Form 10-Q

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

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 x 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

As of July 31, 2014, there were 26,777,391 shares of Common Stock, $0.01 par value per share, outstanding.

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

The forward-looking statements in this Quarterly Report on Form 10-Q include, among other things, statements about:

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in the “Risk Factors” section of this Quarterly Report on Form 10-Q, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

You should read this Quarterly Report on Form 10-Q, the documents that we reference and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2013 completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable law.

Durata Therapeutics, Inc. and subsidiaries (a development stage company) (the Company) is a Delaware corporation and has its principal place of business in Chicago, Illinois. The Company is a pharmaceutical company focused on the development and commercialization of new therapeutics for patients with infectious diseases and acute illnesses. The Company was incorporated on November 4, 2009. In December 2009, the Company entered into an agreement with Pfizer Inc. (Pfizer) to acquire Vicuron Pharmaceuticals Inc. (Vicuron) (see note 4, Acquisition-Milestone Payment).

On May 23, 2014, the United States Food and Drug Administration, or FDA, approved of Dalvance^TM (dalbavancin) for injection for the treatment of adult patients with acute bacterial skin and skin structure infections (ABSSSI) caused by susceptible gram positive bacteria, including Methicillin-resistant Staphylococcus aureus (MRSA). Dalvance is the first and only intravenous antibiotic approved for the treatment of adult patients with ABSSSI with a two-dose regimen of 1000 milligrams followed one week later by 500 milligrams, each administered over 30 minutes. Sales of dalbavancin in the United States commenced in late July 2014. Dalbavancin is designated as a Qualified Infectious Disease Product (QIDP) by the FDA. Dalbavancin’s QIDP designation qualifies it for an additional five years of marketing exclusivity to be added to certain exclusivity periods already provided by the Food, Drug and Cosmetic Act.

Through June 30, 2014, the Company has not generated any revenues and has financed its operations primarily through private placements of its preferred stock, its initial public offering of its common stock in July 2012 (see note 6, Stockholders’ Equity and Stock Compensation), a secured debt financing completed in March 2013 and refinanced with a new lender in October 2013 (see note 5, Long-term Debt), and a public offering of its common stock in April 2013 (see note 6, Stockholders’ Equity and Stock Compensation). Upon marketing approval of dalbavancin in the United States, the Company borrowed, as required, an incremental $15.0 million from PDL BioPharma, Inc. (PDL). The Company expects to continue to incur significant expenses to seek marketing approval for its product candidates, develop a commercial organization, manufacture product, conduct clinical trials for additional indications for dalbavancin, including osteomyelitis, diabetic foot infection and pneumonia, as well as new dosing strategies and formulations. During the second quarter, the Company began enrollment in a Phase 3b clinical trial to evaluate the efficacy and safety of a single 1500 mg dose of dalbavancin infused over 30 minutes in adult patients with ABSSSI caused by susceptible Gram-positive bacteria. The Company had a net loss of $37.9 million for the six months ended June 30, 2014 and had a deficit accumulated during the development stage of $207.3 million from inception until June 30, 2014.

The Company estimates that our existing cash and cash equivalents and short-term investments and other sources of liquidity discussed will be sufficient to support our current and projected funding requirements for at least the next twelve months. The Company estimates that such funds will be sufficient to enable it to seek marketing approval of dalbavancin in the European Union for the treatment of adult patients with acute bacterial skin and skin structure infections (ABSSSI), to commercially launch dalbavancin in the United States and, if approved in the European Union, possibly Western Europe, as well as to explore the development of dalbavancin for additional indications and new dosing strategies, including the Phase 3b clinical trial mentioned above, and formulations. The Company has based this estimate on assumptions that may prove to be wrong, and it could use its available capital resources sooner than it currently expects.

The Company also believes it has other financing alternatives available, including the option to borrow an additional $30.0 million from PDL, to fund additional activities until its operations generate adequate operating cash flows, which include additional equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. The Company also has limited fixed commitments for uses of cash and has the intent and ability, if necessary, to delay or eliminate expenditures until adequate funding is available.

The unaudited accompanying consolidated financial statements of the Company are prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the SEC) and generally accepted accounting principles in the United States of America (GAAP) for condensed consolidated financial information. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and in the opinion of management, reflect all adjustments which are necessary for a fair statement of the Company’s financial position and results of its operations, as of and for the periods presented. All intercompany accounts and transactions have been eliminated. These financial statements should be read in connection with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 as filed with the SEC on March 14, 2014.

The results for the six month period ended June 30, 2014 are not necessarily indicative of the results to be expected for the year ending December 31, 2014 or for any other interim period or for any other future year.

The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates. In May 2014, the FASB issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, which requires entities to recognize revenue which depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services. The guidance contains a five-step model which will replace most existing revenue guidance in U.S. GAAP. ASU 2014-09 is effective for public companies for annual periods beginning after December 15, 2016. The Company is currently evaluating the impacts ASU 2014-09 will have on its financial position, results of operations and cash flows.

In June 2014, the FASB issued Accounting Standards Update 2014-10, Development Stage Entities (Topic 915), which states the presentation and disclosure requirements in Topic 915 are no longer required as of the first annual period beginning after December 15, 2014. The Company does not expect the adoption of ASU 2014-10 will have a material impact on the Company’s financial position, results of operations and cash flows.

The Company’s primary activities since inception have been organizing and staffing the Company, business planning, raising capital and acquiring and developing dalbavancin. Accordingly, the Company is considered to be in the “development stage” and has prepared the accompanying consolidated financial statements in accordance with the provisions of the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) No. 915, Accounting for Development Stage Entities.

The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. The Company maintains its cash resources principally in money market funds.

Cash accounts with any type of restriction are classified as restricted cash. If restrictions are expected to be lifted in the next twelve months, the restricted cash account is classified as current. Included within restricted cash on the Company’s consolidated balance sheet are certificates of deposit for a total of $2.2 million as of June 30, 2014 and $1.1 million as of December 31, 2013, which are being held by a third party bank as collateral for the irrevocable letters of credit issued in connection with the Company’s office leases (see note 9, Commitments and Contingencies).

The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. The fair value hierarchy is established that prioritizes valuation inputs based on the observable nature of those inputs. The fair value hierarchy applies only to the valuation inputs used in determining the fair value of the investments and is not a measure of the investment credit quality. The hierarchy defines three levels of valuation inputs:


Level 1:		Observable inputs such as quoted prices in active markets for identical assets or liabilities;

Level 2:		Inputs other than the quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly; and

Level 3:		Unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions.

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. See note 3, Financial Instruments, for additional information.

As of June 30, 2014, cash equivalents and short-term investments consist of investments in money market accounts, federal agency bonds and corporate entity commercial paper and bonds that are classified as available for sale pursuant to ASC 320, Investments—Debt and Equity Securities. The Company classifies investments available to fund current operations as current assets on its balance sheet. Investments are classified as long-term assets on the balance sheet if (i) the Company has the intent and ability to hold the investments for a period of at least one year and (ii) the contractual maturity date of the investments is greater than one year. All of the Company’s investments are classified as current.

The fair value of these securities is based on quoted prices for identical or similar assets. If a decline in the fair value is considered other-than-temporary the unrealized loss, if any, would be transferred from other comprehensive loss to the statement of operations. There were no charges taken for other-than-temporary declines in fair value of short-term investments during the three or six month periods ended June 30, 2014. Realized gains and losses are determined using the specific identification method and are included in interest income in the statement of operations. Realized gains and losses recognized during the three and six month periods ended June 30, 2014 were immaterial.

The Company reviews investments for other-than-temporary impairment whenever the fair value of an investment is less than the amortized cost and evidence indicates that an investment’s carrying amount is not recoverable within a reasonable period of time. To determine whether an impairment is other-than-temporary, the Company considers its intent to sell, or whether it is more likely than not that the Company will be required to sell, the investment before recovery of the investment’s amortized cost basis. Evidence considered in this assessment includes reasons for the impairment, the severity and the duration of the impairment and changes in value subsequent to year end. As of December 31, 2013, there were no investments with a fair value that was lower than the amortized cost basis or any investments that had been in an unrealized loss position for a significant period. See note 3, Financial Instruments, for further information.

The Company capitalizes certain legal, accounting and other fees that are directly associated with in-process debt and equity financings as current assets until such financings occur. In the case of an equity financing, after occurrence, these costs are recorded in equity, net of proceeds received. In the case of a debt financing, these costs are recorded as other assets and amortized to interest expense over the term of the debt.

As of June 30, 2014, the Company recorded debt financing costs of $0.4 million in connection with the debt financing completed in October 2013. The debt financing costs recorded in connection with the debt financing completed in March 2013 were expensed at the time the debt was repaid (see note 5, Long-term Debt, for more information). The Company also incurred offering costs of $0.4 million in connection with the public offering of its common stock that closed in April 2013. The debt financing costs are recorded in other assets on the consolidated balance sheet, net of accumulated amortization. The offering costs are recorded in equity as an offset to the proceeds received from the sale of the shares.

The Company had an acquired in-process research and development (IPR&D) intangible asset of $15.3 million as of December 31, 2013. Acquired IPR&D intangible assets represent the right to develop, use, sell or offer for sale intellectual property that the Company has acquired with respect to processes that have not been completed. These assets are required to be classified as indefinite-lived assets until the successful completion or abandonment of the associated research and development efforts. Accordingly, during the development period after the date of acquisition, these assets were not amortized until their processes were completed and the Company received regulatory approval from a major market to allow for the commencement of commercial marketing activities. Following the FDA approval of dalbavancin in May 2014, the Company determined the useful life of the asset to be 10 years based largely on the 10-year marketing exclusivity period and reclassified the asset out of in-process research and development and began amortization. The useful life of an intangible asset to an entity is the period over which the asset is expected to contribute directly or indirectly to the future cash flows of that entity. The estimate of an intangible asset’s useful life should be based on relevant factors. After the 10-year marketing exclusivity period, generic drugs, comparable to dalbavancin, will enter the market, reducing our cash flows accordingly. Amortization for the six month period ended June 30, 2014 totaled $0.1 million and the carrying value of the finite-lived intangible asset as of June 30, 2014 was $15.2 million.

Intangible assets with definite useful lives are amortized to their estimated residual values over their estimated useful lives and reviewed for impairment at least annually or if certain events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. No impairment resulted from the Company’s most recent impairment evaluation of this asset as of December 31, 2013.

Goodwill represents the excess of purchase price over fair value of net assets acquired in a business combination accounted for by the acquisition method of accounting and is not amortized, but subject to impairment testing at least annually or when a triggering event occurs that could indicate a potential impairment. The Company had goodwill of $5.8 million as of both June 30, 2014 and December 31, 2013. The Company tests its goodwill for impairment annually as of December 31 each year unless indicators, events, or circumstances would require immediate review. No impairment resulted from the Company’s most recent impairment evaluation as of December 31, 2013.

Property and equipment are recorded at cost, net of depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets. The following table shows the estimated useful lives of the Company’s property and equipment:

Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized. Repairs and maintenance costs are expensed as incurred.

Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Rent expense related to leases is recorded on a straight-line basis over the term of the lease, including any rent free periods. The difference between actual rent payments and straight-line rent expense is recorded as deferred rent and included in other liabilities in the accompanying consolidated balance sheet.

Research and development costs are expensed as incurred and are primarily comprised of the following types of costs incurred in performing research and development activities:

In accordance with ASC 740, Income Taxes, each interim period is considered integral to the annual period and tax expense is measured using an estimated annual effective tax rate. An entity is required to record income tax expense each quarter based on its annual effective tax rate estimated for the full fiscal year and use that rate to provide for income taxes on a current year-to-date basis, adjusted for discrete taxable events that occur during the interim period. If, however, the entity is unable to reliably estimate its annual effective tax rate, then the actual effective tax rate for the year-to-date period may be the best annual effective tax rate estimate. For the three and six month periods ended June 30, 2014, the Company utilized the actual year-to-date effective tax rate. See note 8, Income Taxes, for additional information.

The Company uses share-based compensation in the form of stock options and restricted stock. Compensation expense is recognized in the consolidated statement of operations based on the estimated fair value of the shares at grant date. Compensation cost to be recognized reflects an estimate of the number of shares expected to vest after taking into consideration an estimate of forfeiture. The fair values of stock option grants are estimated as of the date of grant using the Black-Scholes option valuation model. The fair value of option grants are based on the fair value of the Company’s common stock on the date of grant. See note 6, Stockholders’ Equity and Stock Compensation, for additional information.

In connection with the loan agreement with Oxford Finance LLC, or Oxford, discussed in note 5, Long-term Debt, the Company granted warrants for the purchase of the Company’s common stock. In May 2014, Oxford exercised its warrants. The Company accounted for these common stock warrants in accordance with applicable accounting guidance provided in ASC 815-40, Derivatives and Hedging– Contracts in Entity’s Own Equity, as equity instruments based on the specific terms of the warrant agreements.

The Company maintains cash and cash equivalent balances with financial institutions which, at times, may exceed insurance limits established by the Federal Deposit Insurance Corporation. Management does not consider this to be a significant risk due to the long-standing reputation of these financial institutions.

The Company has entered into agreements with a contract manufacturer to manufacture clinical and commercial supplies of dalbavancin. The Company has also entered into an agreement with a contract manufacturer to supply the drug substance for dalbavancin in the form of injectable grade powder. The loss of either of these suppliers could have a material adverse effect upon the Company’s operations.

The following table presents information about the Company’s financial assets and liability that have been measured at fair value at June 30, 2014 and December 31, 2013, and indicates the fair value hierarchy of the valuation inputs used to determine such fair value (in thousands):

Additional information for the Company’s recurring fair value measurements using significant unobservable inputs (Level 3 inputs) was follows (in thousands):

At June 30, 2014 and December 31, 2013, the balance of the contingent liability, which reflects the fair value of the contingent milestone payment, was $25.0 million and $20.9 million, respectively. The Company’s contingent liability is based on Level 3 inputs within the fair value hierarchy. Fair values determined based on Level 3 inputs use unobservable inputs and include valuations of assets or liabilities for which there is little, if any, market activity. The underlying probability of payment of the contingent liability was 100% and 85% as of June 30, 2014 and December 31, 2013, respectively. The increase in the probability was due to the FDA’s approval on May 23, 2014 of dalbavancin for the treatment of adults with ABSSSI caused by certain susceptible bacteria.

Certain financial instruments reflected in the consolidated balance sheets (for example, cash, accounts payable and certain other liabilities) are recorded at cost, which approximates fair value due to their short-term nature.

All available for sale securities have maturity dates less than one year. As of June 30, 2014, unrealized gains and losses on available for sale securities were immaterial.

In December 2009, the Company acquired the rights to dalbavancin through its acquisition of all of the outstanding shares of capital stock of Vicuron from Pfizer pursuant to a stock purchase agreement (Pfizer Agreement). The Company paid total upfront consideration of $10.0 million for the shares of Vicuron and the dalbavancin inventory to be used in research. In addition, upon the first commercial sale of dalbavancin, which occurred in late July 2014, the Company became required to pay Pfizer an additional milestone payment of $25.0 million. However, under the Company’s credit agreement with PDL

discussed in note 5, Long-term Debt, the Company is prohibited from making any payment to Pfizer as long as amounts are outstanding under the Company’s credit agreement with PDL. As allowed under the Pfizer Agreement, the Company plans to defer the milestone payment to Pfizer for a period of up to five years by delivering to Pfizer a promissory note within thirty business days after the first commercial sale of dalbavancin for the full amount of such milestone payment. Interest on the outstanding principal amount of the promissory note will accrue at a rate of 10% per annum, compounded annually.

In March 2013, the Company and certain of its subsidiaries entered into a loan agreement with Oxford (the Oxford term loan), pursuant to which the Company’s wholly-owned Dutch subsidiaries borrowed an aggregate principal amount of $20.0 million.

In connection with the Oxford term loan, the Company granted Oxford warrants for the purchase of 67,999 shares of the Company’s common stock at an exercise price of $8.68 per share. The warrants are exercisable for seven years from the date of issuance. The grant date fair value of the warrants was $6.42 per share as estimated using a Black-Scholes pricing model. In accordance with ASC 470-20-25-2, Debt Instruments with Detachable Warrants, the proceeds from the debt issuance were allocated between the warrants and the debt instrument based on the relative fair value. The portion allocated to the warrants is recorded as paid-in capital.

On May 27, 2014, Oxford exercised the warrants to purchase shares of the Company’s common stock on a cashless basis, resulting in issuance of 33,066 shares of our common stock and cancellation of 34,933 shares purchasable under the warrant. As of June 30, 2014, no detachable warrants remained and the Company recorded the common stock issued.

On October 31, 2013, the Company and certain of its subsidiaries entered into a credit agreement with PDL (the PDL credit agreement), pursuant to which the Company’s wholly-owned Dutch subsidiaries borrowed an aggregate principal amount of $25.0 million (the First Tranche) and upon FDA approval of dalbavancin on May 23, 2014, the Company borrowed, as required, an additional aggregate principal amount of $15.0 million (the Second Tranche). The Company may make a one-time election to borrow an additional aggregate principal amount of up to $30.0 million (the Delayed Draw) during the nine month period following May 23, 2014.

The funding of the Delayed Draw is subject to the satisfaction of certain conditions set forth in the PDL credit agreement, including, without limitation, the continued accuracy of representations and warranties, no default or material adverse change having occurred, and the execution and delivery of additional loan documents, if required.

Any amount borrowed under the credit agreement is guaranteed by the Company and certain of the Company’s subsidiaries. The loans and the guarantee obligations are secured by a lien on all or substantially all of the Company’s assets and all or substantially all of the assets of the Company’s subsidiaries (other than Durata Therapeutics Limited), as applicable, including the pledge of the equity interests in each of the Company’s direct and indirect subsidiaries to secure the applicable loan and guarantee obligations.

The First Tranche bore interest at an annual rate equal to 14.00% prior to May 23, 2014. Currently, each term loan bears interest at an annual rate equal to 12.75%. The credit agreement provides for interest-only payments payable quarterly in arrears through December 31, 2014, and payment of interest and principal in quarterly installments in the amounts specified in the PDL credit agreement starting on March 31, 2015 and continuing quarterly thereafter through September 30, 2018. The final maturity of the loan is October 31, 2018.

The Company paid an origination fee to PDL when the Company entered into the credit agreement, which is included in deferred finance costs in other assets. At the Company’s option, the Company may elect to prepay all of the outstanding term loan plus any accrued interest, plus a prepayment penalty determined with respect to the principal amount of the term loan being prepaid. The credit agreement also provides for indemnification of PDL and the other lenders from time to time party to the credit agreement. The credit agreement also prohibits the Company from paying the $25.0 million milestone payment to Pfizer as long as amounts are outstanding under the credit agreement.

The credit agreement also contains certain representations, warranties and covenants (including maintaining liquidity of at least $2 million) applicable to the Company and its subsidiaries. The credit agreement contains certain events of default. The obligations under the credit agreement and the other loan documents may, at PDL’s option, be accelerated upon the occurrence of certain events of default, and are automatically accelerated upon certain bankruptcy-related events of default.

The net proceeds of the First Tranche were used to repay amounts outstanding under the Oxford loan agreement, including prepayment penalties and fees, and the remainder of the proceeds of the First Tranche has been used for general corporate purposes. The net proceeds of the Second Tranche will be used for general corporate purposes.

On April 17, 2013, the Company closed a public offering of an aggregate of 8,222,500 shares of common stock at a public offering price of $7.00 per share, including 1,072,500 shares pursuant to the exercise by the underwriters of an over-allotment option. Net proceeds were approximately $54.1 million, after deducting underwriting discounts and commissions but prior to the payment of offering expenses by the Company.

In July 2012, the Company closed the initial public offering of its common stock pursuant to a registration statement on Form S-1, as amended. The Company sold an aggregate of 8,625,000 shares of common stock under the registration statement at a public offering price of $9.00 per share, including 1,125,000 shares pursuant to the exercise by the underwriters of an over-allotment option. Net proceeds were approximately $73.9 million, after deducting underwriting discounts and commissions but prior to the payment of offering expenses by the Company. Upon closing the initial public offering, all the then outstanding shares of the Company’s Series A Convertible Preferred Stock were converted into 9,649,738 shares of common stock.

In December 2009, the Company issued 62,500 shares of restricted common stock to an officer in return for services to be rendered over the effective vesting period. This award fully vested in January 2011.

Also included in common stock at June 30, 2014 were 146,073 common shares issued upon exercise of options and warrants during the six month period ended June 30, 2014 and 16,818 shares of vested restricted stock. There are 3,421 restricted shares unvested as of June 30, 2014.

Prior to completing its initial public offering, the Company issued and sold an aggregate of 77,197,936 shares of its Series A Convertible Preferred Stock that resulted in the Company receiving cash proceeds of $77.2 million. The proceeds were used for research and development and general working capital. In July 2012, upon closing its initial public offering, all the then outstanding shares of the Company’s convertible preferred stock were converted into 9,649,738 shares of common stock.

In July 2012, the Company’s one-for-8.000 reverse stock split became effective, effectively changing the conversion price of the Series A Convertible Preferred Stock.

The two stock incentive plans (Incentive Plans) described in this section are the pre-IPO stock incentive plan, as amended (the Incentive Plan), and the Amended and Restated 2012 Stock Incentive Plan (2012 Plan, formerly referred to as the 2012 Stock Incentive Plan). Prior to the Company’s initial public offering, the Company granted awards to eligible participants under the Incentive Plan. Following the initial public offering, the Company grants awards to eligible participants under the 2012 Plan.

In April 2012, the Company’s board of directors and stockholders approved the 2012 Plan. The 2012 Plan was amended and restated in May 2014 following shareholder approval. The 2012 Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock units, other stock-based awards, and performance awards. As of June 30, 2014, the number of shares of the Company’s common stock reserved for issuance under the 2012 Plan was 2,456,578. This number may increase for the number of shares of the Company’s common stock subject to outstanding awards under the Company’s pre-IPO stock incentive plan, that expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right.

Upon the closing of its initial public offering, the Company ceased granting any awards under the Incentive Plan.

The Incentive Plan provided for the granting of stock options and other stock awards of the Company to employees and consultants. General awards under the Incentive Plan consisted of a specified number of options awarded to an employee or consultant subject to the satisfaction of various vesting conditions determined and specified by the Company at the time of the award. In April 2012, the Company’s board of directors and stockholders approved an amendment to the Incentive Plan to increase the number of shares reserved for issuance under the Incentive Plan from 1,875,000 to 2,125,000.

In April 2012, the Board resolved that all options granted under the Incentive Plan may be exercisable from the date of grant. If exercised prior to full vesting, restricted shares of common stock are issued and continue to vest in the same manner as the original options awarded. Upon termination of employment any unvested options or unvested restricted shares are immediately cancelled and available for future grant under the 2012 Plan, while vested options are exercisable for a defined period.

The outstanding option grants at June 30, 2014 have a term of 10 years and generally vest over periods up to 4 years.

At June 30, 2014, the number of shares exercisable pursuant to outstanding options was 1,744,196, at a weighted average exercise price of $2.82 and a weighted average remaining contractual life of 6.67 years.

The weighted-average grant date fair value of the stock options granted during the six month period ended June 30, 2014 was $8.24 per share. The Company estimated the fair value of options granted during the six month period ended June 30, 2014 using the Black-Scholes option pricing model using the following assumptions:

Share-based compensation expense for stock options granted to employees and directors is based on the estimated grant date fair value of options recognized ratably over the requisite service period, which is the vesting period of the award. The level of forfeitures expected to occur was estimated based on the Company’s historical experience of pre-vesting cancellations for terminated employees.

During the six month period ended June 30, 2014, 113,007 options were exercised resulting in approximately $0.2 million of proceeds to the Company.

Share-based compensation expense totaled $1.0 million and $1.8 million for the three and six month periods ended June 30, 2014, respectively, and $0.7 million and $1.2 million for the three and six month periods ended June 30, 2013, respectively, which is included in research and development and general and administrative expenses in the accompanying consolidated statement of operations. The aggregate intrinsic value of shares outstanding and exercisable was $34.0 million and $24.8 million, respectively, as of June 30, 2014. The intrinsic value was calculated as the difference between the fair value of the underlying common stock as of the respective balance sheet date and the exercise price of the stock options. The total unrecognized share-based compensation cost at June 30, 2014 amounted to $11.2 million, net of forfeitures, which is expected to be recognized over a weighted-average remaining vesting period of approximately 3.22 years.

