hereto and any other signage program for the Building or the Project which may be in effect from time to time, (ii) subject to Landlord’s prior written approval, in Landlord’s sole and absolute discretion, and (iii) in compliance with all applicable governmental laws, ordinances, rules, regulations, codes and approvals. Tenant shall be responsible, at its sole cost and expense, for the installation, maintenance, repair and replacement of Tenant’s Signage. Upon the expiration or earlier termination of this Lease, Tenant shall, at Tenant’s sole cost and expense, remove Tenant’s Signage and repair any damage resulting therefrom. Notwithstanding anything to the contrary contained in this Section 17.15, Landlord, at its election, shall have the right to perform any and all installation, maintenance, repair, replacement and removal of Tenant’s Signage and to repair any damage resulting therefrom, in which instance Tenant shall pay to Landlord upon demand the cost of such installation, maintenance, repair, replacement, removal and repair within ten (10) days after receipt of an invoice. Tenant shall be responsible, at its sole cost and expense, for obtaining all governmental approvals for Tenant’s Signage, provided that Tenant shall not submit any applications or requests for governmental approvals without first obtaining Landlord’s prior written approval thereof (which approval may be withheld in Landlord’s sole and absolute discretion), and provided further that Tenant shall provide written notice to Landlord of all hearings and meetings with any applicable governmental authority regarding Tenant’s applications or requests for governmental approvals not later than five (5) business days prior thereto. Subject to the foregoing, upon request by Tenant from time to time, Landlord agrees (at

no cost to Landlord) to reasonably cooperate with Tenant in connection with Tenant’s efforts to obtain all governmental approvals for Tenant’s Signage, provided that Landlord shall have no obligation (and Tenant shall have no right) to agree to or to comply with any conditions which may be imposed upon Landlord or the Building or the Project in connection with any governmental approvals for Tenant’s Signage. Tenant hereby acknowledges and agrees that the governmental approvals for Tenant’s Signage are not conditions to the validity of this Lease, and in the event Tenant fails to obtain any such approvals, this Lease shall continue in full force and effect in accordance with its terms, except that Tenant shall have no right with respect to Tenant’s Signage which is not so approved. The rights contained in this Section 17.15 with respect to Tenant’s Signage shall be personal to the originally named Tenant herein (“Original Tenant”) or an Affiliate and may only be exercised by the Original Tenant or an Affiliate (and not by any other assignee, subtenant or transferee) if the Original Tenant or an Affiliate then occupies the entire Premises, and in all instances shall apply only with respect to Tenant’s company name as of the date of this Lease or a name otherwise approved by Landlord pursuant to this Section 17.15. Should the name of Original Tenant be legally changed or should Tenant’s Signage be assigned to an Affiliate (any such other name referred to herein as a “New Name”), Tenant, at its sole cost and expense, shall be entitled to modify Tenant’s name as the same appears on Tenant’s Signage to reflect Tenant’s New Name, so long as Tenant’s New Name is not an Objectionable Name. As used herein, the term “Objectionable Name” shall mean any name which relates to an entity which is of a character or reputation, or is associated with a political orientation or faction, which is inconsistent with the quality of the Building or the Project, or which would otherwise reasonably offend a landlord of similar Buildings in the vicinity of the Building.

Section 17.16 Merger

The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, or a termination by Landlord, shall not work a merger, and shall, at the option of Landlord, terminate all or any existing subtenancies or may, at the option of Landlord, operate as an assignment to Landlord of any or all of such subtenancies.

Section 17.17 Quiet Possession

Landlord covenants that Tenant, upon timely paying the Rent for the Premises and timely observing and performing all of the covenants, conditions and provisions on Tenant’s part to be observed and performed hereunder, shall have quiet possession of the Premises for the Lease Term, subject to all of the covenants, conditions and provisions of this Lease. The foregoing covenant is in lieu of any other covenant express or implied.

Section 17.18 Easements

Landlord reserves to itself the right, from time to time, to grant such easements, rights and dedications that Landlord deems necessary or desirable, and to cause the recordation of Parcel Maps and covenants, conditions and restrictions, so long as such easements, rights, dedications, Maps and covenants, conditions and restrictions do not unreasonably interfere with Tenant’s use of or access to the Premises or Tenant’s parking rights granted hereunder. Tenant shall sign any of the aforementioned or other documents, and take such other actions, which are

reasonably necessary or appropriate to accomplish such granting, recordation and subordination of the Lease to same, upon request of Landlord, and failure to do so within ten (10) business days after a written request to do so shall constitute a material breach of this Lease, provided that Landlord shall reimburse Tenant for Tenant’s reasonable out-of-pocket expenses (including reasonable attorneys’ fees) necessarily incurred in the performance of Tenant’s obligations under this Section 17.18.