Basic net loss per share is computed by dividing net loss available (attributable) to common stockholders by the weighted average number of shares of common stock outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is computed by dividing net loss available (attributable) to common stockholders by the weighted average number of common stock equivalents during the period. The Company’s potentially dilutive shares, which include outstanding stock options, common stock warrants and unvested restricted stock are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive.

The following potentially dilutive securities have been excluded from the computations of diluted weighted average shares outstanding as of June 30, 2014 and 2013, as they would be anti-dilutive.

The Company has historically computed interim period tax expense by applying its forecasted effective tax rate to year-to-date earnings. However, for the three and six month periods ended June 30, 2014, the Company determined it was unable to reliably estimate its annual effective tax rate due to the effective tax rate being highly sensitive to minor fluctuations in forecasted income. As such, the Company has computed its tax expense for the three month and six month periods ended June 30, 2014 using the actual year-to-date effective tax rate. The effective tax rate for the three and six month periods ended June 30, 2014, was 9.1% and 4.2%. This effective tax rate differs from the federal tax rate of 35% primarily due to the effects of foreign loss that are not benefited, state taxes, foreign rate differential, as well as items that are deductible for books and not U.S. tax. During the three and six months ended June 30, 2014, the Company recorded income tax benefit of $1.8 million and $1.7 million, respectively. The Company recorded income tax expense of $0.2 million and $0.5 million in the three and six month periods ended June 30, 2013, respectively.

The Company is currently being audited by the Internal Revenue Service for the 2012 calendar tax year. We believe that adequate amounts have been reserved for any adjustments that may ultimately result from this examination and we do not anticipate a significant impact to our gross unrecognized tax benefits related to these years.

The Company has employment agreements with certain employees which require the funding of a specified level of payments, if certain events (such as a change in control) or termination without cause occur.

On May 1, 2014, the Company amended its Amended and Restated Employment Agreement dated June 10, 2012, with Michael Dunne, Chief Medical Officer. The amendment removed Section 4.4 (Company Medical Plan) of the Employment Agreement and amended Section 3.1 (Base Salary) to reflect Mr. Dunne’s 2014 base salary of $395,248.

In the course of normal business operations, the Company has agreements with contract service providers to assist in the performance of its research and development and manufacturing activities. The Company can elect to discontinue the work under these agreements at any time. The Company could also enter into additional collaborative research, contract research, manufacturing, and supplier agreements in the future, which may require up-front payments and even long-term commitments of cash.

The Company has entered into a supply agreement, as amended, with Gnosis Bioresearch srl., or Gnosis, to supply it with the drug substance for dalbavancin in the form of injectable grade powder. Gnosis has agreed to produce a specified percentage of the Company’s worldwide demand for drug substance. Under this agreement, Gnosis is required to manufacture and supply, and the Company is required to purchase specified minimum annual purchase volumes of drug substance at specified prices. The agreement expires on June 12, 2017, subject to automatic renewal for successive two-year periods. The Company has purchase commitments of approximately $28.8 million associated with the first three years of the initial five-year term of the agreement. The Company has agreed with Gnosis to define the purchase commitments for the subsequent two years of the initial term by a date specified in the agreement. As of June 30, 2014, the Company has incurred and paid approximately $6.1 million under the purchase commitments in this contract. The remaining contracted amounts are estimated to be paid in 2015 and 2016. The Company has also identified possible secondary suppliers of drug substance and is currently engaged in a technology transfer process. The Company has entered into agreements with potential secondary suppliers of drug substance to manufacture registration and validation batches. The Company has purchase commitments of up to approximately $7.2 million under these agreements. As of June 30, 2014, we have incurred and paid $0.8 million under these agreements.

The Company has entered into a development and supply agreement with Hospira Worldwide, Inc., or Hospira, for its fill and finish services. Under this agreement, Hospira is required to supply and the Company is required to purchase a specified percentage of its commercial requirements of dalbavancin. The Company was also required to pay Hospira aggregate development fees of approximately $1.7 million based on the occurrence of specified milestone events. Through December 31, 2013, the Company has incurred the full commitment related to the development fee, which has been included in research and development expense in the consolidated statement of operations. The agreement expires five years after the first commercial sale of dalbavancin, subject to an automatic renewal for an indefinite period.

On May 27, 2014, the Company entered into a lease for office space in Chicago, Illinois. The Company intends to use the leased premises for corporate and commercial functions. The Company has agreed to pay aggregate rental fees of approximately $7.7 million over the 144 month term. The Company has provided a security deposit in the form of a letter of credit for the benefit of the landlord in the amount of $1.3 million, which amount will be reduced incrementally over the term of the lease.

During 2012, the Company entered into a lease for office space in Chicago, Illinois, which the Company uses for corporate and commercial functions. The Company has agreed to pay aggregate rental fees of approximately $1.2 million over the 65 month term. The Company has provided a security deposit in the form of a letter of credit for the benefit of the landlord in the amount of $0.4 million, which amount will be reduced incrementally over the term of the lease. The Company will sublease this office space in Chicago. Also during 2012, the Company entered into a lease for office space in Branford, Connecticut, which the Company uses for research and development, clinical and regulatory functions. The Company has agreed to pay aggregate rental fees of approximately $1.8 million over the 62 month term. The Company has provided a security deposit in the form of a letter of credit for the benefit of the landlord in the amount of $0.6 million because the landlord financed leasehold improvements in excess of the construction allowance during that period. The amount will be reduced incrementally over the term of the lease.

The letters of credit outstanding are collateralized with certificates of deposit.

As of June 30, 2014, the remaining future commitment under these leases is $10.0 million.

From time to time, the Company may be involved in various legal actions arising out of the ordinary conduct of business. In the opinion of management, the ultimate disposition of such actions will not materially affect the Company’s consolidated financial position, results of operations or cash flows.

The Company has evaluated subsequent events occurring after the balance sheet date through the date the financial statements were issued. Based on the evaluation, the Company has determined there were no other material events or transactions that require recognition or disclosure in the consolidated financial statements other than described in the immediately following paragraph.

On July 29, 2014, the Company entered into a license agreement and a supply agreement with A.C.R.A.F. S.p.A. (“Angelini”) for the purpose of allowing Angelini to commercialize dalbavancin in 36 countries, including Italy, Spain, Poland, Portugal, Greece, certain specified countries in Eastern Europe, Russia, Turkey and the Commonwealth of Independent States.

In exchange for commercialization rights in its licensed territories, Angelini will pay the Company $15.0 million upfront, $10.0 million upon the first approval of dalbavancin by the European Medicines Agency, and up to $56.5 million in aggregate milestone payments upon the achievement of certain regulatory and commercial milestones. Additionally, the Company will receive royalties on net sales of dalbavancin in the licensed territories, provided that Angelini achieves a specified gross margin.

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the notes to those financial statements appearing elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2013 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2014. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as those set forth in Part II, Item 1A. Risk Factors of this Quarterly Report on Form 10-Q, our actual results may differ materially from those anticipated in these forward-looking statements.

We are a pharmaceutical company focused on the development and commercialization of new therapeutics for patients with infectious diseases and acute illnesses. We submitted a new drug application, or NDA, to the U.S. Food and Drug Administration, or FDA, on September 26, 2013 for dalbavancin for the treatment of acute bacterial skin and skin structure infections (ABSSSI) caused by certain susceptible bacteria. On November 25, 2013, the FDA accepted our NDA for priority review with an action date of May 26, 2014. On May 23, 2014, the U.S. Food and Drug Administration (FDA) approved Dalvance^™ (dalbavancin) for injection for the treatment of adult patients with acute bacterial skin and skin structure infections (ABSSSI) caused by susceptible Gram-positive bacteria, including methicillin-resistant Staphylococcus aureus (MRSA). Dalvance is the first and only IV antibiotic approved for the treatment of ABSSSI with a two-dose regimen of 1000 mg followed one week later by 500 mg, each administered over 30 minutes. Sales of dalbavancin in the United States commenced in late July 2014. Dalbavancin is designated as a Qualified Infectious Disease Product (QIDP) by the FDA. Dalbavancin’s QIDP designation qualifies it for an additional five years of marketing exclusivity to be added to certain exclusivity periods already provided by the Food, Drug and Cosmetic Act. We have completed two global Phase 3 clinical trials with dalbavancin for the treatment of patients with ABSSSI. We announced the preliminary top line results of our first Phase 3 clinical trial, which we refer to as DISCOVER 1, in December 2012, and our second Phase 3 clinical trial, which we refer to as DISCOVER 2, in February 2013. Based on final data from DISCOVER 1 and DISCOVER 2, or the DISCOVER trials, dalbavancin achieved its primary efficacy endpoint of non-inferiority, which was clinical response at 48 to 72 hours after initiation of therapy, as determined by the cessation of spread of the lesion, as well as the resolution of fever. Dalbavancin also achieved its secondary efficacy endpoint in the DISCOVER trials, which was clinical success at the end of treatment. We expect that this secondary endpoint will be the primary measure of efficacy for regulatory review in Europe. We submitted a marketing authorization application, or MAA, to the European Medicines Agency, or EMA, on November 27, 2013. On December 20, 2013, the EMA accepted our MAA for review. We are directly commercializing dalbavancin in the United States and, if approved in the European Union, we may also directly commercialize dalbavancin in Western Europe with a targeted hospital sales force and may use a variety of types of collaboration arrangements for commercialization in other markets. On July 29, 2014 we entered into a license agreement and a supply agreement with Angelini (A.C.R.A.F. S.p.A.) for the purpose of allowing Angelini to commercialize dalbavancin in certain European markets.

In April 2014, we initiated enrollment in a Phase 3b clinical trial to evaluate the efficacy and safety of a single 1500 mg dose of dalbavancin infused over 30 minutes in adult patients with ABSSSI caused by susceptible Gram-positive bacteria, which we refer to as our single dose study. This Phase 3b multicenter, double-blind, randomized, controlled clinical trial is designed to compare a single dose of dalbavancin with the same two dose, once weekly regimen of dalbavancin that was used in each of the previously conducted Phase 3 clinical trials for dalbavancin. We plan to enroll approximately 410 adult patients with ABSSSI known or suspected to be caused by susceptible Gram-positive bacteria, including methicillin-resistant Staphylococcus aureus, commonly referred to as MRSA. We are randomizing adult patients in the single dose study to receive either one 1500 mg single dose of dalbavancin on day 1 or two doses of dalbavancin, with a 1000 mg dose on day 1 followed by a 500 mg dose on day 8. All doses will be administered over 30 minutes through a peripheral intravenous line. The primary outcome measure for efficacy evaluation will be the percentage of patients in each treatment group who demonstrate a clinical response at 48 to 72 hours after the initiation of therapy with study medication. The study was designed to meet the new standards required by regulatory authorities for antibiotic development in the United States.

We are also currently developing protocols for two additional Phase 3 clinical trials to evaluate efficacy and safety of dalbavancin in patients with pediatric osteomyelitis and with community-acquired pneumonia. We expect both of these trials to begin enrollment in late 2014 to early 2015.

We acquired our rights to dalbavancin through our acquisition of all of the outstanding shares of capital stock of Vicuron Pharmaceuticals Inc., or Vicuron, from Pfizer Inc., or Pfizer, in December 2009. We paid total up-front consideration of $10.0 million for the Vicuron shares and dalbavancin inventory to be used in research. In March 2011, Pfizer refunded to us $6.0 million of the initial purchase price under the terms of our stock purchase agreement, or Pfizer Agreement, based on documentation we provided that supported the position that marketing approval for dalbavancin required more than one new Phase 3 clinical trial. Following the first commercial sale of dalbavancin for the treatment of adult patients with ABSSSI in the United States, which occurred in late July 2014, we became obligated to pay Pfizer an additional milestone payment of $25.0 million. However, pursuant to the Pfizer Agreement, we will elect to defer the milestone payment for a period of up to five years by delivering to Pfizer a promissory note, in late August 2014, for the full amount of such milestone payment. Interest on the outstanding principal amount of the promissory note will accrue at a rate of 10% per annum, compounded

annually. Under our credit agreement with PDL BioPharma, Inc., or PDL, discussed in note 5 to our financial statements, Long-term Debt, we are prohibited from making any payment to Pfizer as long as amounts are outstanding under the credit agreement, which we refer to as the PDL credit agreement.

We were incorporated and commenced active operations in the fourth quarter of 2009. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, acquiring and developing dalbavancin and building our commercialization and marketing infrastructure.

Through June 30, 2014, we have not generated any revenues. We have financed our operations primarily with net proceeds from private placements of our preferred stock, our initial public offering of common stock, which we closed in July 2012, a secured debt financing, which we completed in March 2013 and refinanced with a new lender in October 2013, and a public offering of our common stock, which we closed in April 2013. As of June 30, 2014, we had a deficit accumulated during the development stage of $207.3 million. Our net loss was $37.9 million for the six month period ended June 30, 2014.

In March 2013, we and certain of our subsidiaries entered into a loan and security agreement, or loan agreement, with Oxford Finance LLC, or Oxford, pursuant to which our wholly-owned Dutch subsidiaries borrowed an aggregate principal amount of $20.0 million. On October 31, 2013, we and certain of our subsidiaries entered into the PDL credit agreement, pursuant to which our wholly-owned Dutch subsidiaries borrowed an aggregate principal amount of $25.0 million, and upon marketing approval of dalbavancin on May 23, 2014 we borrowed, as required, an additional aggregate principal amount of $15 million. Upon the satisfaction of certain conditions to funding set forth in the PDL credit agreement, and for up to nine months following regulatory approval in May 2014, we have the option to borrow an additional aggregate principal amount of up to $30.0 million. Amounts borrowed under the PDL credit agreement are guaranteed by us and certain of our subsidiaries. The loans are secured by a lien on all or substantially all of our assets and all or substantially all of the assets of our subsidiaries (other than Durata Therapeutics Limited), including the pledge of the equity interests in each of our subsidiaries. Pursuant to the PDL credit agreement, in October 2013 we repaid in full amounts outstanding under the Oxford loan agreement, including prepayment penalties and fees, and our arrangement with Oxford was terminated.

In April 2013, we closed a public offering of 8,222,500 shares of common stock at a public offering price of $7.00 per share, including 1,072,500 shares pursuant to the exercise by the underwriters of an over-allotment option. Net proceeds were approximately $54.1 million, after deducting underwriting discounts and commissions but prior to the payment of offering expenses payable by us.

We expect to continue to incur significant expenses particularly as we commercialize dalbavancin, seek marketing approval for product candidates, build our commercial organization, conduct clinical trials for additional indications for dalbavancin, including osteomyelitis, diabetic foot infection and pneumonia, as well as new dosing strategies and formulations, and manufacture product. In addition, based upon the marketing approval of dalbavancin, and if we obtain marketing approval of any other product candidate that we develop, we expect to incur significant sales, marketing, distribution and outsourced manufacturing expenses, as well as ongoing research and development expenses. Furthermore, we are incurring additional costs associated with operating as a public company. These costs include significant legal, accounting, investor relations and other expenses that we did not incur as a private company. Moreover, additional rules and regulations applicable to public companies will continue to increase our legal and financial compliance costs and make some activities more time-consuming and costly. Accordingly, we may need to obtain substantial additional funding in connection with our continuing operations. Adequate additional financing may not be available to us on acceptable terms, or at all. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts. We will need to generate significant revenues to achieve profitability, and we may never do so.

Through June 30, 2014, we have not generated any revenues. Our ability to generate product revenues, will depend heavily on our ability to successfully commercialize dalbavancin.

Research and development expenses consist of costs associated with our research activities, and the development and clinical testing of dalbavancin. Our research and development expenses consist of:

We expense research and development costs to operations as incurred. We account for non-refundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received, rather than when the payment is made.

We intend in the future to use our employee and infrastructure resources across multiple research and development projects. We do not allocate employee-related expenses or depreciation to any particular project. To date, the large majority of our research and development work has related to dalbavancin and completing clinical testing to support approval to market dalbavancin for the treatment of adult patients with ABSSSI, which was received in May 2014.

We anticipate that we will continue to incur significant research and development expenses in connection with clinical trials for additional indications and new dosing strategies and formulations for dalbavancin, manufacturing product candidates and with seeking marketing approval for possible other product candidates.

The successful development of dalbavancin and future product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:

A change in the outcome of any of these variables with respect to the development of dalbavancin or any other product candidate that we may develop could mean a significant change in the costs and timing associated with the development of dalbavancin or such product candidate. For example, if the FDA or other regulatory authority were to require us to conduct clinical trials beyond those which we currently anticipate will be required for the completion of clinical development of product candidates or if we experience significant delays in enrollment in any clinical trials of product candidates, we could be required to expend significant additional financial resources and time on the completion of the clinical development.

General and administrative expenses consist primarily of salaries and related costs for personnel, including share-based compensation expense, in our executive, finance, medical affairs, marketing and business development functions. Other general and administrative expenses include facility costs and professional fees for legal, patent, consulting and accounting services.

We anticipate that our general and administrative expenses will increase in future periods to support increases in our commercialization activities and research and development and as a result of increased headcount, expanded infrastructure, increased legal, compliance, accounting and investor and public relations expenses associated with being a public company and increased insurance premiums, among other factors.

In connection with our acquisition of Vicuron in December 2009, we were required to fair value two contingent payment streams on the closing date of the acquisition. The first related to the $25.0 million milestone payment owed to Pfizer in connection with the first commercial sale of dalbavancin and the other related to the potential refund of $6.0 million of the initial purchase price. We completed an assessment of the probability of the successful clinical development, regulatory approval and commercial sale of dalbavancin in future periods and determined that a liability of $5.8 million should be recorded at December 11, 2009 to reflect the best estimate of additional cash consideration likely to be paid related to the potential $25.0 million milestone payment. We also recorded the fair value of a contingent asset of $0.6 million at December 11, 2009 based on the probability of receiving the potential refund from Pfizer of $6.0 million of the initial purchase price.

Subsequent to the closing date of the acquisition, we measure the contingent consideration arrangements at fair value for each period with changes in fair value recognized in our statement of operations under acquisition related charges, net. Changes in fair value reflect new information about the acquired in-process research and development asset and its progress toward approval, and the passage of time, and therefore ultimately the probability of achieving regulatory approval for dalbavancin. Separately, the possibility of receiving the $6.0 million contingent asset was also reassessed as development efforts continued. We received the $6.0 million contingent receivable in March 2011. In the absence of new information, changes in fair value reflect only the passage of time as development work towards the achievement of the milestones progresses. The balance of the contingent liability consideration, which reflects the fair value of the contingent milestone payment, was $25.0 million as of June 30, 2014 and $20.9 million as of December 31, 2013. We have classified this liability as noncurrent in our consolidated balance sheets, as payment is not expected to occur within twelve months because we intend to take advantage of our right under our arrangement with Pfizer to defer the payment and we are prohibited from making any payment to Pfizer as long as amounts are outstanding under our credit agreement with PDL.

Our cash and cash equivalents are invested primarily in money market accounts and other short-term investments, which generate a modest amount of interest income. We expect to continue that investment philosophy as we obtain more financing proceeds.

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on our limited historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are described in more detail in the notes to our financial statements. However, we believe that certain of those significant accounting policies are the most critical to aid you in fully understanding and evaluating our financial condition and results of operations. We refer to these policies as “critical” because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate, and different estimates, which also would have been reasonable, could have been used, which would have resulted in different financial results.

The critical accounting policies we identified in our most recent Annual Report on Form 10-K for the year ended December 31, 2013 related to accrued research and development expenses, share-based compensation and valuation of long-lived and intangible assets and goodwill. There have been no material changes to our critical accounting policies and estimates as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013.

The following table summarizes selected operating expense data for the three month periods ended June 30, 2014 and 2013:

We recorded $0.1 million of amortization of intangible assets for the three month period ended June 30, 2014. No amortization had been recorded for the three month period ended June 30, 2013 as the related acquired research and development was still in-process.

Our research and development work was principally related to the activities associated with seeking approval to market dalbavancin in the United States, which was obtained in May 2014, and to a lesser extent in certain international markets. Such activities also included clinical trial costs, trial product manufacturing and sourcing, manufacturing of product for the anticipated commercialization and regulatory activities related to our NDA and MAA submissions. Research and development expenses for the quarter ended June 30, 2014 were $6.2 million, compared to $13.2 million for the quarter ended June 30, 2013. The $7.0 million decrease was due primarily to the production of active pharmaceutical ingredient in the second quarter of 2013 versus none in the second quarter of 2014 and is partially offset by an increase in costs related to our single dose study and higher payroll expenses as a result of increased headcount to support ongoing development of dalbavancin.

Research and development expenses during the three month periods ended June 30, 2014 and 2013 included the following:

Our general and administrative expenses in the three month period ended June 30, 2014 increased $6.6 million to $11.1 million from $4.5 million in the three month period ended June 30, 2013. The increase related to our continued expansion efforts in preparation for the anticipated commercial launch of dalbavancin, which occurred in late July 2014. General and administrative expenses during three month periods ended June 30, 2014 and 2013 included the following:

For the three month period ended June 30, 2014, acquisition related charges, net principally consisted of the change in probability of the contingent liability related to the $25.0 million milestone payment that became due upon the first commercial sale of dalbavancin. However, under our credit agreement with PDL discussed in note 5 to our financial statements, Long-term Debt, we are prohibited from making any payment to Pfizer as long as amounts are outstanding under our credit agreement with PDL. Pursuant to the terms of the Pfizer Agreement, we will deliver to Pfizer a promissory note in an aggregate principal amount of $25.0 million representing the amount of such milestone payment during August 2014. The contingent liability increased by $1.4 million for the three month period ended June 30, 2014 and $0.3 million for the three month period ended June 30, 2013, which was recorded as a charge to acquisition related charges, net. The increase during the three month period ended June 30, 2014 is due to the FDA’s approval of dalbavancin for the treatment of adult patients with ABSSSI on May 23, 2014.

We have historically computed interim period tax expense by applying the forecasted effective tax rate to year-to-date earnings. However, for the three month period ended June 30, 2014 we determined we were unable to reliably estimate our annual effective tax rate due to the effective tax rate being highly sensitive to minor fluctuations in forecasted income. As such, we have computed the U.S. and foreign tax expense for the three month period ended June 30, 2014 using the actual year-to-date effective tax rate. The effective tax rate for the three month period ended June 30, 2014 was 9.1%. This effective tax rates differ from the federal tax rate of 35% primarily due to the effects of foreign losses that are not benefited, state taxes, foreign rate differential, as well as items that are deductible for books and not U.S. tax. We recorded income benefit of $1.8 million in the three month period ended June 30, 2014, and income tax expense of $0.2 million in the three month period ended June 30, 2013.

Interest expense recorded in the three month period ended June 30, 2014 consisted of interest incurred and amortization of fees related to our credit agreement with PDL. For the three month period ended June 30, 2013, interest expense consisted of interest incurred and amortization of debt discount and debt financing fees related to the debt financing completed in March 2013.

The following table summarizes selected operating expense data for the six month periods ended June 30, 2014 and 2013:

We recorded $0.1 million of amortization of intangible assets for the six month period ended June 30, 2014. No amortization had been recorded for the six month period ended June 30, 2013 as the related acquired research and development was still in process.

Our research and development work was principally related to the activities associated with seeking approval to market dalbavancin in the United States, which was obtained in May 2014, and to a lesser extent in certain international markets. Such activities include clinical trial costs, trial product manufacturing and sourcing, manufacturing of product for the anticipated commercialization and regulatory activities related to our NDA and MAA submissions. Research and development expenses for the six month period ended June 30, 2014 were $15.2 million, compared to $24.3 million for the six month period ended June 30, 2013. The $9.1 million decrease was due primarily to the production of active pharmaceutical ingredient in the second quarter of 2013 versus none in the second quarter of 2014 and is partially offset by an increase in costs related to our single dose study and higher payroll expenses as a result of increased headcount to support ongoing development of dalbavancin.

Research and development expenses during the six month periods ended June 30, 2014 and 2013 included the following:

Our general and administrative expenses in the six month period ended June 30, 2014 increased $9.7 million to $18.3 million from $8.6 million in the six month period ended June 30, 2013. The increase related to our continued expansion efforts in preparation for the anticipated commercial launch of dalbavancin. General and administrative expenses during the six month periods ended June 30, 2014 and 2013 included the following:

For the six month period ended June 30, 2014, acquisition related charges, net principally consisted of the change in probability of the contingent liability related to the $25.0 million milestone payment that became due upon the first commercial sale of dalbavancin. However, under our credit agreement with PDL discussed in note 5 to our financial statements, Long-term Debt, we are prohibited from making any payment to Pfizer as long as amounts are outstanding under our credit agreement with PDL. Pursuant to the terms of the Pfizer Agreement, we will deliver to Pfizer a promissory note in an aggregate principal amount of $25.0 million representing the amount of such milestone payment during August 2014. The contingent liability increased by $4.1 million for the six month period ended June 30, 2014 and $0.6 million for the six month period ended June 30, 2013, which was recorded as a charge to acquisition related charges, net. The increase during the six month period ended June 30, 2014 is due to the FDA’s approval of dalbavancin for the treatment of adult patients with ABSSSI on May 23, 2014.

We have historically computed interim period tax expense by applying the forecasted effective tax rate to year-to-date earnings. However, for the six month period ended June 30, 2014, we determined we were unable to reliably estimate our annual effective tax rate due to the effective tax rate being highly sensitive to minor fluctuations in forecasted income. As such, we have computed the U.S. and foreign tax expense for the six month period ended June 30, 2014, using the actual year-to-date effective tax rate. The effective tax rate for the six month period ended June 30, 2014 was 4.2%. This effective tax rates differ from the federal tax rate of 35% primarily due to the effects of foreign losses that are not benefited, state taxes, foreign rate differential, as well as items that are deductible for books and not U.S. tax. We recorded income tax benefit of $1.7 million for the six month period ended June 30, 2014, and income tax expense of $0.5 million in the six month period ended June 30, 2013.

Through June 30, 2014, we have not generated any revenues and have financed our operations primarily with proceeds from private placements of our preferred stock, our initial public offering of common stock, which we closed in July 2012, a secured debt financing, which we completed in March 2013 and refinanced with a new lender in October 2013, and a public offering of our common stock, which we closed in April 2013. As of June 30, 2014, we had cash and cash equivalents totaling $20.9 million and short-term investments of $13.8 million. We primarily invest our cash and cash equivalents in money market funds. The following table summarizes our cash flow activity for the six month periods ended June 30, 2014 and 2013:

The use of cash in all periods resulted primarily from our net losses adjusted for non-cash charges and changes in the components of working capital. The increase in net cash used in operating activities in the six month period ended June 30, 2014 was primarily related to the increase in general and administrative costs as we continued expansion efforts in preparation for the anticipated commercial launch of dalbavancin, partially offset by a decrease in research and development expenses following the completion of the DISCOVER trials, as discussed above under results of operations.

Net cash provided by investing activities during the six month period ended June 30, 2014 was primarily related to proceeds from the sale of short-term investments, partially offset by the addition of a certificate of deposit held by our bank as collateral for an irrevocable standby letter of credit issued in connection with one of our office leases. Net cash used by investing activities during the six month period ended June 30, 2013 was primarily related to cash invested in short-term investments, the purchase of property and equipment and an increase in our certificate of deposit held by the bank as collateral for an irrevocable standby letter of credit issued in connection with one of our office leases.

Net cash provided by financing activities for the six month period ended June 30, 2014 was principally the result of cash received from the receipt of the obligatory Second Tranche Milestone funding as part of our credit agreement with PDL, and cash received from stock option exercises. Net cash provided by financing activities for the six month period ended June 30, 2013 was principally the result of the $54.1 million of net proceeds from the public offering that we closed in April 2013 and the proceeds from the $20.0 million secured debt financing that we closed in March 2013, partially offset by financing fees and expenses of $1.0 million that we paid in connection with these two financings.

We anticipate that we will continue to incur significant expenses in connection with marketing our products, seeking marketing approval for product candidates, developing our commercial organization, conducting clinical trials for additional indications for dalbavancin, including osteomyelitis, diabetic foot infection and pneumonia, as well as new dosing strategies and formulations, and manufacturing product. In addition, in connection with obtaining regulatory approval and commercializing dalbavancin, we expect to incur significant sales, marketing, distribution and outsourced manufacturing expenses, as well as ongoing research and development expenses. Our expenses also will increase if and as we:

We estimate that our existing cash and cash equivalents and short-term investments and other sources of liquidity discussed will be sufficient to support our current and projected funding requirements for at least the next twelve months. We estimate that such funds will be sufficient to enable us to commercially launch dalbavancin for the treatment of patients with ABSSSI in the United States and to seek marketing approval for dalbavancin in the European Union. Additionally, we estimate the funds will be sufficient to explore the development of dalbavancin for additional indications and new dosing strategies and formulations. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. This estimate is based on a number of assumptions and gives effect to our election to defer for a period of up to five years payment of the $25.0 million milestone that we became obligated to pay to Pfizer upon the first commercial sale of dalbavancin by delivering to Pfizer a promissory note for such amount, which we intend to do during August 2014. We also are prohibited from paying the $25.0 million milestone payment to Pfizer as long as amounts are outstanding under our current credit agreement with PDL. Interest on the outstanding principal amount of the promissory note will accrue at a rate of 10% per annum, compounded annually. Our future capital requirements will depend on many factors, including:

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Additional debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us.

As of June 30, 2014, we do not have any committed external source of funds other than our credit agreement with PDL, which includes a $30.0 million delayed draw, receipt of which funds is subject to the satisfaction of certain conditions set forth in the PDL credit agreement. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Pursuant to the PDL credit agreement, upon marketing approval of dalbavancin in the United States on May 23, 2014, the Company borrowed, as required, an aggregate principal amount of $15.0 million from PDL.

Pursuant to the Pfizer Agreement, we will deliver to Pfizer a promissory note in an aggregate principal amount of $25.0 million representing the amount of the milestone payment owed to Pfizer as a result of the first commercial sale of dalbavancin for the treatment of ABSSSI.

There have been no other material changes to our contractual obligations and commitments outside the ordinary course of business from those disclosed under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations and Commitments” in our Annual Report on Form 10-K for the year ended December 31, 2013.

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under Securities and Exchange Commission rules.

We are exposed to market risk related to changes in interest rates. We had cash and cash equivalents and available for sale securities of $34.7 million and $59.7 million as of June 30, 2014 and December 31, 2013, respectively. Our current investment policy is to invest our cash in a variety of financial instruments, principally deposits, securities issued by the U.S. government and its agencies, corporate fixed income, and money market instruments. The goals of our investment policy are preservation of capital, fulfillment of liquidity needs, and fiduciary control of cash and investments. We seek to maximize income from our investments without assuming significant risk.

Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, because our investments are primarily in short-term debt securities. These securities are subject to interest rate risk and will fall in value if market interest rates increase. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our portfolio.

We contract with CROs and contract manufacturers globally. We may be subject to fluctuations in foreign currency rates in connection with certain of these agreements. Transactions denominated in currencies other than the functional currency are recorded based on exchange rates at the time such transactions arise. As of June 30, 2014 and December 31, 2013, substantially all of our liabilities were denominated in the U.S. dollar.

Our long-term debt obligation to PDL BioPharma, Inc. bears interest at a fixed rate and therefore we do not have exposure to changes in interest rates on borrowings under this facility.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2014. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, 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. Based on the evaluation of our disclosure controls and procedures as of June 30, 2014, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

No change in our internal control over financial reporting (as defined in Rules 13a-15(d) and 15d-15(d) under the Exchange Act) occurred during the six months ended June 30, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

We have incurred significant losses since our inception. We expect to incur losses for at least the next few years and may never achieve or maintain profitability.

Since inception, we have incurred significant operating losses. Our net loss was $37.9 million for the six month period ended June 30, 2014 and $62.1 million for the year ended December 31, 2013. As of June 30, 2014, we had a deficit accumulated during the development stage of $207.3 million. Through June 30, 2014, we have not generated any revenues. We have financed our operations primarily through private placements of our preferred stock, our initial public offering of common stock, which we closed in July 2012, a secured debt financing, which we completed in March 2013 and refinanced with a new lender in October 2013, and a public offering of our common stock, which we closed in April 2013. We have devoted substantially all of our efforts to research and development. We expect to continue to incur significant expenses and operating losses for at least the next few years. The net losses we incur may fluctuate significantly from quarter to quarter.

We anticipate that we will continue to incur significant expenses in connection with commercializing our products, seeking marketing approval for product candidates, building our commercial organization, conducting clinical trials for additional indications for dalbavancin, including osteomyelitis, diabetic foot infection and pneumonia, as well as new dosing strategies and formulations, and manufacturing product. In April 2014, we initiated enrollment in a Phase 3b clinical trial to evaluate the efficacy and safety of a single 1500 mg dose of dalbavancin infused over 30 minutes in adult patients with ABSSSI caused by susceptible Gram-positive bacteria, which we refer to as our single dose strategy. We are also currently developing protocols for two additional Phase 3 clinical trials to evaluate the efficacy and safety of dalbavancin in patients with pediatric osteomyelitis and with community-acquired pneumonia. We expect both of these trials to begin enrollment in late 2014 to early 2015. In addition, in connection with commercializing dalbavancin, we expect to incur significant sales, marketing, distribution and outsourced manufacturing expenses, as well as ongoing research and development expenses. Our expenses also will increase if and as we:

Our ability to become and remain profitable depends on our ability to generate revenue. We do not expect to generate significant revenue unless and until we successfully commercialize dalbavancin. This will require us to be successful in a range of challenging activities, including:

We may never succeed in these activities and, even if we do, may never generate revenues that are significant enough to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, expand our business or continue our operations. A decline in the value of our company could also cause stockholders to lose all or part of their investment.

Our short operating history may make it difficult to evaluate the success of our business to date and to assess our future viability.

We are an early-stage company. We were incorporated and commenced active operations in the fourth quarter of 2009. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, acquiring and developing dalbavancin and building our commercial and marketing infrastructure. We have not yet demonstrated our ability to manufacture a commercial scale product or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. Consequently, any predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history.

In addition, as a new business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to transition from a company with a product development focus to a company capable of supporting commercial activities. We may not be successful in such a transition.

We may need substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.

We expect to continue to incur significant expenses in connection with our ongoing activities, particularly as we seek additional marketing approvals for dalbavancin, including from the EMA, develop our commercial organization, conduct clinical trials for additional indications for dalbavancin, including osteomyelitis, diabetic foot infection and pneumonia, as well as new dosing strategies and formulations, and possibly other product candidates, and manufacture product. In addition, we expect to incur significant commercialization expenses related to product sales, marketing, distribution and manufacturing. Furthermore, we are incurring additional costs associated with operating as a public company. Accordingly, we may need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or any current or future commercialization efforts.

We estimate that our existing cash and cash equivalents and short-term investments and other sources of liquidity discussed will be sufficient to support our current and projected funding requirements for at least the next twelve months. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. This estimate gives effect to our election to defer for a period of up to five years payment of the $25.0 million milestone that we became obligated to pay to Pfizer upon the first commercial sale of dalbavancin by delivering to Pfizer a promissory note for such amount, which we intend to do during August 2014. We also are prohibited from paying the $25.0 million milestone payment to Pfizer as long as amounts are outstanding under our current credit agreement with PDL BioPharma, Inc., or PDL. Interest on the outstanding principal amount of the promissory note to Pfizer will accrue at a rate of 10% per annum, compounded annually. Our future capital requirements will depend on many factors, including:

Conducting clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and, even if regulatory approval is obtained, we may never achieve commercial success. Accordingly, we may need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans.

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. As of June 30, 2014, we do not have any committed external source of funds other than amounts available pursuant to our credit agreement with PDL, receipt of which funds is subject to the satisfaction of certain conditions set forth in the PDL credit agreement. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the stock ownership interest of our stockholders will be diluted, and the terms of such securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Additional debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Our existing indebtedness and the pledge of our assets as collateral limit our ability to obtain additional debt financing. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contractual Obligations and Commitments” in our Annual Report on Form 10-K for the year ended December 31, 2013.

If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Our indebtedness may limit cash flow available to invest in the ongoing needs of our business.

In March 2013, we and certain of our subsidiaries entered into a loan and security agreement, or loan agreement, with Oxford Finance LLC, or Oxford, pursuant to which, subject to the conditions to borrowing thereunder, our wholly-owned Dutch subsidiaries borrowed an aggregate principal amount of $20.0 million. On October 31, 2013, we and certain of our subsidiaries entered into a credit agreement with PDL, pursuant to which our wholly-owned Dutch subsidiaries borrowed an aggregate principal amount of $25.0 million, which we refer to as the PDL credit agreement. Following FDA approval of dalbavancin on May 23, 2014, the Company borrowed, as required, an additional $15.0 million, and may, upon the satisfaction of certain conditions to the funding set forth in the credit agreement, borrow an additional aggregate principal amount of up to $30.0 million within nine months of the FDA approval date. Pursuant to the credit agreement, we repaid in full amounts outstanding under the Oxford loan agreement, including prepayment penalties and fees.

Amounts borrowed under the PDL credit agreement are guaranteed by us and certain of our subsidiaries. The loans are secured by a lien on all or substantially all of our assets and all or substantially all of the assets of our subsidiaries (other than Durata Therapeutics Limited), including the pledge of the equity interests in each of our subsidiaries.

We could in the future incur additional indebtedness beyond amounts currently outstanding under the PDL credit agreement. Our debt combined with our other financial obligations and contractual commitments could have significant adverse consequences, including:

We intend to satisfy our current and future debt service obligations with our cash and cash equivalents and short-term investments and funds from external sources. However, we may not have sufficient funds or may be unable to arrange for additional financing to pay the amounts due under our existing debt. Funds from external sources may not be available on acceptable terms, if at all. In addition, a failure to comply with the covenants under our debt instruments could result in an event of default under those instruments. In the event of an acceleration of amounts due under our debt instruments as a result of an event of default, we may not have sufficient funds and may be unable to arrange for additional financing to repay our indebtedness, and the lenders could seek to enforce security interests in the collateral securing such indebtedness. In addition, the covenants under our debt instruments and the pledge of our assets as collateral limit our ability to obtain additional debt financing.

We are currently incurring and expect to continue to incur increased costs as a result of being a public company, and our management is and will continue to be required to devote substantial time to compliance initiatives.

As a public company, we are incurring significant legal, accounting and other expenses that we did not incur as a private company. These costs will continue to increase, particularly after we are no longer an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. In addition, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Act, the listing requirements of The NASDAQ Global Market and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel need to devote a substantial amount of time to these compliance initiatives. These rules and regulations will continue to increase our legal and financial compliance costs and will make some activities more time-consuming and costly.

However, for as long as we remain an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. We may remain an emerging growth company until December 31, 2017, although if the market value of our common stock that is held by non-affiliates exceeds $700 million as of any June 30 before that time or if we have annual gross revenues of $1 billion or more in any fiscal year, we would cease to be an emerging growth company as of December 31 of the applicable year. We also would cease to be an emerging growth company if we issue more than $1 billion of non-convertible debt over a three-year period.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we are required to furnish a report by our management on our internal control over financial reporting. However, as an emerging growth company, we are not required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm until we are no longer an emerging growth company. To achieve compliance with Section 404, we have documented and evaluated the effectiveness our internal control over financial reporting. We will need to continue to dedicate internal resources to continuously assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. We cannot predict whether investors will find our common stock less attractive because we took advantage of the exception from Section 404 that permits us not to obtain an attestation report on internal control over financial reporting by our independent registered public accounting firm. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

We currently depend entirely on the success of dalbavancin, for the treatment of adult patients with ABSSSI. If we are not successful with the commercialization of dalbavancin or experience significant delays in doing so, our business will be materially harmed.

We have invested a significant portion of our efforts and financial resources in the development of dalbavancin for the treatment of adult patients with ABSSSI. Our ability to generate product revenues will depend heavily on our ability to successfully commercialize dalbavancin. On May 23, 2014, the FDA approved dalbavancin for the treatment of adult patients with ABSSSI. Sales of dalbavancin in the United States commenced in late July 2014. We also submitted a marketing authorization application, or MAA, to the European Medicines Agency, or EMA, on November 27, 2013. On December 20, 2013, the EMA accepted our MAA for review. The success of dalbavancin will depend on several factors, including the following:

Successful development of dalbavancin for additional indications, including osteomyelitis, diabetic foot infection and pneumonia, as well as new dosing strategies and formulations, will depend on similar factors.

If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize dalbavancin for the treatment of ABSSSI or any additional indication, which would materially harm our business.

Dalbavancin or any other product candidate that we develop may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success and the market opportunity for dalbavancin may be smaller than we estimate.

Dalbavancin or any other product candidate that we develop may fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. For example, current treatments for ABSSSI, including generic options, are well established in the medical community, and doctors may continue to rely on these treatments. If dalbavancin does not achieve an adequate level of acceptance, we may not generate significant product revenues and we may not become profitable. The degree of market acceptance of dalbavancin or any other product candidate that we develop, if approved for commercial sale, will depend on a number of factors, including:

In addition, the potential market opportunity for dalbavancin is difficult to precisely estimate, particularly in the out-patient setting. Our estimates of the potential market opportunity for dalbavancin include several key assumptions based on our industry knowledge, industry publications, third-party research reports and other surveys. While we believe that our internal assumptions are reasonable, no independent source has verified such assumptions. If any of these assumptions proves to be inaccurate, then the actual market for dalbavancin could be smaller than our estimates of our potential market opportunity. If the actual market for dalbavancin is smaller than we expect, our product revenue may be limited and it may be more difficult for us to achieve or maintain profitability.

If we are unable to establish sales and marketing capabilities or enter into sales and marketing agreements with third parties, we may not be successful in commercializing dalbavancin or any other product candidate that we develop when and if the product candidate is approved.

We have limited experience in the sale, marketing or distribution of pharmaceutical products. To achieve commercial success for dalbavancin or any other approved product, we must continue to develop a sales and marketing organization or outsource these functions to third parties. Ultimately, we expect that our commercial organization in the United States, and possibly Western Europe, will include a targeted hospital sales force, a marketing and medical affairs staff, a reimbursement support team, and a national accounts team. Although we are currently evaluating our commercialization strategy outside the United States and Western Europe, we expect that we would commercialize dalbavancin in other markets through a variety of types of collaboration arrangements with leading pharmaceutical and biotechnology companies. On July 29, 2014 we entered into a license agreement and a supply agreement with Angelini (A.C.R.A.F. S.p.A.) for the purpose of allowing Angelini to commercialize dalbavancin in certain European markets.

There are risks involved with both establishing our own sales, marketing and distribution capabilities and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force is expensive and time consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing and distribution capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.

Factors that may inhibit our efforts to commercialize our products on our own include:

If we enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenues or the profitability of these product revenues to us are likely to be lower than if we were to market and sell any products that we develop ourselves. In addition, we may not be successful in entering into arrangements with third parties to sell and market our products or product candidates or may be unable to do so on terms that are favorable to us. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. If we do not establish sales and marketing capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our products or product candidates.

We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.

The development and commercialization of new drug products is highly competitive. We face competition with respect to dalbavancin, and will face competition with respect to any other product candidate that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are a number of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of product candidates for the treatment of ABSSSI. Some of these competitive products and therapies are based on scientific approaches that are the same as or similar to our approach, and others are based on entirely different approaches. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.

There are a variety of available therapies marketed for the treatment of ABSSSI. Some of these drugs are branded and subject to patent protection, and others, including vancomycin, are available on a generic basis. Many of these approved drugs are well established therapies and are widely accepted by physicians, patients and third-party payors. Insurers and other third-party payors may also encourage the use of generic products. Dalbavancin is priced at a significant premium over vancomycin and other competitive generic products. This may make it difficult for us to replace existing therapies with dalbavancin.

There are also a number of products recently approved or in clinical development by third parties to treat ABSSSI. These companies include pharmaceutical companies, biotechnology companies, and specialty pharmaceutical and generic drug companies of various sizes, such as The Medicines Company, Cubist Pharmaceuticals, Inc. (through its acquisition of Trius Therapeutics, Inc.), Cempra, Inc., Melinta Therapeutics, Inc. (formerly Rib-X Pharmaceuticals, Inc.), Paratek Pharmaceuticals, Inc., Nabriva Therapeutics AG, Tetraphase Pharmaceuticals, Inc. and Furiex Pharmaceuticals, Inc. Our competitors may develop products that are more effective, safer, more convenient or less costly than dalbavancin or that would render dalbavancin obsolete or non-competitive.

Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

Dalbavancin or any other product candidate that we commercialize may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, which would harm our business.

The regulations that govern marketing approvals, pricing and reimbursement for new drug products vary widely from country to country. Current and future legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval

is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenues we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates obtain marketing approval.

Our ability to successfully commercialize dalbavancin or any other product candidate also will depend in part on the extent to which reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will cover and pay for and, in doing so, establish payment levels. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of payment for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. We cannot be sure that reimbursement will be available for dalbavancin or any other product that we commercialize and, if reimbursement is available, the level of payment. Reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. Obtaining reimbursement for our products may be particularly difficult because of the higher prices often associated with drugs administered under the supervision of a physician. If reimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize any product candidate for which we obtain marketing approval.

There may be significant delays in obtaining reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the FDA or similar regulatory authorities outside the United States. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement schemes and payment rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on payment levels already set for lower cost drugs, and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Private third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and adequate payment rates from both government-funded and private third-party payors for any approved products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.

If clinical trials of the product candidates that we develop fail to demonstrate safety and efficacy to the satisfaction of the FDA or similar regulatory authorities outside the United States or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of the product candidates.

Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products.

We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our product candidates, including:

If we are required to conduct additional clinical trials or other testing of product candidates that we develop beyond those that we contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:

Our product development costs will also increase if we experience delays in testing or marketing approvals. We do not know whether any clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates and may harm our business and results of operations.

If serious adverse or inappropriate side effects are identified during the development of our product candidates, or following their approval and commercialization, we may need to abandon or limit our development or marketing of such product or product candidate.

It is impossible to predict when or if any product or product candidate that we develop will prove effective or safe in humans or will receive marketing approval, and it is impossible to ensure that safety or efficacy issues will not arise following marketing approval. If our products or product candidates are associated with undesirable side effects or have characteristics that are unexpected, we may need to abandon their development, limit development to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective or suspend or cease marketing of our approved products, and we may become subject to significant liabilities. Many compounds that initially showed promise in clinical or earlier stage testing have later been found to cause side effects that prevented further development of the compound or resulted in their withdrawal from the market.

Our strategy of obtaining rights to product candidates and approved products for the hospital and acute care markets through in-licenses and acquisitions may not be successful.

We intend to enhance our product pipeline through strategically in-licensing or acquiring additional clinical stage product candidates or approved products for the hospital and acute care markets. Because we do not engage in drug discovery or early stage research, the future growth of our business will depend in significant part on our ability to in-license or acquire rights to additional product candidates or approved products. However, we may be unable to in-license or acquire any products or product candidates

from third parties. The in-licensing and acquisition of pharmaceutical products is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire products or product candidates that we may consider attractive. These established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities.

In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to in-license or acquire the relevant products or product candidates on terms that would allow us to make an appropriate return on our investment. Furthermore, we may be unable to identify suitable products or product candidates within our area of focus. If we are unable to successfully obtain rights to suitable products or product candidates, our business, financial condition and prospects for growth could suffer.

If we experience delays or difficulties in the enrollment of patients in future clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.

We may not be able to initiate or continue clinical trials for dalbavancin or any other product candidate that we develop if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. Many of our competitors also have ongoing clinical trials for product candidates that treat the same indications as dalbavancin, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ product candidates.

Our inability to enroll a sufficient number of patients for our clinical trials could result in significant delays or may require us to abandon one or more clinical trials altogether. Enrollment delays in our clinical trials may result in increased development costs for our product candidates, which would cause the value of our company to decline and limit our ability to obtain additional financing.