Section 17.19 Authority

Each individual executing this Lease on behalf of a corporation, limited liability company or partnership represents and warrants that he or she is duly authorized to execute and deliver this Lease on behalf of such entity in accordance with a duly adopted resolution of the governing group of the entity empowered to grant such authority, and that this Lease is binding upon said entity in accordance with its terms. Each party shall provide the other with a certified copy of its resolution within thirty (30) days after execution hereof, but failure to do so shall in no manner (i) be evidence of the absence of authority or (ii) affect the representation or warranty.

Section 17.20 Force Majeure Delays

In any case where either party hereto is required to do any act (other than the payment of money), and the performance of such act is prevented, delayed or stopped due to Acts of God or Nature, war, terrorism, civil commotion, fire, flood or other casualty, labor difficulties, shortages of labor or materials or equipment, government regulations, delay by government or regulatory agencies with respect to approval or permit process, unusually severe weather, the time for performance of such act (whether designated by a fixed date, a fixed time or a “reasonable time”) shall be deemed to be extended by the period of such prevention, delay or stoppage.

Section 17.21 Hazardous Materials

(a) Definition of Hazardous Materials and Environmental Laws

“Hazardous Materials” means any chemical, substance, petroleum, pollutant, product, waste or other material of any nature whatsoever (collectively called “Hazardous Materials”) subject to regulation pursuant to the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. sections 9601, et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. section 1801, et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. section 6901, et seq.; the Toxic Substances Control Act, 15 U.S.C. sections 2601, et seq.; the Clean Air Act, 42 U.S.C. sections 7401 et seq.; the Clean Water Act, 33 U.S.C. sections 1251, et seq.; the California Hazardous Waste Control Act, Health and Safety Code sections 25100, et seq.; the California Hazardous Substances Account Act, Health and Safety Code sections 26300, et seq.; the California Safe Drinking Water and Toxic Enforcement Act, Health and Safety Code sections 25249.5, et seq.; California Health and Safety Code sections 25280, et seq. (Underground Storage of Hazardous Substances); the California Hazardous Waste Management Act, Health and Safety Code sections 25170.1, et seq.; California Health and Safety Code sections 25501. et seq. (Hazardous Materials Response Plans and Inventory); California Health and Safety Code sections 25214.9 et seq. (Electronic Waste); or the Porter-Cologne Water Quality Control Act, California Water Code sections 13000, et seq.; all of

the foregoing as may be amended from time to time; or any other federal, state or local statute, law, ordinance, resolution, code, rule, regulation, order or decree regulating, relating to or imposing liability (including, but not limited to, warning, disclosure, management, storage, disposal, release, response, removal and remediation costs) or standards of conduct or performance concerning any Hazardous Material as now or at any time hereafter may be in effect (collectively, “Environmental Laws”).

(b) Use of Hazardous Materials

Tenant shall not cause or permit any Hazardous Materials to be brought upon, kept or used in, on or about the Project by Tenant, its agents, employees, contractors, licensee, guests, visitors or invitees without the prior written consent of Landlord. Landlord shall not unreasonably withhold such consent so long as Tenant demonstrates to Landlord’s reasonable satisfaction that such Hazardous Materials and the quantity thereof are necessary or useful to Tenant’s business and will be used, kept and stored in a manner that complies with all applicable Environmental Laws. Tenant shall, at all times, provide any required warnings or disclosure, and shall use, keep, store, and handle all such Hazardous Materials in or about the Project in compliance with all applicable Environmental Laws. Tenant shall not treat or dispose of Hazardous Materials at the Project. Tenant shall properly dispose of Hazardous Materials at a off-site facility in accordance with Environmental Laws, and shall properly remove all Hazardous Materials used or brought onto the Project during the Lease Term from the Project prior to the expiration or earlier termination of the Lease.

Tenant agrees to indemnify and hold Landlord harmless from any liabilities, losses, claims, damages, penalties, fines, attorney fees, expert fees, court costs, remediation costs, investigation costs, or other expenses resulting from or arising out of a breach of this Section 17.21 or the use, storage, treatment, transportation, release, presence, generation, or disposal of Hazardous Materials on, from or about the Project, and/or subsurface or ground water, after the Delivery Date from an act or omission of Tenant (or Tenant’s successor), its agents, employees, invitees, vendors or contractors. It is understood by the parties that Tenant shall not be responsible under this subsection for any Hazardous Materials introduced to the Project prior to the Delivery Date by anyone other than Tenant or Tenant’s Agents.

(d) Tenant’s Obligation to Promptly Remediate

If the presence of Hazardous Materials on the Premises after the Delivery Date is a result from an act or omission of Tenant (or Tenant’s successors), its agents, employees, invitees, vendors, contractors, guests, or visitors and such Hazardous Materials contaminate the Project or any water or soil beneath the Project, Tenant shall promptly take all action necessary or appropriate to investigate and remedy that contamination, at its sole cost and expense, provided that Landlord’s consent to such action shall first be obtained, which consent shall not be unreasonably withheld, conditioned or delayed.