Product liability lawsuits against us could divert our resources, cause us to incur substantial liabilities and limit commercialization of any products that we may develop.

We face an inherent risk of product liability exposure related to the testing of dalbavancin and any other product candidate that we develop in human clinical trials and will face an even greater risk as we commercially sell any products that we develop. If we cannot successfully defend ourselves against claims that our product candidates or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

We currently hold $20 million in product liability insurance coverage, which may not be adequate to cover all liabilities that we may incur. We will need to increase our insurance coverage as we begin commercializing dalbavancin or any other product candidate that receives marketing approval. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. From time to time and in the future, our operations may involve the use of hazardous and flammable materials, including chemicals and biological materials, and may also produce hazardous waste products. Even if we contract with third parties for the disposal of these materials and wastes, we cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.

Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims.

In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

We contract with third parties for the manufacture of dalbavancin for commercialization and for clinical trials and commercialization of any other product candidates that we develop. This reliance on third parties increases the risk that we will not have sufficient quantities of our products or product candidates or such quantities at an acceptable cost, which could delay, prevent or impair our commercialization efforts.

We do not currently own or operate manufacturing facilities for the production of commercial or clinical quantities of dalbavancin and have limited personnel with manufacturing experience. We currently rely on and expect to continue to rely on third-party contract manufacturers to manufacture commercial quantities and clinical supplies of dalbavancin and other drug substances and drug product candidates when and if approved for marketing by applicable regulatory authorities.

We currently rely on one third-party manufacturer to supply us with dalbavancin drug substance and another third-party manufacturer to conduct fill and finish services.

We have a supply agreement, as amended, with Gnosis Bioresearch srl., or Gnosis, to supply us with the drug substance for dalbavancin in the form of injectable grade powder. Although Gnosis has agreed to supply us with a specified percentage of our worldwide demand for drug substance, Gnosis is not obligated to supply any drug substance in excess of this specified percentage. If Gnosis should become unavailable to us for any reason for the supply of drug substance, we believe that there are a number of potential replacements, although we might incur some delay in identifying or qualifying such replacements. In the event Gnosis breaches its supply obligations as specified in the agreement, we may engage an alternate supplier to supply us with drug substance until Gnosis demonstrates to our reasonable satisfaction that Gnosis has fully remedied such supply failure.

We have identified possible secondary suppliers of drug substance and are currently engaged in the technology transfer process with these manufacturers.

We have a development and supply agreement with Hospira Worldwide, Inc., or Hospira, for our fill and finish services. If Hospira should become unavailable to us for any reason for fill and finish services, we believe that there are a number of potential replacements, although we might incur some delay in identifying or qualifying such replacements. Although Hospira has agreed to supply us with a specified percentage of our requirements of dalbavancin, Hospira is not obligated to manufacture any products in excess of this specified percentage. If Hospira is unable to supply us with product as a result of its breach, a force majeure event or restrictions under applicable law, we may engage an alternate manufacturer to supply us with the quantity of product which Hospira was unable to supply.

Even if we are able to establish and maintain such arrangements with third-party manufacturers, reliance on third-party manufacturers entails additional risks, including:

Third-party manufacturers may not be able to comply with current good manufacturing practices, or cGMP, regulations or similar regulatory requirements outside the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our products and harm our business and results of operations.

Dalbavancin or any other product that we develop may compete with other product candidates and products for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us.

Any performance failure on the part of our existing or future manufacturers could adversely affect future revenue, clinical development or marketing approval. We do not currently have arrangements in place for redundant supply or a second source for bulk drug substance for dalbavancin or for fill-finish services. If either of our existing manufacturers should become unavailable to us for any reason, we believe that there are a number of potential replacements, although we might incur some delay in identifying or qualifying such replacements.

Our current and anticipated future dependence upon others for the manufacture of dalbavancin and any other product candidate or product that we develop may adversely affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis.

We expect to depend on collaborations with third parties for the development and commercialization of our products and product candidates. If those collaborations are not successful, we may not be able to capitalize on the market potential of these products and product candidates.

Although we expect to commercialize dalbavancin ourselves in the United States and possibly Western Europe, we intend to seek to commercialize dalbavancin through a variety of types of collaboration arrangements in other markets, including Eastern Europe and Asia. In addition, we may seek third-party collaborators for development and commercialization of other product candidates. Our likely collaborators for any marketing, distribution, development, licensing or broader collaboration arrangements include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies. We are not currently party to any such arrangement. However, if we do enter into any such arrangements with any third parties in the future, we will likely have limited control over the amount and timing of resources that our collaborators dedicate to the development or commercialization of our products and product candidates. Our ability to generate revenues from these arrangements will depend on our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements.

Collaborations involving our products and product candidates would pose the following risks to us:

Collaboration agreements may not lead to development or commercialization of products and product candidates in the most efficient manner or at all. If a collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our product development or commercialization program could be delayed, diminished or terminated. On July 29, 2014 we entered into a license agreement and a supply agreement with Angelini (A.C.R.A.F. S.p.A.) for the purpose of allowing Angelini to commercialize dalbavancin in certain European markets.

If we are not able to establish collaborations, we may have to alter our development and commercialization plans.

The commercialization of dalbavancin and the development and potential commercialization of other product candidates will require substantial additional cash to fund expenses. For some of our products and product candidates, we may decide to collaborate with pharmaceutical and biotechnology companies for the development and potential commercialization of those products and product candidates. For example, we intend to seek to commercialize dalbavancin through a variety of types of collaboration arrangements outside the United States and Western Europe.

We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate. We may also be restricted under future license agreements from entering into agreements on certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.

We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of a product candidate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our products and product candidates or bring them to market and generate product revenue.

We rely on third parties to conduct our clinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials.

We have relied on third parties, such as contract research organizations, clinical data management organizations, medical institutions and clinical investigators, to conduct our clinical trials for dalbavancin and expect to rely on these third parties to conduct clinical trials of any other product candidate that we develop. Any of these third parties may terminate their engagements with us at any time. If we need to enter into alternative arrangements, it would delay our product development activities.

Our reliance on these third parties for clinical development activities reduces our control over these activities but does not relieve us of our responsibilities. For example, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with standards, commonly referred to as Good Clinical Practices, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. We also are required to register ongoing clinical trials and post the results of completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.

Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates.

We also rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of our distributors could delay clinical development or marketing approval of our product candidates or commercialization of our products, producing additional losses and depriving us of potential product revenue.

If we fail to comply with our obligations in the agreements under which we in-license or acquire development or commercialization rights to products or technology from third parties, we could lose commercial rights that are important to our business.

In December 2010, we acquired from RaQualia Pharma Inc., or RaQualia, rights to commercialize dalbavancin in Japan, which Pfizer had previously granted to RaQualia pursuant to a marketing rights agreement. Under our agreement with RaQualia, if we fail to use reasonable efforts to file a regulatory approval application in Japan for dalbavancin within a specified time, RaQualia has the right to regain rights to dalbavancin in Japan. Although we currently plan to pursue the filing of a regulatory approval application in Japan within the specified time, our failure to do so could result in the loss of our commercial rights in Japan and reduce the commercial value of our rights to dalbavancin.

We may enter into additional agreements, including license agreements, in the future that impose diligence, milestone payment, royalty, insurance and other obligations on us. If we fail to comply with these future obligations, third parties may have the right to terminate these agreements, in which event we might not be able to market any product that is covered by these agreements, which could materially adversely affect the value of the product candidate being developed under any such license agreement. Termination of these license agreements or reduction or elimination of our licensed rights may result in our having to negotiate new or reinstated licenses with less favorable terms, or cause us to lose rights in important intellectual property or technology.

If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to commercialize product candidates that we develop, and our ability to generate revenue will be materially impaired.

Our product candidates, including dalbavancin, and the activities associated with their development and commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other countries. Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate, and approved products are subject to continual review by the FDA. We have only limited experience in filing and supporting the applications necessary to gain marketing approvals and rely on third-party contract research organizations to assist us in this process. Securing FDA approval requires the submission of extensive preclinical and clinical data and supporting information to the FDA for each therapeutic indication to establish the product candidate’s safety and efficacy. Securing FDA approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the FDA. The FDA or other regulatory authorities may determine that any product candidate that we develop is not effective, or is only moderately effective, or has undesirable or unintended side effects, toxicities, safety profile or other characteristics that preclude our obtaining marketing approval or prevent or limit commercial use.

The process of obtaining marketing approvals, both in the United States and abroad, is expensive, may take many years, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application. The FDA has substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent marketing approval of a product candidate. Any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.

For example, between 2005 and 2007, the FDA issued three approvable letters relating to the NDA filed in December 2004 for dalbavancin, and in September 2008, Pfizer globally withdrew all marketing applications for dalbavancin. In general,

approvable letters identify issues that must be addressed in order to obtain approval of a pending NDA. The first two approvable letters raised, in part, open items on the manufacturing process of dalbavancin. After addressing the first approvable letter by making changes to the manufacturing process, Pfizer made additional changes to the manufacturing process, resulting in a second approvable letter. The dalbavancin API manufacturing process is complicated and the Gnosis facility has only made a small amount in the past two to five years. We have worked closely with Gnosis and several consultants on the process to obtain the data required for our NDA. During the FDA’s review of our NDA, we submitted additional data from Gnosis manufactured batches as the data became available. The third approvable letter to Pfizer in part requested that Pfizer justify the non-inferiority margin used for the then-current Phase 3 clinical trial comparing dalbavancin and cefazolin. On May 23, 2014, the FDA granted approval of dalbavancin for the treatment of adult patients with ABSSSI.

In addition, the European Medicines Agency, or EMA, questioned the approvability of Pfizer’s marketing authorization application based on remaining objections that a single pivotal trial in complicated skin and skin structure infections did not provide sufficiently robust data and that patients enrolled in the trial were not sick enough to support use in the desired indication. The FDA and the EMA may identify additional issues as their review of our current or future applications proceeds.

If we experience delays in obtaining approval or if we fail to obtain approval of any product candidate that we develop, the commercial prospects for the product candidate may be harmed and our ability to generate revenues will be materially impaired.

Failure to obtain marketing approval in international jurisdictions would prevent our product candidates from being marketed abroad.

In order to market and sell dalbavancin and any other product candidate that we develop in the European Union and many other jurisdictions, we or our third-party collaborators must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ substantially from that required to obtain FDA approval. The regulatory approval process outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the United States, it is required that the product be approved for reimbursement before the product can be approved for sale in that country. We or these third parties may not obtain approvals from regulatory authorities outside the United States on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. We submitted an MAA to the EMA on November 27, 2013. On December 20, 2013, the EMA accepted our MAA for review. However, we may not be able to file for marketing approvals in other jurisdictions and may not receive necessary approvals to commercialize our products in any market outside the United States.

Dalbavancin and any other product candidate for which we obtain marketing approval could be subject to restrictions or withdrawal from the market and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products, when and if any of them are approved.

Dalbavancin and any other product candidate for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data, labeling, advertising and promotional activities for such product, will be subject to continual requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, cGMP requirements relating to manufacturing, quality control, quality assurance, complaints and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or may be subject to significant conditions of approval, or may impose requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product. The FDA closely regulates the post-approval marketing and promotion of drugs to ensure drugs are marketed only for the approved indications and in accordance with the provisions of the approved labeling and regulatory requirements. The FDA imposes stringent restrictions on manufacturers’ communications regarding off-label use and if we do not restrict the marketing of our products only to their approved indications, we may be subject to enforcement action for off-label marketing.

In addition, later discovery of previously unknown problems with our products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including:

Our relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.

Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of any product candidates, including dalbavancin, for which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our products for which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations, include the following:

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business are found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain.

In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of product candidates that we develop, restrict or regulate post-approval activities and affect our ability to profitably sell any product candidates, including dalbavancin, for which we obtain marketing approval.

In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or Medicare Modernization Act, changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sales prices for physician administered drugs. In addition, this legislation provided authority for limiting the number of drugs that will be covered in any therapeutic class. Cost reduction initiatives and other provisions of this legislation could decrease the coverage and price that we receive for any approved products. While the Medicare Modernization Act applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the Medicare Modernization Act may result in a similar reduction in payments from private payors.

More recently, in March 2010, President Obama signed into law the Health Care Reform Law, a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for health care and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. Effective October 1, 2010, the Health Care Reform Law revised the definition of “average manufacturer price” for reporting purposes, which could increase the amount of Medicaid drug rebates to states. Further, the new law imposes a significant annual fee on companies that manufacture or import branded prescription drug products. Substantial new provisions affecting compliance have also been enacted, which may affect our business practices with health care practitioners. We will not know the full effects of the Health Care Reform Law until applicable federal and state agencies issue regulations or guidance under the new law. Although it is too early to determine the full effect of the Health Care Reform Law, the new law appears likely to continue the pressure on pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs.

Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.

If we are unable to obtain and maintain patent protection for our technology and products, or if the scope of the patent protection is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products may be adversely affected.

Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our proprietary technology and products. We seek to protect our proprietary position by filing patent applications in the United States and abroad related to our novel technologies and product candidates that are important to our business. This process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. Moreover, if we license technology or product candidates from third parties in the future, these license agreements may not permit us to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering this intellectual property. These agreements could also give our licensors the right to enforce the licensed patents without our involvement, or to decide not to enforce the patents without our consent. Therefore, in these circumstances, we could not be certain that these patents and applications would be prosecuted and enforced in a manner consistent with the best interests of our business.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents

being issued which protect our technology or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection.

The laws of foreign countries may not protect our rights to the same extent as the laws of the United States. For example, European patent law restricts the patentability of methods of treatment of the human body more than U.S. law does. In addition, we may not pursue or obtain patent protection in all major markets. Assuming the other requirements for patentability are met, currently, the first to file a patent application is entitled to the patent. However, prior to March 16, 2013, in the United States, the first to invent was entitled to the patent. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed in our patents or pending patent applications, or that we were the first to file for patent protection of such inventions.

Moreover, we may be subject to a third party preissuance submission of prior art to the U.S. Patent and Trademark Office or become involved in opposition, derivation, reexamination, inter partes review, post-grant review, interference proceedings or other patent office proceedings or litigation, in the United States or elsewhere, challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.

Even if our patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a non-infringing manner.

For example, although dalbavancin is protected by four issued U.S. patents consisting of two method-of-treatment patents, a dosage-form patent and a formulation patent, patent protection is not available for composition-of-matter claims that only recite the active pharmaceutical ingredient for dalbavancin. Because dalbavancin lacks composition-of-matter protection for its active pharmaceutical ingredient, competitors will be able to offer and sell products with the same active pharmaceutical ingredient so long as these competitors do not infringe any other patents covering this drug. Moreover, method-of-treatment patents, are more difficult to enforce than composition-of-matter patents because of the risk of off-label sale or use of the subject compound. Physicians are permitted to prescribe an approved product for uses that are not described in the product’s labeling. Although off-label prescriptions may infringe our method-of-treatment patents, the practice is common across medical specialties and such infringement is difficult to prevent or prosecute. Off-label sales would limit our ability to generate revenue from the sale of our product candidates, if approved for commercial sale. In addition, if a third party were able to design around our dosage-form and formulation patents and create a different formulation and dosage form that is not covered by our patents or patent applications, we would likely be unable to prevent that third party from manufacturing and marketing its product.

The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. In November 2012, the FDA designated dalbavancin as a QIDP. This designation provides ten years of exclusivity in the United States.

We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.

Competitors may infringe our patents, trademarks, copyrights or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time consuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. Similarly, if we assert trademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable, or that the party against whom we have asserted trademark infringement has

superior rights to the marks in question. In this case, we could ultimately be forced to cease use of such marks. In any infringement litigation, any award of monetary damages we receive may not be commercially valuable. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.

Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.

Our commercial success depends upon our ability and the ability of our collaborators to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing the intellectual property and other proprietary rights of third parties. There is considerable intellectual property litigation in the biotechnology and pharmaceutical industries, and we may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our products and technology, including interference proceedings before the U.S. Patent and Trademark Office. Third parties may assert infringement claims against us based on existing or future intellectual property rights. We have not conducted a freedom-to-operate search or analysis for dalbavancin, and we may not be aware of pending or future patent applications that, if issued, would block us from commercializing dalbavancin. Thus, we cannot guarantee that dalbavancin, or our commercialization thereof, does not and will not infringe any third party’s intellectual property.

If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing and marketing our products and technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.

We may be subject to claims by third parties asserting that we or our employees have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property.

Many of our employees were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. Litigation may be necessary to defend against these claims.

In addition, while we typically require our employees and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own. Moreover, because we acquired the rights to our lead product candidate from Pfizer, we must rely on Pfizer’s practices, and those of its predecessors, with regard to the assignment of intellectual property therein. Our and their assignment agreements may not be self-executing or may be breached, and we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property.

If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to management.

Intellectual property litigation could cause us to spend substantial resources and could distract our personnel from their normal responsibilities.

Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development, sales, marketing or distribution activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.

If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

In addition to seeking patents for some of our technology and products, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants. However, we cannot guarantee that we have executed these agreements with each party that may have or have had access to our trade secrets.

Moreover, because we acquired the rights to our lead product candidate from Pfizer, we must rely on Pfizer’s practices, and those of its predecessors, with regard to parties that may have had access to our trade secrets related thereto before our acquisition. Any party with whom we or they have executed such an agreement may breach that agreement and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed.

We have not yet registered our trademarks in all of our potential markets, and failure to secure those registrations could adversely affect our business.

Our trademark applications may not be allowed for registration, and our registered trademarks may not be maintained or enforced. During trademark registration proceedings, we may receive rejections. Although we are given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the U.S. Patent and Trademark Office and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. If we do not secure registrations for our trademarks, we may encounter more difficulty in enforcing them against third parties than we otherwise would.

Proprietary names must be approved by the FDA, regardless of whether we have registered the name with the U.S. Patent and Trademark Office, or applied to register it, as a trademark. The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product names. If the FDA objects to any of our proposed proprietary product names, we may be required to expend significant additional resources in an effort to identify a suitable proprietary product name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA. Dalvance has been approved by the FDA for use with dalbavancin in the United States as of May 23, 2014. We have also proposed potential proprietary names in Europe. We have not yet proposed a proprietary name for dalbavancin in any jurisdiction other than the United States and Europe.

Our future success depends on our ability to retain our chief executive officer and other key executives and to attract, retain and motivate qualified personnel.

We are highly dependent on Paul R. Edick, our Chief Executive Officer, Corey N. Fishman, our Chief Operating Officer and Chief Financial Officer, Michael W. Dunne, M.D., our Chief Medical Officer, and John P. Shannon, our Chief Marketing Officer, as well as the other principal members of our management and scientific teams. Although we have formal employment agreements with our executive officers, these agreements do not prevent them from terminating their employment with us at any time. We do not maintain “key person” insurance for any of our executives or other employees. The loss of the services of any of these persons could impede the achievement of our development and commercialization objectives.

Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel will also be critical to our success. We may not be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.

We expect to expand our development, regulatory and sales, marketing and distribution capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

We expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of drug development, regulatory affairs and sales, marketing and distribution. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The physical expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.

Our executive officers, directors and principal stockholders maintain the ability to control or significantly influence all matters submitted to stockholders for approval.

Our executive officers, directors and stockholders who own more than 5% of our outstanding common stock, in the aggregate, beneficially own a majority of our capital stock. As a result, if these stockholders were to choose to act together, they would be able to control all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, would control the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of voting power could delay or prevent an acquisition of our company on terms that other stockholders may desire.

Provisions in our corporate charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our certificate of incorporation and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions:

Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.

The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses.

Our stock price may be volatile. The stock market in general and the market for smaller pharmaceutical and biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, our stockholders could incur substantial losses. The market price for our common stock may be influenced by many factors, including:

We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act and may remain an emerging growth company through December 31, 2017. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

In addition, the JOBS Act also provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be the sole source of gain for our stockholders.

We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of our existing indebtedness currently, and any future debt agreements, may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be the sole source of gain for our stockholders for the foreseeable future.

A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future, which could cause the market price of our common stock to drop significantly, even if our business is doing well.

A substantial portion of our outstanding common stock can be traded without restriction at any time, and some of the shares which are currently restricted as a result of securities laws will be able to be sold, subject to any applicable volume limitations under federal securities laws with respect to affiliate sales, in the near future. As such, sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. As of July 31, 2014, we had outstanding 26,777,391 shares of common stock. In addition, holders of an aggregate of 9,537,533 shares of our common stock have rights, subject to certain conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders.

On May 27, 2014, Oxford Finance LLC exercised the warrants to purchase shares of our common stock on a cashless basis, resulting in issuance of 33,066 shares of our common stock and cancellation of 34,933 shares purchasable under the warrant.

We did not purchase any of our registered equity securities during the period covered by this Quarterly Report on Form 10-Q.

Pursuant to the our credit agreement with PDL BioPharma, Inc., or PDL, which we refer to as the PDL credit agreement, upon marketing approval of dalbavancin in the United States on May 23, 2014, the Company borrowed, as required, an aggregate principal amount of $15.0 million from PDL. Amounts borrowed under the PDL credit agreement are guaranteed by us and certain of our subsidiaries. The loans and the guarantee obligations are secured by a lien on all or substantially all of our assets and all or substantially all of the assets of our subsidiaries (other than Durata Therapeutics Limited), as applicable, including the pledge of the equity interests in each of our direct and indirect subsidiaries to secure the applicable loan and guarantee obligations. Currently, each term loan under the PDL credit agreement bears interest at an annual rate equal to 12.75%. The PDL credit agreement provides for interest-only payments payable quarterly in arrears through December 31, 2014, and payment of interest and principal in quarterly installments in the amounts specified in the PDL credit agreement starting on March 31, 2015 and continuing quarterly thereafter through September 30, 2018. The final maturity is October 31, 2018. The PDL credit agreement also contains certain representations, warranties and covenants (including maintaining liquidity of at least $2 million) applicable to us and our subsidiaries. The PDL credit agreement contains certain events of default. The obligations under the PDL credit agreement and the related loan documents may, at PDL’s option, be accelerated upon the occurrence of certain events of default, and are automatically accelerated upon certain bankruptcy-related events of default. The net proceeds of such borrowing under the PDL credit agreement are being used for general corporate purposes.

The exhibits filed as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit Index, which Exhibit Index is incorporated herein by reference.

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.

Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheet at June 30, 2014 (unaudited) and December 31, 2013 (ii) Consolidated Statement of Operations for the three and six month periods ended June 30, 2014 and 2013 and the period from inception (November 4, 2009) to June 30, 2014 (unaudited), (iii) Consolidated Statement of Cash Flows for the six month periods ended June 30, 2014 and 2013 and for the period from inception (November 4, 2009) to June 30, 2014 (unaudited) and (iv) Notes to Consolidated Financial Statements (unaudited).

In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act, is deemed not filed for purposes of Section 18 of the Exchange Act, and otherwise is not subject to liability under these sections.

This AMENDMENT NUMBER ONE (the “Amendment”) to the Employment Agreement dated June 10, 2012 (the “Agreement”) is made as of May 1, 2014 between Durata Therapeutics, Inc. (the “Company”), and Michael Dunne (“Employee”).

WHEREAS, the Company and the Employee entered into the Agreement on June 10, 2012.

NOW THEREFORE, in consideration of the mutual covenants contained herein, the parties intending to be legally bound agree as follows:

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

THIS LEASE is made as of the day of May, 2014, between PIEDMONT 500 WEST MONROE FEE, LLC, a Delaware limited liability company (“Landlord”), and DURATA THERAPEUTICS, INC., a Delaware corporation (“Tenant”).