(e) Notification

Landlord and Tenant each agree to promptly notify the other of (i) any release of Hazardous Materials in, on or about the Premises or the Building, and (ii) any communication received from any governmental entity concerning Hazardous Materials or the violation of Environmental Laws that relate to the Project.

Section 17.22 Modifications Required by Landlord’s Lender.

If any current or prospective lender or ground lessor for the Building or the Project requests a modification of this Lease that will not increase Tenant’s cost or expense or materially and adversely change Tenant’s rights and obligations hereunder, then this Lease shall be so modified and Tenant shall execute whatever documents are required by such lender or ground lessor and deliver the same to Landlord within ten (10) days after the request.

Section 17.23 Brokers

Landlord and Tenant represent and warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, except for the real estate brokers named in the Summary (collectively, the “Brokers”) and that they know of no other real estate broker or agent who is entitled to a commission or finder’s fee in connection with this Lease. Each party shall indemnify, protect, defend, and hold harmless the other party against all claims, demands, losses, liabilities, lawsuits, judgments, and costs and expenses (including reasonable attorneys’ fees) for any leasing commission, finder’s fee, or equivalent compensation alleged to be owning on account of the indemnifying party’s dealings with any real estate broker or agent other than the Brokers. Landlord shall pay a commission to the Brokers in accordance with the terms of a separate written agreement.

Section 17.24 Survival

All covenants and obligations arising out of this Lease shall survive the expiration or earlier termination of this Lease and shall remain outstanding until satisfied in full.

Section 17.25 List of Exhibits


EXHIBIT A:		Real Property Legal Description, Project Site Plan and Premises Floor Plan

EXHIBIT B:		Memorandum of Commencement of Lease Term and Schedule of Base Rent

EXHIBIT C		Work Letter Agreement for Tenant Improvements and Interior Specification Standards

EXHIBIT D		Signage Exhibit

EXHIBIT E		SNDA



EXHIBIT F		Intentionally Deleted

EXHIBIT G:		Rules and Regulations

LANDLORD AND TENANT EACH HAS CAREFULLY READ AND HAS REVIEWED THIS LEASE AND BEEN ADVISED BY LEGAL COUNSEL OF ITS OWN CHOOSING AS TO EACH TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOWS ITS INFORMED AND VOLUNTARY CONSENT THERETO. EACH PARTY HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS AND CONDITIONS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LANDLORD AND TENANT WITH RESPECT TO THE PREMISES.

Executed at San Diego, California, as of the reference date.

(Signatures continued on next page)


LANDLORD:			ADDRESS:

BERNARDO SUMMIT LLC, a California limited liability company			c/o Jay Paul Company 350 California Street, Suite 1905 San Francisco, CA 94104-1432
By:	BERNARDO SUMMIT MANAGEMENT, INC., its managing member

By:	/s/ Jay Paul
	Jay Paul, its President and Secretary

TENANT:			ADDRESS:

LIONBRIDGE TECHNOLOGIES, INC., a Delaware corporation			1050 Winter Street, Suite 2300 Waltham, Massachusetts 02451 Attention: Mr. Derek Salisbury
By:	/s/ Satish Maripuri		(Before Commencement Date)
Name:	SATISH MARIPURI	.
	(Type or Print Name)
Title:	COO	.	16550 West Bernardo Drive San Diego, California 92127
			Attention: Mr. Derek Salisbury (After Commencement Date)

EX-31.1 3 dex311.htm SECTION 302 CEO CERTIFICATION Section 302 CEO Certification

Exhibit 31.1

CERTIFICATION

I, Rory J. Cowan, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Lionbridge Technologies, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 8, 2009

By:

/s/ RORY J. COWAN

Rory J. Cowan

Chief Executive Officer

EX-31.2 4 dex312.htm SECTION 302 CFO CERTIFICATION Section 302 CFO Certification

Exhibit 31.2

CERTIFICATION

I, Donald M. Muir, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Lionbridge Technologies, Inc.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 8, 2009

By:

/s/ DONALD M. MUIR

Donald M. Muir

Chief Financial Officer

EX-32.1 5 dex321.htm SECTION 906 CEO AND CFO CERTIFICATION Section 906 CEO and CFO Certification

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Lionbridge Technologies, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Rory J. Cowan, Chief Executive Officer of the Company, and Donald M. Muir, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to our knowledge, that:

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 8, 2009

/s/ RORY J. COWAN

Rory J. Cowan

Chief Executive Officer

/s/ DONALD M. MUIR

Donald M. Muir

Chief Financial Officer

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