(A) Premises, Building and Property. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord that certain space known as Suite 3300 (“Premises”) described or shown on Exhibit A attached hereto, on the 33^rd floor of the building (“Building”) commonly known as 500 West Monroe Street, Chicago, Illinois, subject to the terms of this Lease. The term “Property” shall mean the Building, and any common or public areas or facilities, easements, corridors, lobbies, sidewalks, loading areas, driveways, landscaped areas, skywalks, parking garages and lots, and any and all other structures or facilities operated or maintained in connection with or for the benefit of the Building, and all parcels or tracts of land on which all or any portion of the Building or any of the other foregoing items are located, and any fixtures, machinery, equipment, apparatus, Systems and Equipment, furniture and other personal property located thereon or therein and used in connection therewith owned or leased by Landlord. Possession of areas necessary for utilities, services, safety and operation of the Property, including the Systems and Equipment, fire stairways, perimeter walls, space between the finished ceiling of the Premises and the slab of the floor or roof of the Building there above, and the use thereof together with the right to install, maintain, operate, repair and replace the Systems and Equipment, including any of the same in, through, under or above the Premises in locations that will not materially interfere with Tenant’s use of the Premises, are hereby excepted and reserved by Landlord, and not demised to Tenant. “Systems and Equipment” shall mean any plant, machinery, transformers, duct work, fan power boxes, cable, wires, and other equipment, facilities, and systems designed to supply heat, ventilation, air conditioning and humidity or any other services or utilities, or comprising or serving as any component or portion of the electrical, gas, steam, plumbing, sprinkler, communications, alarm, security, or fire/life/safety systems or equipment, or any other mechanical, electrical, electronic, computer or other systems or equipment for the Property. Supplemental HVAC equipment installed to address special electrical, cooling and ventilating needs created by Tenant’s telephone equipment, computer, electronic data processing equipment, copying equipment and/or other such equipment or uses shall not be part of “Systems and Equipment” and shall be Tenant’s responsibility to repair, maintain, and replace.

(B) Commencement Date: The “Commencement Date” shall be the earlier of the date upon which the Work in the Premises is Substantially Completed (as such terms are defined in Exhibit B) and October 1, 2014. The “Term” of this Lease shall be twelve (12) years, commencing on the Commencement Date and ending at 5:00 p.m. local time on the last day of the 144^th full calendar month following the Commencement Date (“Expiration Date”), subject to adjustment and earlier termination as provided herein. Landlord and Tenant agree that for purposes of this Lease the rentable area of the Premises is approximately twenty six thousand seven hundred fifty-one (26,751) rentable square feet. Landlord shall make the Premises available to Tenant, and Tenant and Tenant’s employees, agents, contractors and representatives shall be entitled to enter the Premises, prior to the Commencement Date in order to perform the Work, move furniture, and install approved phone/data cabling subject to all the terms and conditions of this Lease other than those requiring payment of Base Rent, Taxes and Operating Expenses, and payment of costs for electricity in the Premises during ordinary business hours. However, Tenant may not conduct business in the Premises prior to the Commencement Date.

(C) Workletter; Commencement Date Confirmation. The workletter attached hereto as Exhibit B is made a part hereof (“Workletter”). At Landlord’s request, after the Commencement Date, Tenant shall execute and deliver to Landlord a letter substantially in the form of Exhibit E hereto confirming (x) the Commencement Date and the expiration date of the initial Term, (y) that Tenant has accepted the Premises, and (z) that Landlord has performed all of its obligations with respect to the Premises (except for punch-list items specified in such letter); however, the failure of the parties to execute such letter shall not defer the Commencement Date or otherwise invalidate this Lease.

(D) Required Tenant Deliveries. Landlord will not be obligated to deliver possession of the Premises to Tenant until Landlord has received from Tenant all of the following: (i) this Lease fully executed by Tenant; (ii) the Letter of Credit and one monthly installment of Base Rent; (iii) executed copies of policies of insurance or certificates thereof as required under Article 9 of this Lease; (iv) copies of all governmental permits and authorizations, if any, required in connection with Tenant’s operation of its business within the Premises; and (v) if Tenant is an entity, evidence of formation, good standing, and authority as Landlord may reasonably require. Failure to timely deliver any of the foregoing shall not defer the Commencement Date or impair Tenant’s obligation to pay Rent.

(E) Acceptance. Tenant has inspected the Premises, Property, Systems and Equipment and agrees to accept the same “as is” without any agreements, representations, understandings or obligations on the part of Landlord to perform any alterations, repairs or improvements and no representations respecting the condition of the Premises or the Property have been made to Tenant by or on behalf of Landlord, except as expressly provided herein or in the Workletter.

in advance on or before the first day of each calendar month during the Term, except that Base Rent for the first full calendar month for which Base Rent shall be due shall be paid when Tenant executes this Lease. If the Term commences on a day other than the first day of a calendar month, or ends on a day other than the last day of a calendar month, then the Base Rent for such month shall be prorated on the basis of the number of days in that month. Rent shall be paid without any prior demand or notice therefor

and without any deduction, set-off or counterclaim, or relief from any valuation or appraisement laws, except as specifically provided in this Lease. Landlord may apply payments received from Tenant to any obligations of Tenant then accrued, without regard to such obligations as may be designated by Tenant. As used herein, the term “Lease Month” shall mean each calendar month during the Term (and if the Commencement Date does not occur on the first day of a calendar month, the period from the Commencement Date to the first day of the next calendar month shall be included in the first Lease Month for purposes of determining the duration of the Term and the monthly Base Rent rate applicable for such partial month) and the term “Lease Year” shall mean each consecutive period of twelve (12) Lease Months.

Notwithstanding the foregoing or Article 3 below, provided a Default has not occurred under this Lease which has not been cured by Tenant, Tenant’s obligation to pay Base Rent, Taxes and Operating Expenses shall be abated for the first fifteen (15) calendar months after the Commencement Date (the “Abatement Period”). If the Abatement Period does not end on the last day of a calendar month, then on the day following the Abatement Period, Tenant shall make a prorated Base Rent, Tax and Operating Expense payment for the remainder of such month. If Tenant commits a material, monetary Default and fails to cure before Landlord files suit to terminate this Lease or regain possession of the Premises, then the unamortized portion of all sums so abated shall be immediately due and payable to Landlord, such amortization to be on a straight line basis over the initial Term.

(A) Taxes. Tenant shall pay Landlord Tenant’s Prorata Share of Taxes. “Taxes” shall mean all federal, state, county, or local taxes, fees, charges or other impositions of every kind and nature, whether general, special, ordinary or extraordinary (including without limitation, real estate taxes, general and special assessments, transit taxes, water and sewer rents, rent taxes, sales taxes, gross receipts taxes, and personal property taxes imposed upon Landlord) payable by Landlord in any calendar year during the Term. However, “Taxes” shall not include: Landlord’s income taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and succession taxes, estate taxes, the Illinois Personal Property Replacement Tax, or penalties assessed against Landlord; provided that if an income or excise tax is levied by any governmental entity in lieu of or as a substitute for ad valorem real estate taxes (in whole or in part), then any such tax or excise shall constitute and be included within the term “Taxes.” Taxes shall include the costs of consultants retained in an effort to lower taxes and all costs incurred in disputing any taxes or in seeking to lower the tax valuation of the Property. Tenant waives all rights to protest or appeal the appraised value of the Premises and the Property. Subject to the foregoing exceptions from Taxes, if Taxes for any period during the Term or any extension thereof, shall be increased after payment thereof by Landlord for any reason, Tenant shall pay Landlord upon demand Tenant’s Prorata Share of such increased Taxes. Notwithstanding the foregoing, if any Taxes shall be paid based on assessments or bills by a governmental or municipal authority using a fiscal year other than a calendar year, Landlord may elect to average the assessments or bills for the subject calendar year, based on the number of months of such calendar year included in each such assessment or bill. “Tenant’s Prorata Share” of Taxes and Operating Expenses shall be the rentable area of the Premises divided by the rentable area of the Building, excluding any parking facilities, which is 2.7682%, being the 26,751 rentable square feet in the Premises divided by the 966,357 rentable square feet in the Building. Tenant acknowledges that “rentable square footage of the Premises” has been determined under this Lease in accordance with the American National Standards Institute (“ANSI”)/Building Owners and Managers Association International (“BOMA”) Form Z65.1-1996. Landlord may remeasure the Building from time to time and, upon written notice to Tenant Landlord’s new measurements shall be binding hereunder provided Landlord measures according to the

1996 ANSI/BOMA standard or a more current ANSI/BOMA standard and further provided any such remeasurement shall not result in an increase or decrease in Base Rent or Additional Rent or Tenant’s Prorata Share as set forth in this Lease for the balance of the Term. If the Property or any development of which it is a part, shall contain non-office uses, Landlord shall have the right (but not the obligation) to determine in accordance with sound accounting and management principles, Tenant’s Prorata Share of Taxes and Operating Expenses for only the office portion of the Property or of such development, in which event, Tenant’s Prorata Share shall be based on the ratio of the rentable area of the Premises to the rentable area of such office portion.

(B) Operating Expenses. Tenant shall pay Landlord Tenant’s Prorata Share of Operating Expenses. “Operating Expenses” shall mean all expenses of every kind (other than Taxes) which are paid, incurred or accrued for, by or on behalf of Landlord during any calendar year any portion of which occurs during the Term, in connection with the management, repair, maintenance, restoration and operation of the Property, including without limitation, any amounts paid for: (a) utilities for the Property, including but not limited to electricity, power, gas, steam, chilled water, oil or other fuel, water, sewer, lighting, heating, air conditioning and ventilating, (b) permits, licenses and certificates necessary to operate, manage and lease the Property, (c) insurance applicable to the Property, but not limited to the amount of coverage Landlord is required to provide under this Lease and reasonable insurance deductibles, (d) supplies, tools, equipment and materials used in the operation, repair and maintenance of the Property, (e) accounting, legal, inspection, consulting, concierge, and other services, (f) any equipment rental of any kind (or installment equipment purchase or equipment financing agreements), but excluding any such cost or expense which would constitute a capital expenditure if the equipment were purchased, provided that Landlord may include in Operating Expenses rentals of: (i) equipment which is leased on a temporary basis, such as in the event of a service interruption, (ii) equipment which is used in providing janitorial services, (iii) customarily leased office equipment, such as copiers, and (iv) rentals of rarely used items that, in Landlord’s reasonable judgment, it is more economical to rent than to purchase, (g) management fees of not more than three percent (3%) of the gross revenues of the Building, amounts payable under management agreements, and the fair rental value of any office space provided for a management office (not to exceed 5,000 rentable square feet), Building conference room, and for the Fitness Facility, (h) wages, salaries and other compensation and benefits (including the fair value of any parking privileges provided) for all persons engaged in the operation, maintenance or security of the Property, and employer’s Social Security taxes, unemployment taxes or insurance, and any other taxes which may be levied on such wages, salaries, compensation and benefits, (i) payments under any easement, operating agreement, declaration, restrictive covenant, or instrument pertaining to the sharing of costs in any planned development of which the Building is a part, (j) all costs of operating and maintaining the Fitness Facility including repairing and replacing equipment in the Fitness Facility, (to the extent not offset by separate membership or usage fees imposed by Landlord); (k) all expenses incurred and costs associated with the operation and maintenance of other building amenities available to all tenants; and (l) operation, repair, and maintenance of all Systems and Equipment and components thereof (including replacement of components), janitorial service, alarm and security service, window cleaning, trash removal, elevator maintenance, cleaning of walks, parking facilities and Property walls, removal of ice and snow, replacement of wall and floor coverings, ceiling tiles and fixtures in lobbies, corridors, restrooms and other common or public areas or facilities, maintenance and replacement of shrubs, trees, grass, sod and other landscaped items, irrigation systems, drainage facilities, fences, curbs, and walkways, re-paving and re-striping driveways and parking facilities, and roof repairs. Notwithstanding the foregoing, Operating Expenses shall not include:

(i) depreciation, interest and amortization on Mortgages, and other debt costs or ground lease payments, if any; legal fees in connection with leasing, tenant disputes or enforcement of leases; real estate brokers’ leasing commissions; advertising expenses, space planning fees, architectural fees, improvements or alterations to tenant spaces; the cost of

providing any service directly to and paid directly by, any tenant; any costs expressly excluded from Operating Expenses elsewhere in this Lease; costs of any items to the extent Landlord receives reimbursement from insurance proceeds, condemnation awards or reimbursement from a third party (such proceeds to be deducted from Operating Expenses in the year in which received); salaries of Landlord’s or its manager’s executive personnel above the level of regional property manager; auditing fees, other than those in connection with the maintenance and operation of the Property and the Building or in connection with the preparation of Landlord’s Statements for Taxes and Operating Expenses; the cost of constructing any additions to the square foot area of the Building above the square foot area of the Building on the Commencement Date; costs or expenses for removal, containment, encapsulation, or disposal of or repair or cleaning areas affected by hazardous waste, toxic materials, asbestos or any other form of contamination (other than hazardous materials customarily used or removed in the ordinary course of business in office buildings); costs incurred in connection with a transfer or disposition of all or any part of the Building or the Property or any interest therein or in Landlord or any entity comprising Landlord; any expense arising by reason of the gross negligence or other tortious conduct of Landlord or Landlord’s employees or agents, or due to default by Landlord or Landlord’s employees or agents under any agreement or lease affecting the Building or the Property or any portion thereof; any fines or penalties incurred as a result of violation by Landlord of any law, order, rule or regulation of any governmental authority; costs incurred to correct structural defects in the initial construction of the Building; and

(ii) capital expenditures, except those: (a) that reduce Operating Expenses, or that are made to comply with any Laws or other governmental requirements, or (b) for replacements (as opposed to additions or new improvements) of non-structural items located in the common areas of the Property required to keep such areas in good condition; provided, all such permitted capital expenditures (together with reasonable financing charges) shall be amortized for purposes of this Lease over the shorter of: (i) their useful lives or (ii) the period during which the reasonably estimated savings in Operating Expenses equals the expenditures.

With respect to any calendar year or partial calendar year in which the Building is not occupied to the extent of 95% of the rentable area thereof, Operating Expenses which vary with occupancy for such period shall, for the purposes hereof, be increased to the amount which would have been incurred had the Building been occupied to the extent of 95% of the rentable area thereof.

(i) Landlord may reasonably estimate in advance the amounts Tenant shall owe for Taxes and Operating Expenses for any full or partial calendar year of the Term. In such event, Tenant shall pay such estimated amounts, on a monthly basis in installments equal to one-twelfth of the annual estimate, on or before the first day of each calendar month, together with Tenant’s payment of Base Rent. Such estimate may be reasonably adjusted from time to time by Landlord.

(ii) Within one hundred and twenty (120) days after the end of each calendar year, or as soon thereafter as practicable, Landlord shall provide a statement (the “Statement”) to Tenant showing: (a) the amount of actual Taxes and Operating Expenses for such calendar year, with a listing of amounts for major categories of Operating Expenses, (b) any amount paid by Tenant towards Taxes and Operating Expenses during such calendar year on an estimated basis, and (c) any revised estimate of Tenant’s obligations for Taxes and Operating Expenses for the current calendar year.

(iii) If the Statement shows that Tenant’s estimated payments were less than Tenant’s actual obligations for Taxes and Operating Expenses for such year, Tenant shall pay the difference. If the Statement shows an increase in Tenant’s estimated payments for the current calendar year, Tenant shall pay the difference between the new and former estimates, for the period from January 1 of the current calendar year through the month in which the Statement is sent. Tenant shall make such payments within thirty (30) days after Landlord sends the Statement.

(iv) If the Statement shows that Tenant’s estimated payments exceeded Tenant’s actual obligations for Taxes and Operating Expenses, Tenant shall receive a credit for the difference against payments of Rent next due. If the Term shall have expired and no further Rent shall be due, Tenant shall receive a refund of such difference, within thirty (30) days after Landlord sends the Statement.

(v) So long as Tenant’s obligations hereunder are not materially adversely affected thereby, Landlord reserves the right to reasonably change, from time to time, the manner or timing of the foregoing payments. In lieu of providing one Statement covering Taxes and Operating Expenses, Landlord may provide separate statements, at the same or different times. No delay by Landlord in providing the Statement (or separate statements) shall be deemed a default by Landlord or a waiver of Landlord’s right to require payment of Tenant’s obligations for actual or estimated Taxes or Operating Expenses.

(vi) Provided no Default then exists, after receiving an annual Statement and giving Landlord thirty (30) days prior written notice thereof, Tenant may inspect or audit Landlord’s records relating to Operating Expenses for the period of time covered by such Statement in accordance with the following provisions. If Tenant fails to object to the calculation of Operating Expenses on an annual Statement within ninety (90) days after the statement has been delivered to Tenant or if Tenant fails to conclude its audit or inspection within ninety (90) days after the Statement has been delivered to Tenant, then Tenant shall have waived its right to object to the calculation of Operating Expenses for the year in question and the calculation of Operating Expenses set forth on such Statement shall be final. Tenant’s audit or inspection shall be conducted where Landlord maintains its books and records, shall not unreasonably interfere with the conduct of Landlord’s business, and shall be conducted only during business hours reasonably designated by Landlord. Tenant shall pay the cost of such audit or inspection unless the total Operating Expenses for the period in question is determined to be overstated by more than 10%, in which case Landlord shall pay the reasonable audit cost. Tenant may not conduct an inspection or have an audit performed more than once during any calendar year. If such inspection or audit reveals that an error was made in the Operating Expenses previously charged to Tenant, then Landlord shall refund to Tenant any overpayment of such costs, or Tenant shall pay to Landlord any underpayment of such costs, as the case may be, within thirty (30) days after notification thereof. Tenant shall maintain the results of each such audit or inspection confidential and shall not be permitted to use any third party to perform such audit or inspection other than an independent firm of certified public accountants with at least ten (10) years of experience reviewing office building expense reconciliations: (1) which is not compensated on a contingency fee basis or in any other manner which is dependent upon the results of such audit or inspection (and Tenant shall deliver the fee agreement or other similar evidence of such fee agreement to Landlord upon request), and (2) which agrees with Landlord in writing to maintain the results of such audit or inspection confidential. Nothing in this section shall be construed to limit, suspend, or abate Tenant’s obligation to pay Rent when due, including Additional Rent.

(D) Proration. If the Term commences other than on January 1, or ends other than on December 31, Tenant’s obligations to pay estimated and actual amounts towards Taxes and Operating Expenses for such first or final calendar years shall be prorated to reflect the portion of such years included in the Term. Such proration shall be made by multiplying the total estimated or actual (as the case may be) Taxes and Operating Expenses, for such calendar years, by a fraction, the numerator of which shall be the number of days of the Term during such calendar year, and the denominator of which shall be three hundred and sixty-five (365).

(E) Rent and Other Charges. “Additional Rent” means Tenant’s Prorata Share of Taxes and Tenant’s Prorata Share of Operating Expenses. Base Rent, Additional Rent and any other amounts which Tenant is or becomes obligated to pay Landlord under this Lease or other agreement entered in connection herewith, are sometimes herein referred to collectively as “Rent,” and all remedies applicable to the non-payment of Rent shall be applicable thereto. Rent shall be paid at any office maintained by Landlord or its agent at the Property or at such other place as Landlord may designate.

Tenant shall use the Premises for general office use and for no other purpose whatsoever, in compliance with all applicable Laws and all covenants, conditions and restrictions of record applicable to Tenant’s use or occupancy of the Premises, and without disturbing or interfering with any other tenant or occupant of the Property. Tenant shall not use the Premises in any manner so as to cause a cancellation of Landlord’s insurance policies or an increase in the premiums thereunder. Tenant shall comply with, and shall cause its permitted subtenants, permitted assignees, invitees, employees, contractors and agents to comply with, all rules set forth in Rider One attached hereto (the “Rules”). In addition, all contractors shall be required to follow Landlord’s reasonable rules and regulations for construction in the Building and Landlord may require that, prior to performing any work in the Building, each contractor execute a copy of Landlord’s rules to evidence such contractor’s agreement to so comply. Landlord shall have the right to reasonably amend such Rules and supplement the same with other reasonable Rules (not expressly inconsistent with this Lease) relating to the Property, or the promotion of safety, care, cleanliness or good order therein, and all such amendments or new Rules shall be binding upon Tenant after five (5) days notice thereof to Tenant. All Rules shall be applied on a non-discriminatory basis, but nothing herein shall be construed to give Tenant or any other Person any claim, demand or cause of action against Landlord arising out of the violation of such Rules by any other tenant, occupant, or visitor of the Property, or out of the enforcement or waiver of the Rules by Landlord in any particular instance.

Landlord shall provide the following services and utilities (the cost of which shall be included in Operating Expenses unless otherwise stated herein):

(A) Electricity to the Premises shall not be furnished by Landlord, but shall be furnished, at Tenant’s cost, by Landlord’s selected electric utility supplier. Landlord shall permit Tenant to receive such electrical service for standard office lighting fixtures, equipment and accessories through Landlord’s wires and conduits, to the extent available and based on the safe and lawful capacity of the existing electrical circuit(s) and facilities serving the Premises, provided: (1) the connected electrical load of all of the same does not exceed an average of seven (7) watts per square foot of the Premises and (2) the safe and lawful capacity of the existing electrical circuit(s) serving the Premises is not exceeded. Tenant shall be responsible for the payment of the cost of all modifications to the existing electrical circuit(s) and facilities serving the Premises and, in accordance with Section 5(H) below, the cost of all electricity

furnished to the Premises, including electricity used during the performance of janitor service, the making of alterations or repairs in the Premises (except for alterations or improvements made prior to the Commencement Date which electricity costs during ordinary business hours shall be paid by Landlord), or the operation of any special air conditioning systems which may be required for data processing or computer equipment or other special equipment or machinery installed by Tenant.

(B) Heat and air-conditioning from 8:00 a.m. until 6:00 p.m. Monday through Friday and 8:00 a.m. until 1:00 p.m. on Saturday, except on Holidays. “Holidays” shall mean all federally observed holidays, including New Year’s Day, President’s Day, Memorial Day, Independence Day, Labor Day, Veterans’ Day, Thanksgiving Day, Christmas Day, and all other holidays observed by members of unions who provide services at the Building. Landlord shall not be responsible for inadequate air-conditioning or ventilation to the extent the same occurs because of Tenant’s above building standard population density or use of power (for example, additional HVAC in a data room). Building HVAC service shall provide inside space conditions of 77 degrees Fahrenheit when outside conditions are 94 degrees Fahrenheit dry bulb and 75 degrees Fahrenheit wet bulb, and 73 degrees Fahrenheit inside when outside temperatures are -10 degrees Fahrenheit, provided that the foregoing temperatures shall only be applicable in any room or area of the Premises where the occupancy does not exceed one (1) person for each 100 square feet and total electrical load including lighting and power does not exceed 6 watts per square foot. Landlord’s agreements hereunder are subject to governmental restrictions on energy use.

(C) Water for drinking, lavatory and toilet purposes at those points of supply provided for nonexclusive general use of other tenants at the Property.

(D) Office cleaning and trash removal service Monday through Friday or Sunday through Thursday in and about the Premises in accordance with the janitorial specifications attached hereto as Exhibit C.

(E) Operatorless passenger elevator service and freight elevator service (subject to scheduling by Landlord) in common with Landlord and other tenants and their contractors, agents and visitors.

(F) An unstaffed fitness center (“Fitness Facility”) at 500 West Monroe. Tenant and Tenant’s employees shall have the non-exclusive right to use the Fitness Facility during the Fitness Facility’s hours of operation. Tenant’s use of the Fitness Facility will be limited to Tenant, Tenant’s permitted assignees and subtenants, and their employees, on a non-exclusive basis. Tenant and its employees shall use the Fitness Facility at their own risk and will provide any certifications and waivers of liability as Landlord may reasonably request from time to time. Without limiting the generality of the foregoing, each user of the Fitness Facility shall be required to execute and deliver a membership agreement and waiver of liability in the form attached hereto as Exhibit F (or in another similar form provided by and acceptable to Landlord).

(G) If reasonable and feasible, Landlord shall seek to provide extra utilities or services requested by Tenant provided the request does not involve modifications or additions to existing Systems and Equipment. Without limitation, if available Landlord shall make chilled water available to a point on each floor of the Building for Tenant’s supplemental chilled water cooling needs. If Tenant uses such supplemental chilled water, Tenant shall pay Landlord’s standard rates for such chilled water based on Tenant’s usage or other reasonable method of cost allocation determined by Landlord. Tenant shall pay for extra utilities or services at rates set by Landlord in its reasonable discretion. Payment shall be due at the same time as Base Rent or, if billed separately, shall be due within thirty (30) days after billing. If Tenant shall fail to make any payment for additional services, Landlord may, without notice to Tenant and in addition to all other remedies available to Landlord, discontinue the additional services. Landlord may install and operate meters or any other reasonable system for monitoring or estimating any services or utilities used by Tenant in excess of those required to be provided by Landlord under this Article (including a system for Landlord’s engineer to reasonably estimate any such excess usage). If such

system indicates such excess services or utilities, Tenant shall pay Landlord’s reasonable charges for any supplementary air-conditioning, ventilation, heat, electrical or other systems or equipment (or adjustments or modifications to the existing Systems and Equipment) directly related to such excess use by Tenant, and Landlord’s reasonable charges for such amount of excess services or utilities used by Tenant. Landlord may impose a reasonable charge for any utilities and services, including, without limitation, air conditioning, electricity, and water, provided by Landlord by reason of: (i) any use of the Premises at any time other than the hours set forth above; (ii) any utilities or services beyond what Landlord agrees herein to furnish; or (iii) special electrical, cooling and ventilating needs created by Tenant’s telephone equipment, computer, electronic data processing equipment, copying equipment and other such equipment or uses, provided that in each case such charge is imposed at the published Building standard rate. Only if Landlord reasonably determines that Tenant’s consumption of utility services is materially in excess of the consumption of other similar tenants, Landlord, at its option, may require installation of metering devices at Tenant’s expense for the purpose of metering Tenant’s utility consumption.

(H) Electricity used by Tenant in the Premises shall be paid by Tenant by a separate charge billed by the applicable utility company and payable directly by Tenant. Electrical service to the Premises may be furnished by one or more companies providing electrical generation, transmission and distribution services, and the cost of electricity may consist of several different components or separate charges for such services, such as generation, distribution and stranded cost charges. Landlord shall have the exclusive right (i) to choose the company or companies to provide electrical service to the Property and the Premises, (ii) to aggregate the electrical service for the Property and the Premises with other buildings or properties, (iii) to purchase electrical service through an agent, broker or buyer’s group, and (iv) to change the electrical service provider or manner of purchasing electrical service from time to time. Neither Landlord nor Landlord’s property manager shall be entitled to receive any fee in connection with the selection of utility companies and the administration and negotiation of contracts for the provision of electrical service.

(I) Landlord shall use reasonable efforts to restore any service required of it that becomes unavailable; however, such unavailability shall not render Landlord liable for any damages caused thereby, be a constructive eviction of Tenant, constitute a breach of any implied warranty, or, except as provided in the next sentence, entitle Tenant to any abatement of Tenant’s obligations hereunder. If, however, Tenant is prevented from using the Premises because of the unavailability of any service to be provided by Landlord hereunder for a period of five (5) consecutive business days following Landlord’s receipt from Tenant of a written notice regarding such unavailability and such unavailability was not caused by or through Tenant or a governmental directive, then Tenant shall, as its exclusive remedy be entitled to a reasonable abatement of Rent for each consecutive day (after such five (5) business day period) that Tenant is so prevented from using the Premises. Landlord in no event shall be liable for damages by reason of loss of profits, business interruption or other consequential damages.

Tenant shall not make any additions, changes, alterations or improvements (“Alterations”) outside the Premises. Tenant shall not make any Alterations within the Premises (“Tenant Work”) without the prior written consent of Landlord, which shall not be unreasonably withheld. Landlord may impose reasonable requirements as a condition of such consent including without limitation the submission of plans and specifications for Landlord’s prior written approval, obtaining necessary permits, posting bonds, obtaining insurance, prior approval of contractors, subcontractors and suppliers, prior receipt of copies of all contracts and subcontracts, contractor and subcontractor lien waivers, affidavits listing all contractors, subcontractors and suppliers, use of union labor (if Landlord uses union labor), affidavits from engineers acceptable to Landlord stating that the Tenant Work will not adversely affect

the Systems and Equipment or the structure of the Property, and requirements as to the manner and times in which such Tenant Work shall be done. All Tenant Work shall be performed in a good and workmanlike manner and all materials used shall be of a quality comparable to or better than those in the Premises and Property and shall be in accordance with plans and specifications approved by Landlord, and Landlord may require that all such Tenant Work be performed under Landlord’s supervision. In all cases, Tenant shall pay Landlord a fee of five percent (5%) of the cost of the Tenant’s Work to cover Landlord’s overhead in reviewing Tenant’s plans and specifications and supervising the Tenant Work. Consent or supervision by Landlord shall not be deemed a warranty as to the adequacy of the design, workmanship or quality of materials, and Landlord hereby expressly disclaims any responsibility or liability for the same. Landlord shall under no circumstances have any obligation to repair, maintain or replace any portion of the Tenant Work. Regardless of whether Landlord’s consent is required, all contractors shall be required to follow Landlord’s rules and regulations for construction in the Building and Landlord may require that, prior to performing any work in the Building, each contractor execute a copy of Landlord’s rules to evidence such contractor’s agreement to so comply. Notwithstanding anything in this Lease to the contrary other than Exhibit B with respect to the initial Work, without Landlord’s consent or payment to Landlord of any plan review or supervision fees (but subject to the other requirements of this Lease), Tenant may make cosmetic Alterations to the Premises, including, without limitation, reconfiguring furniture and furniture systems, that do not affect Systems and Equipment or structural components, that do not require a building permit or raise building code issue(s), do not impact the quiet enjoyment of other Building tenants, and that are not visible outside the Premises, the cost of which must not exceed $50,000 per calendar year in any instance or series of related instances (collectively, (“Permitted Alterations”).

Tenant shall keep the Property and Premises free from any mechanic’s, materialman’s or similar liens or other such encumbrances in connection with any Tenant Work on or respecting the Premises not performed by or at the request of Landlord, and shall indemnify and hold Landlord harmless from and against any claims, liabilities, judgments, or costs (including reasonable attorneys’ fees) arising out of the same or in connection therewith. Tenant shall give Landlord notice at least twenty (20) days prior to the commencement of any Tenant Work (or such additional time as may be necessary under applicable Laws), to afford Landlord the opportunity of posting and recording appropriate notices of non-responsibility. Tenant shall remove any such lien or encumbrance by bond or otherwise within thirty (30) days after written notice by Landlord, and if Tenant shall fail to do so, Landlord may pay the amount necessary to remove such lien or encumbrance, without being responsible for investigating the validity thereof. The amount so paid shall be deemed additional Rent under this Lease payable upon demand, without limitation as to other remedies available to Landlord under this Lease. Nothing contained in this Lease shall authorize Tenant to do any act which shall subject Landlord’s title to the Property or Premises to any lien or encumbrance whether claimed by operation of law or express or implied contract. Any claim to a lien or encumbrance upon the Property or Premises arising in connection with any Tenant Work on or respecting the Premises not performed by or at the request of Landlord shall be null and void, or at Landlord’s option shall attach only against Tenant’s interest in the Premises and shall in all respects be subordinate to Landlord’s title to the Property and Premises.

All contractors and subcontractors shall be required to procure and maintain insurance against such risks, in such amounts, and with such companies as Landlord may reasonably require. Certificates of such insurance, with paid receipts therefor, must be received by Landlord before any work is commenced. All contracts between Tenant and a contractor must explicitly require the contractor to (a) name Landlord and Landlord’s agents as additional insureds and (b) indemnify and hold harmless Landlord and Landlord’s agents.

Except for customary cleaning and trash removal provided by Landlord under Article 5 and damage covered under Article 8, or as otherwise set forth in this Lease, Tenant shall keep the Premises in good condition, working order and repair (including without limitation, carpet, wall-covering, doors, plumbing and other fixtures and equipment exclusively serving the Premises, alterations and improvements whether installed by Landlord or Tenant in the Premises). In the event that any repairs, maintenance or replacements are required, Tenant shall promptly arrange for the same either through (a) Landlord for such reasonable charges as Landlord may from time to time establish, or (b) contractors that Landlord generally uses at the Property, or (c) other contractors approved in writing in advance by Landlord. If Tenant does not promptly make such arrangements, Landlord may, but need not, make such repairs, maintenance and replacements, and the costs paid or incurred by Landlord therefor shall be reimbursed by Tenant promptly after request by Landlord. Except to the extent caused by the negligence or willful misconduct of Landlord, or Landlord’s officers, members, managers, employees, or their respective representatives or agents, Tenant shall indemnify Landlord and pay for any repairs, maintenance and replacements to areas of the Property outside the Premises, caused, in whole or in part, as a result of moving any furniture, fixtures, or other property to or from the Premises, or by Tenant or its employees, agents, contractors, or visitors (notwithstanding anything to the contrary contained in this Lease). Except as provided in the preceding sentence, or for damage covered under Article 8, Landlord shall keep the Building structure and common areas of the Property and the Systems and Equipment in good condition, working order and repair (the cost of which shall be included in Operating Expenses). As part of Landlord’s repair work pursuant to the preceding sentence, Landlord shall be responsible for any restoration of the Premises made necessary by Landlord’s performance of work, repairs or replacements in the Premises (including the walls, ceilings, light fixtures and carpet and all furniture, property and equipment of Tenant in the Premises), in each case to substantially the condition as existed prior to commencement of such work, repairs or replacements. Landlord shall use its best efforts to minimize any disruption to Tenant’s business operations in the Premises as a result of any work, repairs or replacements by Landlord, including, if necessary, scheduling such work, repairs or replacements at times that do not conflict with business hours.

Subject to Article 6 and the remainder of this Article 8, Landlord shall use available insurance proceeds to restore the Premises or any common areas of the Property providing access thereto which are damaged by fire or other casualty during the Term. Such restoration shall be to substantially the condition prior to the casualty, except for modifications required by zoning and building codes and other Laws or by any Holder, any other modifications to the common areas deemed desirable by Landlord (provided access to the Premises is not materially impaired), and except that Landlord shall not be required to repair or replace any of Tenant’s furniture, furnishings, fixtures or equipment, or any of Tenant’s alterations or improvements in the Premises, which Tenant covenants to rebuild at Tenant’s expense promptly after the casualty. Landlord shall not be liable for any inconvenience or annoyance to Tenant or its visitors, or injury to Tenant’s business resulting in any way from such damage or the repair thereof. However, from the date of the casualty until Landlord completes Landlord’s repairs, Landlord shall allow Tenant a proportionate abatement of Rent 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 (unless Tenant or its employees or agents intentionally caused the damage). Notwithstanding the foregoing, Landlord may terminate this Lease by giving Tenant written notice of termination within sixty

(60) days after the date of damage (such termination notice to include a termination date providing at least ninety (90) days for Tenant to vacate the Premises), if the Property shall be damaged by fire or other casualty such that: (a) repairs to the Premises and access thereto cannot reasonably be completed within two hundred seventy (270) days after the casualty without the payment of overtime or other premiums, (b) any Holder 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), or the damage is not fully covered by Landlord’s insurance policies (excluding the deductible), or (c) the cost of the repairs, alterations, restoration or improvement work would exceed twenty-five percent (25%) of the replacement value of the Property. If Landlord does not elect to terminate the Lease as provided above, Landlord shall send Tenant a written estimate, from an independent architect or general contractor selected by Landlord, of the amount of time reasonably required to repair and restore the Premises and access thereto, as the case may be (“Completion Estimate”). Tenant may terminate this Lease by giving Landlord written notice of termination within thirty (30) days after Tenant’s receipt of the Completion Estimate (such termination notice to include a termination date providing not more than ninety (90) days for Tenant to vacate the Premises), if the Property shall be damaged by fire or other casualty such that the Completion Estimate estimates that Landlord’s repairs to the Premises and access thereto cannot reasonably be completed within two hundred seventy (270) days after the casualty without the payment of overtime or other premiums. Furthermore, if neither Landlord nor Tenant terminates this Lease as provided above and Landlord undertakes but fails to substantially complete Landlord’s restoration of the Premises and access thereto within two hundred seventy (270) days after the casualty (“270 Day Period, “ provided, however that such 270 Day Period may be extended up to three hundred sixty-five (365) days after the casualty if Landlord is actively restoring the Premises and access thereto, as the case may be (the “Outside Completion Date”), Tenant may terminate this Lease by giving Landlord written notice of termination at any time after the Outside Completion Date but prior to such substantial completion (such termination notice to include a termination date providing not more than thirty (30) days for Tenant to vacate the Premises). Tenant agrees that Landlord’s obligation to restore, the abatement of Rent and the termination options provided herein, shall be Tenant’s sole recourse in the event of such damage, and waives any other rights Tenant may have under any applicable Law to terminate the Lease by reason of damage to the Premises or Property. Tenant acknowledges that this Article represents the entire agreement between the parties respecting casualty damage to the Premises or the Property.

(A) Tenant shall not conduct or permit to be conducted any activity, or place or permit to be placed any equipment or other item in or about the Premises, the Building or the Property, which will in any way increase the rate of property insurance or other insurance on the Property. If any increase in the rate of property or other insurance is due to any activity, equipment or other item of Tenant, then (whether or not Landlord has consented to such activity, equipment or other item) Tenant shall pay as additional rent due hereunder the amount of such increase. The statement of any applicable insurance company or insurance rating organization (or other organization exercising similar functions in connection with the prevention of fire or the correction of hazardous conditions) that an increase is due to any such activity, equipment or other item shall be conclusive evidence thereof.

(B) Throughout the Term, Tenant shall obtain and maintain the following insurance coverages written with companies with an A.M. Best A-,X or better rating and S&P rating of at least A-:

(i) Commercial General Liability (“CGL”) insurance (written on an occurrence basis) with limits not less than One Million Dollars ($1,000,000) combined single limit per occurrence, Two Million Dollar ($2,000,000) annual general aggregate (on a per location basis), One Million Dollars ($1,000,000) personal and advertising injury liability, Fifty Thousand

Dollars ($50,000) fire damage legal liability, and Five Thousand Dollars ($5,000) medical payments. CGL insurance shall be written on a current ISO occurrence form (or a substitute form providing equivalent or broader coverage) and shall cover liability arising from Premises, operations, independent contractors, personal injury, advertising injury and liability assumed under an insured contract.

(ii) Workers Compensation insurance as required by the applicable state law, and Employers Liability insurance with limits not less than One Million Dollars ($1,000,000) for each accident, One Million Dollars ($1,000,000) disease policy limit, and One Million Dollars ($1,000,000) disease each employee.

(iii) Commercial Auto Liability insurance (if applicable) covering automobiles owned, hired or used by Tenant in carrying on its business with limits not less than One Million Dollars ($1,000,000) combined single limit for each accident.

(iv) Umbrella/Excess Insurance coverage on a follow form basis in excess of the CGL (excluding Products Completed Operations), Employers Liability and Commercial Auto Policy with limits not less than Five Million Dollars ($5,000,000) per occurrence and Five Million Dollars ($5,000,000) annual aggregate.

(v) Special Form Property Insurance covering Tenant’s property, furniture, furnishings, fixtures, improvements, and equipment located at the Building. If Tenant is responsible for any machinery, Tenant shall maintain boiler and machinery insurance.

(vi) Business Interruption and Extra Expenses insurance in amounts typically carried by prudent tenants engaged in similar operations, but in no event in an amount less than the annual Base Rent then in effect. Such insurance shall reimburse Tenant for direct and indirect loss of earnings and extra expense attributable to all perils insured against.

(vii) Property Insurance or Builder’s Risk (or Building Constructions) insurance during the course of construction of any Alteration, including during the performance of Tenant’s Work and until completion thereof. Such insurance shall be on a form covering Landlord’s insurable interest in any tenant improvements and betterments in accordance with the written contract, Tenant and Tenant’s contractors, as their interest may appear, against loss or damage by fire, vandalism, and malicious mischief and other such risks as are customarily covered by the so-called “broad form extended coverage endorsement” upon all Alterations or Tenant’s Work in place and all materials stored at the Premises, and all materials, equipment, supplies and temporary structures of all kinds incident to Alterations or Tenant’s Work and builder’s machinery, tools and equipment, all while forming a part of, or on the Premises, or within 1,000 feet of the Premises, all on a completed value basis for the full insurable value at all times. Such insurance shall contain an express waiver of any right of subrogation by the insurer against Landlord, its agents, employees and contractors.

(viii) Products-completed operations insurance (written on a claims made basis) with limits of not less than $2,000,000 in the aggregate.

(c) Landlord and its designees shall be endorsed on each policy as additional insureds, as their interests may appear, as it pertains to the CGL, Umbrella, and Auto policy, and coverage shall be primary and noncontributory. As of the date hereof, Landlord designates the following parties who must be additional insureds: Piedmont 500 West Monroe Fee, LLC, Piedmont 500 West Monroe Mezz I, LLC;

500 West Monroe Mezz II, LLC, Piedmont Operating Partnership LP, Piedmont Office Management LLC, Piedmont Office Realty Trust, Inc., Piedmont Office Holdings, Inc., and their associated, affiliated, and subsidiary companies, owners, directors, officers, managing agents, and fiduciaries as they exist. All insurance shall (1) contain an endorsement that such policy shall remain in full force and effect notwithstanding that the insured may have waived its right of action against any party prior to the occurrence of a loss (Tenant hereby waiving its right of action and recovery against and releasing Landlord and Landlord’s agents, employees, contractors, invitees, successors and assigns from any and all liabilities, claims and losses for which they may otherwise be liable to the extent Tenant is covered by insurance carried or required to be carried under this Lease, but in each case except as prohibited by applicable law); (2) provide that the insurer thereunder waives all right of recovery by way of subrogation against Landlord and Landlord’s representatives in connection with any loss or damage covered by such policy (and Tenant shall provide evidence of such waiver); and (3) be reasonably acceptable in form and content to Landlord. Tenant shall cause its insurance carrier to provide Landlord with 30 days advance notice (10 days for non-payment of premium) of any cancellation, failure to renew of Tenant’s insurance coverage if it is reasonable and customary for an office tenant in the Building’s submarket to obtain such an undertaking from its insurance carrier. In the event Tenant’s insurance carrier will not agree to provide Landlord advance notice as aforesaid, then Tenant shall give Landlord notice of cancellation or failure to renew of Tenant’s insurance coverage as soon as reasonably possible after Tenant learns of such cancellation or failure to renew coverage. Tenant shall deliver an ACORD 25 certificate or its equivalent with respect to all liability and personal property insurance and an ACORD 28 certificate or its equivalent with respect to all commercial property insurance and receipts evidencing payment therefor and, upon request, copies of certain policy endorsements, to Landlord on or before the Commencement Date and at least annually thereafter. If Tenant fails to provide evidence of insurance required to be provided by Tenant hereunder, prior to commencement of the Lease Term and thereafter within thirty (30) days following Landlord’s request during the Term (and in any event prior to the expiration date of any such coverage, any other cure or grace period provided in this Lease not being applicable hereto), Landlord shall be authorized (but not required) after ten (10) days’ prior notice to procure such coverage in the amount stated with all costs thereof to be chargeable to Tenant and payable as additional rent upon written invoice therefor.

(D) Landlord agrees to carry and maintain special form property insurance (with replacement cost coverage) covering the Building and Landlord’s property therein in an amount required by its insurance company to avoid the application of any coinsurance provision. Landlord hereby waives its right of recovery against Tenant and releases Tenant from any and all liabilities, claims and losses for which Tenant may otherwise be liable to the extent Landlord receives proceeds from its property insurance (or from any other insurance coverage) therefor. Landlord shall secure a waiver of subrogation endorsement from its insurance carrier. Landlord also agrees to carry and maintain commercial general liability insurance in limits it reasonably deems appropriate (but in no event less than the limits required by Tenant pursuant to Section 9(B)). Landlord may elect to carry such other additional insurance or higher limits as it reasonably deems appropriate. Tenant acknowledges that Landlord shall not carry insurance on, and shall not be responsible for damage to, Tenant’s personal property or any Alterations (including Tenant’s Work), and that Landlord shall not carry insurance against, or be responsible for any loss suffered by Tenant due to, interruption of Tenant’s business.

If (a) the whole or any material part of the Premises or the Property shall be taken by power of eminent domain or condemned by any competent authority for any public or quasi-public use or purpose; (b) any adjacent property or street shall be so taken or condemned, or reconfigured or vacated by such

authority in such manner as to require the use, reconstruction or remodeling of any part of the Premises or the Property, or (c) Landlord shall grant a deed or other instrument in lieu of such taking by eminent domain or condemnation, then Landlord shall have the option to terminate this Lease upon ninety (90) days notice, provided such notice is given no later than one hundred eighty (180) days after the date of such taking, condemnation, reconfiguration, vacation, deed or other instrument. Tenant shall have reciprocal termination rights if the whole or any material part of the Premises is permanently taken or if access to the Premises is permanently and materially impaired, or if Landlord undertakes repairs or restoration and such work is not completed within one hundred eighty (180) days of the commencement thereof and the failure to complete such repairs prohibits Tenant’s use of the Premises for its intended purpose. Landlord shall be entitled to receive the entire award or payment in connection therewith, except that Tenant shall have the right to file any separate claim available to Tenant for any taking of Tenant’s Work, Alterations paid for by Tenant, the leasehold estate, Tenant’s personal property and of fixtures belonging to Tenant and removable by Tenant upon expiration of the Term and for moving expenses (so long as such claim does not diminish the award available to Landlord or any Holder, and such claim is payable separately to Tenant). All Rent shall be apportioned as of the date of such termination, or the date of such taking, whichever shall first occur. Rent shall be proportionately abated if any part of the Premises shall be taken and this Lease shall not be so terminated.

At the expiration or earlier termination of this Lease or Tenant’s right of possession of the Premises, Tenant shall surrender possession of the Premises in the condition required under Article 7, ordinary wear and tear and damage by fire or other casualty excepted, and shall surrender all keys, any key cards, and any parking stickers or cards, to Landlord, and advise Landlord as to the combination of any locks or vaults then remaining in the Premises, and shall remove all trade fixtures and personal property. All improvements, fixtures and other items in or upon the Premises (except trade fixtures and personal property belonging to Tenant), whether installed by Tenant or Landlord, shall be Landlord’s property and shall remain upon the Premises, all without compensation, allowance or credit to Tenant. However, by giving Tenant written notice prior to the date of termination, Landlord may require Tenant to promptly remove any or all of the foregoing items as are designated in such notice and restore the Premises to the condition prior to the installation of such items; provided Landlord shall not require removal of the Permitted Alterations or customary office improvements installed pursuant to any separate agreement signed by both parties in connection with this Lease (except as expressly provided to the contrary therein), or installed by Tenant with Landlord’s written approval, including the initial Work approved by Landlord (except as expressly required by Landlord in connection with granting such approval). If Tenant shall fail to perform any repairs or restoration, or fail to remove any items from the Premises or the Property required hereunder, Landlord may do so, and Tenant shall pay Landlord the cost thereof upon demand. Any and all property that may be removed from the Premises or the Property by Landlord pursuant to any provisions of this Lease or any Law, to which Tenant is or may be entitled, may be handled, removed or stored in a commercial warehouse or otherwise by Landlord at Tenant’s risk, cost or expense, and Landlord shall in no event be responsible for the value, preservation or safekeeping thereof. Tenant shall pay to Landlord, upon demand, any and all expenses incurred in any removal and all storage charges as long as the same is in Landlord’s possession or under Landlord’s control. Any property, which is not removed from the Premises or which is not retaken from storage by Tenant within thirty (30) days after expiration or earlier termination of this Lease or of Tenant’s right to possession of the Premises, shall, at Landlord’s option, be conclusively presumed to have been abandoned and thus to have been conveyed by Tenant to Landlord as if by bill of sale without payment by Landlord. Unless prohibited by applicable Law, Landlord shall have a lien against such property for the costs incurred in removing and storing the same.

Unless Landlord expressly agrees otherwise in writing, if Tenant shall retain possession of the Premises or any part thereof after expiration or earlier termination of this Lease, Tenant shall pay Landlord one hundred fifty percent (150%) of the amount of Rent then applicable (or the highest amount permitted by Law, whichever shall be less) on a per month basis without reduction for partial months during the holdover. In addition, beginning on the thirty-first (31^st) day of such holdover, Tenant shall be responsible for all consequential damages sustained by Landlord on account of Tenant holding over. The foregoing provisions shall not serve as permission for Tenant to holdover, nor serve to extend the Term (although Tenant shall remain bound to comply with all provisions of this Lease until Tenant vacates the Premises, and shall be subject to the provisions of Article 11). The provisions of this Article do not waive Landlord’s right of re-entry or right to regain possession by actions at law or in equity or any other rights hereunder, and any receipt of payment by Landlord shall not be deemed a consent by Landlord to Tenant’s remaining in possession or be construed as creating or renewing any lease or right of tenancy between Landlord and Tenant.

No provision of this Lease will be deemed waived by either party unless expressly waived in writing signed by the waiving party. No waiver shall be implied by delay or any other act or omission of either party. No waiver by either party of any provision of this Lease shall be deemed a waiver of such provision with respect to any subsequent matter relating to such provision, and Landlord’s consent or approval respecting any action by Tenant shall not constitute a waiver of the requirement for obtaining Landlord’s consent or approval respecting any subsequent action. Acceptance of Rent by Landlord shall not constitute a waiver of any breach by Tenant of any term or provision of this Lease. No acceptance of a lesser amount than the Rent herein stipulated shall be deemed a waiver of Landlord’s right to receive the full amount due, nor shall any endorsement or statement on any check or payment or any letter accompanying such check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the full amount due. The acceptance of Rent or of the performance of any other term or provision from any Person other than Tenant, including any Transferee, shall not constitute a waiver of Landlord’s right to approve any Transfer.

In the event of any litigation between the parties, the prevailing party shall be entitled to obtain, as part of the judgment, all reasonable attorneys’ fees, costs and expenses incurred in connection with such litigation, except as may be limited by applicable Law. In the interest of obtaining a speedier and less costly hearing of any dispute, the parties hereby each irrevocably waive the right to trial by jury.

Tenant shall pay prior to delinquency all taxes, charges or other governmental impositions assessed against or levied upon Tenant’s fixtures, furnishings, equipment and personal property located in the Premises, and any Tenant Work to the Premises which is deemed to be personal property by any

governmental agency or subdivision thereof. Whenever possible, Tenant shall cause all such items to be assessed and billed separately from the property of Landlord. In the event any such items shall be assessed and billed with the property of Landlord, Tenant shall pay Landlord its share of such taxes, charges or other governmental impositions within thirty (30) days after Landlord delivers a statement and a copy of the assessment or other documentation showing the amount of such impositions applicable to Tenant’s property. Tenant shall pay any rent tax or sales tax, service tax, transfer tax or value added tax, or any other applicable tax on Rent or services provided herein or otherwise respecting this Lease.

Landlord represents and warrants to Tenant that no Mortgage presently encumbers the Property. Subject to the provisions of this Article 16, this Lease is subject and subordinate to all Mortgages hereafter placed upon the Property, and to all other encumbrances and matters of public record applicable to the Property. If any foreclosure proceedings are initiated by any Holder, in the event of a non-judicial foreclosure, or a deed in lieu is granted (or if any ground lease is terminated), Tenant agrees to attorn and pay Rent to any Holder which is a successor to Landlord hereunder or a purchaser at a foreclosure sale and to execute and deliver any instruments reasonably necessary or appropriate to evidence or effectuate such attornment (provided such Holder or purchaser shall agree to accept this Lease and not disturb Tenant’s occupancy, so long as Tenant does not default and fail to cure within the time permitted hereunder). However, in the event of attornment, no Holder shall be: (i) liable for any act or omission of Landlord, or subject to any offsets or defenses which Tenant might have against Landlord (prior to such Holder becoming Landlord under such attornment), (ii) liable for any security deposit or bound by any prepaid Rent not actually received by such Holder, (iii) bound by any future modification of this Lease not consented to by such Holder, (iv) be liable for any accrued obligation, act or omission of any prior landlord (including, without limitation, Landlord), whether prior to or after foreclosure or termination of the superior lease, as the case may be, (v) be bound by any covenant to undertake or complete any improvement to the Property or the Premises, or to reimburse or pay Tenant for the cost of any such improvement, or (vi) be required to perform or provide any services not related to possession or quiet enjoyment of the Premises. “Holder” shall mean the holder of any Mortgage at the time in question, and where such Mortgage is a ground lease, such term shall refer to the ground lessor. “Mortgage” shall mean all mortgages, deeds of trust, ground leases and other such encumbrances now or hereafter placed upon the Property or any part thereof and all renewals, modifications, consolidations, replacements or extensions thereof. Any Holder may elect to make this Lease prior to the lien of its Mortgage, by written notice to Tenant, and if the Holder of any prior Mortgage shall require, this Lease shall be prior to any subordinate Mortgage. Tenant shall execute such documentation as Landlord may reasonably request from time to time, in order to confirm the matters set forth in this Article in recordable form. In the event of any default on the part of Landlord, arising out of or accruing under the Lease, whereby the validity or the continued existence of the Lease might be impaired or terminated by Tenant, or Tenant might have a claim for partial or total eviction, Tenant shall not pursue any of its rights with respect to such default or claim, and no notice of termination of the Lease as a result of such default shall be effective, unless and until Tenant has given written notice of such default or claim to the applicable Holder (but not later than the time that Tenant notifies Landlord of such default or claim) and granted to such Holder a reasonable time, which shall not be less than the greater of (i) the period of time granted to Landlord under the Lease, or (ii) thirty (30) days, after the giving of such notice by Tenant to such Holder, to cure or to undertake the elimination of the basis for such default or claim, after the time when Landlord shall have become entitled under the Lease to cure the cause of such default or claim; it being expressly understood that (a) if such default or claim cannot reasonably be cured within such cure period, such Holder shall have such additional period of time to cure same as it reasonably determines is necessary, so long as it continues to pursue such cure with reasonable diligence (not to exceed an additional 60 days), and (b) such Holder’s right to cure any such default or claim shall not be deemed to create any obligation for such Holder to cure or to undertake the elimination of any such default or claim.

With respect to future mortgages of the Property, Landlord shall use commercially reasonable efforts to obtain and deliver to Tenant a commercially reasonable SNDA from Landlord’s future mortgage lenders on such lender’s customary form as negotiated by Tenant, but receipt of SNDAs from future lenders shall not be a condition to this Lease or Tenant’s subordination. Tenant may be required to execute each such SNDA before Landlord or the lender will execute the SNDA. In the event the Holder becomes the Landlord under this Lease and the Lease conflicts with the fully-executed SNDA with such Holder, then such SNDA shall control. Landlord shall pay its Holder’s basic SNDA processing fee for each such SNDA; however, in the event that the standard form of the Holder’s SNDA is commercially reasonable and Tenant desires to negotiate the SNDA rather than execute the Holder’s standard form, all additional amounts payable to the Holder shall be the responsibility of Tenant and Tenant shall reimburse Landlord for same within thirty (30) days of receipt of an invoice therefor. Landlord shall not be in default in the event Tenant desires to negotiate the commercially reasonable standard form SNDA of the Holder and the parties are unable to agree upon a final form of SNDA. A party’s signature on a SNDA shall evidence such party’s agreement to and acceptance of such SNDA.

Tenant shall from time to time, within fifteen (15) days after written request from Landlord, execute, acknowledge and deliver a certificate affirming that, except as otherwise expressly stated in the certificate, (A) this Lease is unmodified and in full force and effect (or if modified, specifying such modification); (B) to Tenant’s knowledge, Landlord is not in default hereunder (or if in default, specifying such defaults); (C) Tenant is in possession of the Premises; (D) Tenant has no off-sets or defenses to the performance of its obligations under this Lease (or if such offsets or defenses exist, specifying same); (E) that the Premises have been completed in accordance with the terms, covenants and conditions hereof or the Workletter, that Tenant has accepted the Premises and the condition thereof and of all improvements thereto and has no claims against Landlord or any other party with respect thereto (or specifying any exceptions thereto); and (F) certifying such other matters as Landlord may reasonably request, or as may be requested by Landlord’s current or prospective Holders, insurance carriers, auditors, rating agencies, and prospective purchasers. The certificate shall also confirm the dates to which the Rent has been paid in advance and the amount of any Security Deposit. The certificate may be relied upon by Landlord, its Holder(s), insurance carriers, auditors, rating agencies, and prospective purchasers. If Tenant shall fail to timely execute and return an estoppel certificate which has been delivered to Tenant, Tenant shall be deemed to have agreed with the matters originally set forth therein.

(A) Transfers. Tenant shall not, without the prior written consent of Landlord, which consent shall not be unreasonably withheld (as further described below): (i) assign, mortgage, pledge, hypothecate, encumber, or otherwise transfer, this Lease or any interest hereunder, by operation of law or otherwise, (ii) sublet the Premises or any part thereof, or (iii) permit the occupancy of the Premises by any Person other than Tenant and its employees (all of the foregoing are hereinafter sometimes referred to collectively as “Transfers” and any Person to whom any Transfer is made or sought to be made is hereinafter sometimes referred to as a “Transferee”). If Tenant shall desire Landlord’s consent to any Transfer, Tenant shall notify Landlord in writing, which notice shall include: (a) the proposed effective date (which shall not be less than thirty (30) nor more than one hundred and eighty (180) days after

Tenant’s notice), (b) the portion of the Premises to be Transferred (herein called the “Subject Space”), (c) the terms of the proposed Transfer and the consideration therefor, the name and address of the proposed Transferee, and a copy of all documentation pertaining to the proposed Transfer, and (d) current financial statements of the proposed Transferee certified by an officer, partner or owner thereof, and any other information to enable Landlord to determine the financial responsibility, character, and reputation of the proposed Transferee, nature of such Transferee’s business and proposed use of the Subject Space, and such other information as Landlord may reasonably require. If Landlord requests additional information, Tenant’s notice will not be deemed to have been received and Landlord may withhold consent to such Transfer until Landlord receives and has a reasonable opportunity to review such additional information. Any Transfer made without complying with this Article shall, at Landlord’s option, be null, void and of no effect, or shall constitute a Default under this Lease. Whether or not Landlord shall grant consent, Tenant shall pay One Thousand Five Hundred Dollars ($1,500.00) as an administrative fee to compensate Landlord for its review and processing expenses plus Tenant shall reimburse Landlord for reasonable out of pocket attorneys’ fees incurred by Landlord in connection with such request.

(B) Approval. Landlord will not unreasonably withhold its consent to any proposed Transfer of the Subject Space to the Transferee on the terms specified in Tenant’s notice. The parties hereby agree that it shall be reasonable under this Lease and under any applicable Law for Landlord to withhold consent to any proposed Transfer where one or more of the following applies (without limitation as to other reasonable grounds for withholding consent): (i) the Transferee is of a character or reputation or engaged in a business which is not consistent with the quality of the Property, (ii) the Transferee intends to use the Subject Space for purposes which are not permitted under this Lease, (iii) the Subject Space is not regular in shape with appropriate means of ingress and egress suitable for normal renting purposes, (iv) the Transferee is either a government (or agency or instrumentality thereof) or an occupant of the Property, (v) the proposed Transferee does not have a reasonable financial condition in relation to the obligations to be assumed in connection with the Transfer, (vi) Tenant has committed and failed to cure a Default at the time Tenant requests consent to the proposed Transfer, (vii) in the reasonable judgment of Landlord, such a Transfer would violate any term, condition, covenant, or agreement of the Landlord involving the Property or any other tenant’s lease within it; (viii) the net effective rent payable by the Transferee (adjusted on a rentable square foot basis) is less than the net effective rent then being quoted by Landlord for new leases in the Building for comparable size space for a comparable period and the proposed Transferee is an existing tenant of the Building or in negotiation with Landlord to become a tenant of the Building; or (ix) the Transferee is or has been involved in litigation against Landlord or any of its affiliates. If Landlord wrongfully withholds its consent to any Transfer, Tenant’s sole and exclusive remedy therefor shall be to seek specific performance of Landlord’s obligation to consent to such Transfer.

(C) Transfer Premium. If Landlord consents to a sublease, Tenant shall pay Landlord fifty percent (50%) of any Transfer Premium derived by Tenant from such sublease. “Transfer Premium” shall mean all rent, additional rent or other consideration paid by the sublessee in excess of the Rent payable by Tenant under this Lease (on a monthly basis during the Term, and on a per rentable square foot basis, if less than all of the Premises is transferred), after deducting therefrom (on a monthly basis) the reasonable expenses incurred by Tenant, amortized over the balance of the Term, for any changes, alterations and improvements to the Premises, any other economic concessions or services provided to the sublessee, and any customary brokerage commissions paid in connection with the sublease if acceptable written evidence of such expenditures is provided in advance to Landlord. The percentage of the Transfer Premium due Landlord hereunder shall be paid within ten (10) days after Tenant receives any Transfer Premium from the Transferee.

(D) Recapture. Notwithstanding anything to the contrary contained in this Article, and only with respect to a proposed Transfer to a Person that is not a Permitted Transferee (as hereinafter defined),

Landlord shall have the option, by giving written notice to Tenant within thirty (30) days after receipt of Tenant’s notice of any such proposed Transfer, to recapture the Subject Space. Such recapture notice shall cancel and terminate this Lease with respect to the Subject Space as of the date stated in Tenant’s notice as the effective date of the proposed Transfer (or at Landlord’s option, shall cause the Transfer to be made to Landlord or its agent, in which case the parties shall execute the Transfer documentation promptly thereafter). If this Lease shall be canceled with respect to less than the entire Premises, the Rent reserved herein shall be prorated on the basis of the number of rentable square feet retained by Tenant in proportion to the number of rentable square feet contained in the Premises and Tenant’s Prorata Share shall be similarly reduced, this Lease as so amended shall continue thereafter in full force and effect, and upon request of either party, the parties shall execute written confirmation of the same.

(E) Terms of Consent. If Landlord consents to a Transfer: (a) any Transfer shall be made only if, and shall not be effective until, the Transferee shall execute, acknowledge and deliver to Landlord an agreement in form and substance reasonably satisfactory to Landlord whereby the Transferee shall agree to be bound by and assume the obligations of this Lease on the part of Tenant to be performed or observed, (b) the terms, covenants and conditions of this Lease, including among other things, Tenant’s (or any Transferee’s) liability for the Subject Space, shall in no way be deemed to have been waived or modified and the original named Tenant (and any Transferee, as the case may be) shall remain fully liable for the payment of Rent and Additional Rent and for the other obligations of this Lease on the part of Tenant to be performed or observed, (c) such consent shall not be deemed consent to any further Transfer by either Tenant or a Transferee, (d) no Transferee shall succeed to any rights provided in this Lease or any amendment hereto to extend the Term of this Lease, expand the Premises, or lease additional space, any such rights being deemed personal to Tenant, (e) Tenant shall deliver to Landlord promptly after execution, an original executed copy of all documentation pertaining to the Transfer in a form reasonably acceptable to Landlord, and (f) Tenant shall furnish upon Landlord’s request a complete statement, certified by an independent certified public accountant, or Tenant’s chief financial officer, setting forth in detail the computation of any Transfer Premium Tenant has derived and shall derive from such Transfer. Landlord or its authorized representatives shall have the right at all reasonable times to audit the books, records and papers of Tenant relating to any Transfer, and shall have the right to make copies thereof. If the Transfer Premium respecting any Transfer shall be found understated, Tenant shall within thirty (30) days after demand pay the deficiency, and if understated by more than five percent (5%), Tenant shall pay Landlord’s costs of such audit. Any sublease hereunder shall be subordinate and subject to the provisions of this Lease, and if this Lease shall be terminated during the term of any sublease, Landlord shall have the option to: (i) treat such sublease as canceled and repossess the Subject Space by any lawful means, or (ii) require that such subtenant attorn to and recognize Landlord as its landlord under any such sublease. If Tenant shall Default and fail to cure within the time permitted for cure under Section 20(A), Landlord is hereby irrevocably authorized, as Tenant’s agent and attorney-in-fact, to direct any Transferee to make all payments under or in connection with the Transfer directly to Landlord (which Landlord shall apply towards Tenant’s obligations under this Lease) until such Default is cured.

(F) Permitted Transfers. Notwithstanding Section 18(A), Tenant may Transfer all or part of its interest in this Lease or all or part of the Premises (a “Permitted Transfer”) to the following types of entities (a “Permitted Transferee”) without the written consent of Landlord: (i) any Person which, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with Tenant (an “Affiliate”); (ii) any corporation, limited partnership, limited liability partnership, limited liability company or other business entity in which or with which Tenant, or its corporate successors or assigns, is merged or consolidated, in accordance with applicable statutory provisions governing merger and consolidation of business entities, so long as (a) Tenant’s obligations hereunder are assumed by the entity surviving such merger or created by such consolidation; and (b) the Tangible Net Worth of the surviving or created entity is not less than the Tangible Net Worth of Tenant as of the date hereof; or (iii) any corporation, limited partnership, limited liability partnership, limited liability company

or other business entity acquiring all or substantially all of Tenant’s assets if such entity’s Tangible Net Worth after such acquisition is not less than the Tangible Net Worth of Tenant as of the date hereof. Tenant shall promptly notify Landlord of any such Permitted Transfer. Tenant shall remain liable for the performance of all of the obligations of Tenant hereunder, or if Tenant no longer exists because of a merger, consolidation, or acquisition, the surviving or acquiring entity shall expressly assume in writing the obligations of Tenant hereunder. Additionally, the Permitted Transferee shall comply with all of the terms and conditions of this Lease and the use of the Premises by the Permitted Transferee may not violate any other agreements affecting the Premises, the Building, Landlord or other tenants of the Building. No later than ten (10) days after the effective date of any Permitted Transfer, Tenant agrees to furnish Landlord with (x) copies of the instrument effecting the Permitted Transfer, (y) documentation establishing Tenant’s satisfaction of the requirements set forth above applicable to any such Permitted Transfer, and (z) evidence of insurance as required under this Lease with respect to the Permitted Transferee. The occurrence of a Permitted Transfer shall not waive Landlord’s rights as to any subsequent Transfers. “Tangible Net Worth” means the excess of total assets over total liabilities, in each case as determined in accordance with generally accepted accounting principles consistently applied, excluding, however, from the determination of total assets all assets which would be classified as intangible assets under GAAP including goodwill, licenses, patents, trademarks, trade names, copyrights, and franchises. Any subsequent Transfer by a Permitted Transferee shall be subject to the terms of this Article 18.

Except as expressly provided herein, Landlord reserves the right to control the Property including, without limitation, the following rights:

(A) To change the name or street address of the Building; install and maintain signs on the exterior and interior of the Property or any part thereof; retain at all times, and use in appropriate instances, keys to all doors within and into the Premises; grant to any Person the right to conduct any business or render any service at the Property, whether or not it is the same or similar to the use permitted Tenant by this Lease.

(B) To enter the Premises upon reasonable prior notice (except in the event of emergency) at reasonable hours to show the Premises to current and prospective mortgage lenders, ground lessors, insurers, and prospective purchasers, and only during the last twelve (12) months of the Term to tenants and brokers (or sooner if Tenant defaults or abandons the Premises), and if Tenant shall abandon the Premises at any time, or shall vacate the same during the last three (3) months of the Term, to decorate, remodel, repair, or alter the Premises.

(C) To temporarily limit or prevent access to the Property or any part thereof, shut down elevator service, activate elevator emergency controls, or otherwise take such action or preventative measures deemed necessary by Landlord for the safety of tenants or other occupants of the Property or the protection of the Property and other property located thereon or therein, in case of fire, invasion, insurrection, riot, civil disorder, public excitement or other dangerous condition, or threat thereof.

(D) So long as Tenant’s access to the Building and the Premises is not unreasonably impaired and Tenant’s use of the Premises is not materially affected, to decorate and to make alterations, additions and improvements, structural or otherwise, in or to the Property or any part thereof, and to any adjacent building, structure, parking facility, land, street or alley (including without limitation changes and reductions in corridors, lobbies, parking facilities and other public areas and the installation of kiosks, planters, sculptures, displays, escalators, mezzanines, and other structures, facilities, amenities and features therein, and changes for the purpose of connection with or entrance into or use of the Property in

conjunction with any adjoining or adjacent building or buildings, now existing or hereafter constructed). So long as Tenant’s access to the Building and the Premises is not unreasonably impaired and Tenant’s use of the Premises is not materially affected, in connection with such matters, or with any other repairs, maintenance, improvements or alterations, in or about the Property, Landlord may erect scaffolding and other structures reasonably required, and during such operations may, upon reasonable prior notice to Tenant, enter upon the Premises at reasonable hours and take into and upon or through the Premises, all materials required to make such repairs, maintenance, alterations or improvements, and may temporarily close public entry ways, other public areas, restrooms, stairways or corridors and Tenant agrees to pay Landlord for overtime and similar expenses incurred if such work is done other than during ordinary business hours at Tenant’s request.

(F) To install, use and maintain in and through those areas of the Premises established therefor, pipes, conduits, wires, ducts or mechanical installations serving the Property. Tenant agrees that there shall be no construction of partitions or other obstructions which might interfere with the moving or the servicing of equipment of Landlord to or from the enclosures containing such installations and Tenant further agrees that neither Tenant, nor its servants, employees, agents, visitors, licensees, or contractors shall at any time tamper with, adjust, or otherwise in any manner affect Landlord’s mechanical installations.

(G) To implement energy conservation measures throughout the Building including, without limitation, reducing the number of operating elevators during non-business hours, provided at least one (1) elevator is available to serve the Premises.

(H) To take any other action which Landlord deems reasonable in connection with the operation, maintenance, marketing, or preservation of the Building or the Property, so long as Tenant’s access to the Building and the Premises is not unreasonably impaired and Tenant’s use of the Premises is not materially affected.

(I) To approve the weight, size, and location of safes or other heavy equipment or articles, which articles may be moved in, about, or out of the Property or the Premises only at such times and in such manner as Landlord shall direct, at Tenant’s sole risk and responsibility.

In connection with entering the Premises to exercise any of the foregoing rights, Landlord shall: (a) provide reasonable advance written or oral notice to Tenant’s on-site manager or other appropriate person (except in emergencies, or for routine cleaning or other routine matters), and (b) take reasonable steps to minimize any interference with Tenant’s business. Exercise of any of the foregoing rights shall not constitute a constructive eviction or entitle Tenant to abatement of Rent, damages or other claims of any kind.

(A) Default. The occurrence of any one or more of the following events and the expiration of any applicable notice and cure period shall constitute a “Default” by Tenant, which if not cured within any applicable time permitted for cure below, shall give rise to Landlord’s remedies set forth in Paragraph (B), below: (i) failure by Tenant to make when due any payment of Rent, unless such failure is cured within five (5) days after written notice; (ii) failure by Tenant to observe or perform any of the terms or conditions of this Lease to be observed or performed by Tenant other than the payment of Rent, or as provided below, including any failure by Tenant to comply with the Rules, unless such failure is cured within ten (10) days after notice (or such shorter period expressly provided elsewhere in this Lease), provided, if the nature of Tenant’s failure is such that more than ten (10) days’ time is reasonably required

in order to cure, Tenant shall not be in Default if Tenant commences to cure within such period and thereafter reasonably seeks to cure such failure to completion, but in no event to exceed 90 days; (iii) vacation or abandonment of all or a substantial portion of the Premises for more than thirty (30) consecutive days (the transfer of a substantial part of the operations, business or personnel of Tenant to some other location being deemed, without limiting the meaning of the terms “vacation” and “abandonment” to be a vacation or abandonment with the meaning of this clause (iv)), or the failure to take possession of the Premises within sixty (60) days after the Commencement Date, but in each case only if Tenant ceases to pay Rent due under this Lease; (iv) (a) making by Tenant of any general assignment for the benefit of creditors, (b) filing by or against Tenant of a petition to have Tenant adjudged a bankrupt or a petition for reorganization or arrangement under any Law relating to bankruptcy (unless, in the case of a petition filed against Tenant, the same is dismissed within sixty (60) days), (c) appointment of a trustee or receiver to take possession of substantially all of Tenant’s assets located on the Premises or of Tenant’s interest in this Lease, where possession is not restored to Tenant within sixty (60) days, (d) attachment, execution or other judicial seizure of substantially all of Tenant’s assets located on the Premises or of Tenant’s interest in this Lease, (e) Tenant’s convening of a meeting of its creditors or any class thereof for the purpose of effecting a moratorium upon or composition of its debts, or (f) Tenant’s admission in writing of an inability to pay its debts as they mature; or (vi) any material misrepresentation herein, or material misrepresentation or omission in any financial statements or other materials provided by Tenant in connection with negotiating or entering this Lease or in connection with any Transfer under Article 20. Failure by Tenant to comply with the same term or condition of this Lease on three (3) occasions during any twelve (12) month period shall cause any failure to comply with such term or condition during the succeeding twelve month period, at Landlord’s option, to constitute an incurable Default, if Landlord has given Tenant notice of each such failure within five (5) days after each such failure occurs. The notice and cure periods provided herein are in lieu of, and not in addition to, any notice and cure periods provided by Law.

(B) Remedies. If a Default occurs and is not cured within any applicable time permitted under Paragraph (A), Landlord shall have the rights and remedies hereinafter set forth, each of which shall be distinct, separate and cumulative with and in addition to any other right or remedy allowed under any Law (including, without limitation, specific performance) or other provisions of this Lease, any and all of which may be exercised with or without further notice and with or without demand whatsoever, concurrently or successively, and at such time or times and in such order as Landlord may from time to time determine:

(i) Terminate this Lease by giving Tenant written notice thereof, in which event Tenant shall pay to Landlord the sum of (a) all Rent accrued hereunder through the date of termination, (b) all amounts due under Section 20(D), and (c) an amount equal to (1) the total Rent that Tenant would have been required to pay for the remainder of the Term discounted to present value at a per annum rate equal to five percent (5%), minus (2) the then present fair rental value of the Premises for such period, similarly discounted. For purposes of computing the amount of Rent herein that would have accrued after the time of award, Tenant’s Prorata Share of Taxes and Operating Expenses shall be projected based upon the average rate of increase, if any, in such items from the Commencement Date through the time of award.

(ii) Terminate Tenant’s right to possess the Premises without terminating this Lease by giving written notice thereof to Tenant, in which event Tenant shall pay to Landlord (a) all Rent accrued hereunder to the date of termination of possession, (b) all amounts due from time to time under Section 20(D), and (c) all Rent and other net sums required hereunder to be paid by Tenant during the remainder of the Term, diminished by any net sums thereafter received by Landlord through reletting the Premises during such period, after deducting all actual out-of-pocket costs incurred by Landlord in reletting the Premises. If Landlord elects to proceed under

this Section 20(B)(ii), Landlord may remove all of Tenant’s property from the Premises and store the same in a public warehouse or elsewhere at the cost of, and for the account of, Tenant, without becoming liable for any loss or damage which may be occasioned thereby. Landlord shall use reasonable efforts to relet the Premises on such terms as Landlord in its sole discretion may determine (including a term different from the Term, rental concessions, and alterations to, and improvement of, the Premises); however, Landlord shall not be obligated to relet the Premises before leasing other portions of the Building and Landlord shall not be obligated to accept any prospective tenant proposed by Tenant unless such proposed tenant meets all of Landlord’s leasing criteria. Landlord shall not be liable for, nor shall Tenant’s obligations hereunder be diminished because of, Landlord’s failure to relet the Premises or to collect rent due for such reletting. Tenant shall not be entitled to the excess of any consideration obtained by reletting over the Rent due hereunder. Reentry by Landlord in the Premises shall not affect Tenant’s obligations hereunder for the unexpired Term; rather, Landlord may, from time to time, bring an action against Tenant to collect amounts due by Tenant, without the necessity of Landlord’s waiting until the expiration of the Term. Unless Landlord delivers written notice to Tenant expressly stating that it has elected to terminate this Lease, all actions taken by Landlord to dispossess or exclude Tenant from the Premises shall be deemed to be taken under this Section 20(B)(ii). If Landlord elects to proceed under this Section 20(B)(ii), it may at any time elect to terminate this Lease under Section 20(B)(i).

(C) Mitigation of Damages. If Landlord terminates this Lease or Tenant’s right to possession of all or any part of the Premises, Landlord shall use reasonable efforts to mitigate Landlord’s damages to the extent required by Law and Tenant shall be entitled to submit proof of such failure to mitigate as a defense to Landlord’s claims hereunder.

(D) Payment by Tenant. Upon any uncured Default, Tenant shall pay to Landlord all actual out-of-pocket costs incurred by Landlord (including court costs and reasonable attorneys’ fees and expenses) in (i) obtaining possession of the Premises, (ii) removing and storing Tenant’s or any other occupant’s property, (iii) repairing, restoring, or otherwise putting the Premises into a vanilla box condition suitable for lease, (iv) if Tenant is dispossessed of the Premises and this Lease is not terminated, reletting all or any part of the Premises (including brokerage commissions and other costs incidental to such reletting), (v) performing Tenant’s obligations which Tenant failed to perform, and (vi) enforcing or advising Landlord of its rights, remedies, and recourses arising out of the Default.

(E) Late Charges and Interest. Tenant shall pay, as additional Rent, a service charge equal to five percent (5%) of the amount past due for bookkeeping and administrative expenses if Rent is not received within five (5) days after its due date. In addition, any Rent paid more than five (5) days after it is due shall accrue interest from the due date at the Default Rate until payment is received by Landlord. The “Default Rate” of interest shall be the Prime Rate of interest plus eight percent (8%). The “Prime Rate” of interest shall be the “Prime Rate” as published in the “Money Rates” section of The Wall Street Journal from time to time. In the event The Wall Street Journal no longer publishes a Prime Rate of interest, Landlord shall select a comparable equivalent. Such service charge and interest payments shall not be deemed consent by Landlord to late payments, nor a waiver of Landlord’s right to insist upon timely payments at any time, nor a waiver of any remedies to which Landlord is entitled as a result of the late payment of Rent. The exercise of any remedy by Landlord shall not be deemed an election of remedies or preclude Landlord from exercising any other remedies in the future.

(F) Landlord Action. If Tenant at any time fails to make any payment or perform any other act on its part to be made or performed under this Lease, Landlord may, but shall not be obligated to, after reasonable notice or demand and without waiving or releasing Tenant from any obligation under this Lease, make such payment or perform such other act to the extent Landlord may deem desirable and in

that connection pay expenses and employ counsel. All sums paid by Landlord and all actual and reasonable out-of-pocket costs, charges, and expenses incurred by Landlord in enforcing Tenant’s obligations under this Lease or incurred by Landlord in any litigation, negotiation, or transaction in which Tenant causes Landlord, without Landlord’s fault, to be involved or concerned (including, but not limited to reasonable attorneys’ fees and costs) shall be payable by Tenant upon demand.

(G) Other Matters. No act or omission by Landlord shall be construed as an election by Landlord to terminate this Lease or Tenant’s right to possession, or accept a surrender of the Premises, nor shall the same operate to release Tenant in whole or in part from any of Tenant’s obligations hereunder, unless express written notice of such intention is sent by Landlord or its agent to Tenant. Tenant hereby irrevocably waives any right otherwise available under any Law to redeem or reinstate this Lease.

(H) Cross Default. In the event that, at any time during the Term, Tenant shall be in default under another lease (the “Other Lease”) with Landlord, Landlord may, at Landlord’s option, deem such default under the Other Lease as a default by Tenant under this Lease (and Tenant shall thereafter be in default under this Lease) and Landlord may exercise all rights and remedies pursuant to this Lease and at law or in equity which Landlord may have upon a default by Tenant under this Lease. Without limiting the foregoing, Landlord shall be permitted to add to any amount owing by Tenant to Landlord hereunder all amounts owing by the tenant to the Landlord the Other Lease.

If Landlord shall fail to perform any term or provision under this Lease required to be performed by Landlord, Landlord shall not be deemed to be in default hereunder nor subject to any claims for damages of any kind, unless such failure shall have continued for a period of ten (10) days after notice (or such shorter period expressly provided elsewhere in this Lease), provided, if the nature of Landlord’s failure is such that more than ten (10) days’ time is reasonably required in order to cure, Landlord shall not be in default if Landlord commences to cure within such period and thereafter reasonably seeks to cure such failure to completion, but in no event to exceed 90 days. If Landlord shall fail to cure within the times permitted for cure herein, Landlord shall be subject to such remedies as may be available to Tenant (subject to the other provisions of this Lease); provided Tenant shall have no right to terminate this Lease and, in recognition that Landlord must receive timely payments of Rent and operate the Property, Tenant shall have no right of self-help to perform repairs or any other obligation of Landlord, and shall have no right to withhold, set-off, or abate Rent. In addition to any other right or remedy available to Tenant under the terms of this Lease upon a default by Landlord or at law or in equity, Tenant shall have the right to pursue an action for specific performance of the terms of this Lease or an action to enjoin Landlord’s breach or default under this Lease.

In case Landlord or any successor owner of the Property shall convey or otherwise dispose of the Property, or the portion thereof in which the Premises are located, to another Person (and nothing herein shall be construed to restrict or prevent such conveyance or disposition), such other Person shall thereupon be and become “Landlord” hereunder and shall be deemed to have fully assumed and be liable for all obligations of this Lease to be performed by Landlord which first arise after the date of conveyance, including the return of any Security Deposit, and Tenant shall attorn to such other Person, and Landlord or such successor owner shall, from and after the date of conveyance, be free of all liabilities and obligations hereunder not then incurred. The liability of Landlord to Tenant for any default by Landlord under this Lease or arising in connection herewith or with Landlord’s operation,

management, leasing, repair, renovation, alteration, or any other matter relating to the Property or the Premises, shall be limited to the interest of Landlord in the Property. Tenant agrees to look solely to Landlord’s interest in the Property for the recovery of any judgment against Landlord and Landlord shall not be personally liable for any such judgment or deficiency after execution thereon. The limitations of liability contained in this Article shall apply equally and inure to the benefit of Landlord’s present and future members, managers, partners, beneficiaries, officers, directors, trustees, shareholders, agents and employees, and their respective partners, legal representatives, heirs, successors and assigns, directors, trustees, shareholders, agents and employees, and their respective partners, legal representatives, heirs, successors and assigns. Under no circumstances shall any present or future shareholder, officer or director of Landlord (if Landlord is a corporation), general or limited partner of Landlord (if Landlord is a partnership), manager or member of Landlord (if Landlord is a limited liability company), 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 the Lease.

Subject to the waiver of subrogation provisions set forth in Article 9 hereof, and except to the extent arising from the intentional misconduct or negligent acts of Landlord or Landlord’s agents or employees, Tenant shall defend, indemnify and hold harmless Landlord and Landlord’s agents and employees from and against any and all claims, demands, liabilities, damages, judgments, orders, decrees, actions, proceedings, fines, penalties, costs and expenses, including without limitation, court costs and reasonable attorneys’ fees arising from or relating to any loss of life, damage or injury to person, property or business occurring in or from the Premises. Without limiting the generality of the foregoing, Tenant specifically acknowledges that the indemnity undertaking herein shall apply to claims in connection with or arising out of any “Work” by Tenant, its subtenants, and their agents, employees and contractors, the installation, maintenance, use or removal of any “Lines” located in or serving the Premises as described in Article 25 by Tenant, its subtenants, and their agents, employees and contractors, and the transportation, use, storage, maintenance, generation, manufacturing, handling, disposal, release or discharge of any “Hazardous Material” as described in Article 26 by Tenant, its subtenants, and their agents, employees and contractors (whether or not any of such matters shall have been theretofore approved by Landlord), except to the extent that any of the same arises from the intentional misconduct or negligent acts of Landlord or Landlord’s agents or employees.

Subject to the waiver of subrogation provisions set forth in Article 9 hereof, and except to the extent arising from the intentional misconduct or negligent acts of Tenant or Tenant’s agents or employees, Landlord shall defend, indemnify and hold harmless Tenant and Tenant’s agents and employees from and against any and all claims, demands, liabilities, damages, judgments, orders, decrees, actions, proceedings, fines, penalties, costs and expenses, including without limitation, court costs and reasonable attorneys’ fees arising from or relating to any loss of life, damage or injury to person, property or business occurring in or from the Common Areas of the Property.

The foregoing indemnity obligations shall survive the expiration or sooner termination of this Lease. The foregoing indemnity obligations shall be in addition to, and shall not be in discharge of or in substitution for, any of the insurance requirements or any other indemnity provisions of this Lease.

The parties acknowledge that safety and security devices, services and programs provided by Landlord, if any, while intended to deter crime and ensure safety, may not in given instances prevent theft

or other criminal acts, or ensure safety of persons or property. The risk that any safety or security device, service or program may not be effective, or may malfunction, or be circumvented by a criminal, is assumed by Tenant with respect to Tenant’s property and interests, and Tenant shall obtain insurance coverage to the extent Tenant desires protection against such criminal acts and other losses, as further described in Article 9. Tenant agrees to cooperate in any reasonable safety or security program developed by Landlord or required by Law.

Landlord and Tenant recognize the risk of domestic or international threats or acts of violence, terrorism, and war which may require additional security measures in the day-to-day operation of the Property. To promote the health, safety and welfare of the Building’s tenants, Tenant agrees to cooperate in any security measures instituted by Landlord or recommended by governmental officials in response to this risk. Tenant shall participate in evacuation drills performed by Landlord from time to time. Tenant consents to the search of all persons entering or leaving the Property. Expenses incurred by Landlord in connection with the development, implementation and provision of security measures shall be included in Operating Expenses. The exercise of security measures by the Landlord and the resulting interruption of service to, or cessation or diminution of Tenant’s business, if any, shall not be deemed to be an eviction or disturbance of Tenant’s use and possession of the Premises, or any part thereof, or render Landlord liable to Tenant for any resulting damages or relieve Tenant from Tenant’s obligations under this Lease.

Tenant may install, maintain, replace, remove or use any communications or computer wires, cables and related electronic signal transmission devices (collectively the “Lines”) at the Property in or serving the Premises, provided: (a) Tenant shall (i) obtain Landlord’s prior written consent (not to be unreasonably withheld), (ii) use Landlord’s riser management contractor, and (iii) comply with all of the other provisions of Article 6; (b) any such installation, maintenance, replacement, removal or use shall comply with all Laws applicable thereto and good work practices, and shall not interfere with the use of any then existing Lines at the Property; (c) an acceptable number of spare Lines and space for additional Lines shall be maintained for existing and future occupants of the Property, as determined in Landlord’s reasonable opinion; (d) if Tenant at any time uses any equipment that may create an electromagnetic field exceeding the normal insulation ratings of ordinary twisted pair riser cable or cause radiation higher than normal background radiation, the Lines therefor (including riser cables) shall be appropriately insulated to prevent such excessive electromagnetic fields or radiation; (e) Landlord may require that Tenant remove Lines installed by or for Tenant and its sublessees upon the expiration or earlier termination of this Lease; (f) Tenant’s rights shall be subject to the rights of any regulated telephone company; and (g) Tenant shall pay all costs in connection with Tenant’s Lines. Landlord reserves the right to require that Tenant remove any Lines located in or serving the Premises which are installed in violation of these provisions, or which are at any time in violation of any Laws or represent a dangerous or potentially dangerous condition.

Landlord may (but shall not have the obligation to): (i) install new Lines at the Property, (ii) create additional space for Lines at the Property, and (iii) reasonably direct, monitor or supervise the installation, maintenance, replacement and removal of, the allocation and periodic re-allocation of available space (if any) for, and the allocation of excess capacity (if any) on, any Lines now or hereafter installed at the Property by Landlord, Tenant or any other party (but Landlord shall have no right to monitor or control the information transmitted through such Lines), provided that any such actions do not unreasonably interfere with Tenant’s Lines and Tenant’s use of Tenant’s Lines. Such rights shall not be in limitation of other rights that may be available to Landlord by Law or otherwise. If Landlord exercises any such rights, Landlord may charge Tenant for the costs attributable to Tenant, or may include those costs and all other costs in Operating Expenses (including without limitation, costs for acquiring and installing Lines and risers to accommodate new Lines and spare Lines, any associated computerized

system and software for maintaining records of Line connections, and the fees of any consulting engineers and other experts); provided, any capital expenditures included in Operating Expenses hereunder shall be amortized (together with reasonable finance charges) over the period of time prescribed by Article 3(B).

Notwithstanding anything to the contrary contained in Article 11, Landlord reserves the right to require that Tenant remove any or all Lines installed by or for Tenant and Tenant’s sublessees within or serving the Premises upon termination of this Lease, provided Landlord so notifies Tenant prior to such termination. Any Lines not required to be removed pursuant to this Article shall, at Landlord’s option, become the property of Landlord (without payment by Landlord). If Tenant fails to remove such Lines as required by Landlord, or violates any other provision of this Article, Landlord may, after twenty (20) days written notice to Tenant, remove such Lines or remedy such other violation, at Tenant’s expense (without limiting Landlord’s other remedies available under this Lease or applicable Law). Tenant shall not, without the prior written consent of Landlord in each instance, grant to any third party a security interest or lien in or on the Lines, and any such security interest or lien granted without Landlord’s written consent shall be null and void. Except to the extent arising from the intentional misconduct or negligent acts of Landlord or Landlord’s agents or employees, Landlord shall have no liability for damages arising from, and Landlord does not warrant that the Tenant’s use of any Lines will be free from the following (collectively called “Line Problems”): (x) any eavesdropping or wire-tapping by unauthorized parties, (y) any failure of any Lines to satisfy Tenant’s requirements, or (z) any shortages, failures, variations, interruptions, disconnections, loss or damage caused by the installation, maintenance, replacement, use or removal of Lines by or for other tenants or occupants at the Property, by any failure of the environmental conditions or the power supply for the Property to conform to any requirements for the Lines or any associated equipment, or any other problems associated with any Lines by any other cause. Under no circumstances shall any Line Problems be deemed an actual or constructive eviction of Tenant, render Landlord liable to Tenant for abatement of Rent, or relieve Tenant from performance of Tenant’s obligations under this Lease. Landlord in no event shall be liable for damages by reason of loss of profits, business interruption or other consequential damage arising from any Line Problems.

Tenant shall not transport, use, store, maintain, generate, manufacture, handle, dispose, release or discharge any “Hazardous Material” (as defined below) upon or about the Property, or permit Tenant’s employees, agents, contractors, and other occupants of the Premises to engage in such activities upon or about the Property. However, the foregoing provisions shall not prohibit the transportation to and from, and use, storage, maintenance and handling within, the Premises of substances customarily used in offices provided: (a) such substances shall be used and maintained only in such quantities as are reasonably necessary for such permitted use of the Premises, strictly in accordance with applicable Law and the manufacturers’ instructions therefor, (b) such substances shall not be disposed of, released or discharged on the Property, and shall be transported to and from the Premises in compliance with all applicable Laws, and as Landlord shall reasonably require, (c) if any applicable Law or Landlord’s trash removal contractor requires that any such substances be disposed of separately from ordinary trash, Tenant shall make arrangements at Tenant’s expense for such disposal directly with a qualified and licensed disposal company at a lawful disposal site (subject to scheduling and approval by Landlord), and shall ensure that disposal occurs frequently enough to prevent unnecessary storage of such substances in the Premises, and (d) any remaining such substances shall be completely, properly and lawfully removed from the Property upon expiration or earlier termination of this Lease.

Tenant shall promptly notify Landlord of: (i) any enforcement, cleanup or other regulatory action taken or threatened by any governmental or regulatory authority with respect to the presence of any Hazardous Material on the Premises or the migration thereof from or to other property, (ii) any demand or

claim made or threatened by any party against Tenant or the Premises relating to any loss or injury resulting from any Hazardous Material, (iii) any release, discharge or non-routine, improper or unlawful disposal or transportation of any Hazardous Material on or from the Premises, and (iv) any matter where Tenant is required by Law to give a notice to any governmental or regulatory authority respecting any Hazardous Material on the Premises. Landlord shall have the right (but not the obligation) to join and participate as a party in any legal proceedings or actions affecting the Premises initiated in connection with any environmental, health or safety Law. At such times as Landlord may reasonably request, Tenant shall provide Landlord with a written list identifying any Hazardous Material then used, stored, or maintained upon the Premises, the use and approximate quantity of each such material, a copy of any material safety data sheet (“MSDS”) issued by the manufacturer therefor, written information concerning the removal, transportation and disposal of the same, and such other information as Landlord may reasonably require or as may be required by Law. The term “Hazardous Material” for purposes hereof shall mean any chemical, substance, material or waste or component thereof which is now or hereafter listed, defined or regulated as a hazardous or toxic chemical, substance, material or waste or component thereof by any federal, state or local governing or regulatory body having jurisdiction, or which would trigger any employee or community “right-to-know” requirements adopted by any such body, or for which any such body has adopted any requirements for the preparation or distribution of an MSDS.

If any Hazardous Material is released, discharged or disposed of by Tenant or any other occupant of the Premises, or their employees, agents or contractors, on or about the Property in violation of the foregoing provisions, Tenant shall immediately, properly and in compliance with applicable Laws clean up and remove the Hazardous Material from the Property and any other affected property and clean or replace any affected personal property (whether or not owned by Landlord), at Tenant’s expense. Such clean up and removal work shall be subject to Landlord’s prior written approval (except in emergencies), and shall include, without limitation, any testing, investigation, and the preparation and implementation of any remedial action plan required by any governmental body having jurisdiction or reasonably required by Landlord. If Tenant shall fail to comply with the provisions of this Article within five (5) days after written notice by Landlord, or such shorter time as may be required by Law or in order to minimize any hazard to Persons or property, Landlord may (but shall not be obligated to) arrange for such compliance directly or as Tenant’s agent through contractors or other parties selected by Landlord, at Tenant’s expense (without limiting Landlord’s other remedies under this Lease or applicable Law). If any Hazardous Material is released, discharged or disposed of on or about the Property and such release, discharge or disposal is not caused by Tenant or other occupants of the Premises, or their employees, agents or contractors, such release, discharge or disposal shall be deemed casualty damage under Article 8 to the extent that the Premises or common areas of the Property serving the Premises are affected thereby; in such case, Landlord and Tenant shall have the obligations and rights respecting such casualty damage provided under Article 8.

The submission and negotiation of this Lease shall not be deemed an offer to enter the same by Landlord, but the solicitation of such an offer by Tenant. Tenant agrees that its execution of this Lease constitutes a firm offer to enter the same which may not be withdrawn for a period of fifteen (15) days after delivery to Landlord. During such period and in reliance on the foregoing, Landlord may, at Landlord’s option (and shall, if required by applicable Law), deposit any security deposit and Rent, and proceed with any plans, specifications, alterations or improvements, and permit Tenant to enter the Premises, but such acts shall not be deemed an acceptance of Tenant’s offer to enter this Lease, and such acceptance shall be evidenced only by Landlord signing and delivering this Lease to Tenant.

Except as expressly provided to the contrary in this Lease, every notice or other communication to be given by either party to the other with respect hereto shall be in writing and shall be effective when served personally or by reputable national air courier service, or United States certified mail, return receipt requested, postage prepaid, addressed, if to Tenant, at the Premises Attn: Corey Fishman after the Commencement Date and at 200 South Wacker Drive, Suite 2550, Chicago, Illinois 60606 Attn: Corey Fishman prior to the Commencement Date and in either case with a copy to Meltzer, Purtill & Stelle LLC, 300 South Wacker Drive, Suite 3500, Chicago, Illinois 60606 Attn: Reuben C. Warshawsky, and if to Landlord, c/o Piedmont Office Realty Trust, Inc., 11695 Johns Creek Pkwy., Suite 350, Johns Creek, GA 30097, Attn: 500 West Monroe Asset Manager, with a copy to Piedmont Office Management, Building Management Office, 500 West Monroe Street, Suite 2626, Chicago, Illinois 60661, Attention: Property Manager, or such other address or addresses as Tenant or Landlord may from time to time designate by notice given as above provided. Every notice or other communication hereunder shall be deemed to have been given as of the third business day following the date of such mailing (or as of any earlier date evidenced by a receipt from such national air courier service or the United States Postal Service) or immediately if personally delivered. Notices not sent in accordance with the foregoing shall be of no force or effect until received by the foregoing parties at such addresses required herein.

Tenant shall provide Landlord with the name(s) of individual(s) authorized to make requests of Landlord for services and to deal with Landlord’s property manager with regard to day to day operations. If Tenant fails to provide such names, Landlord may comply with written or oral requests by any officer or employee of Tenant. Tenant shall not authorize more than three (3) individuals for each floor on which the Premises are located.

Neither Landlord nor Tenant has dealt with any broker or agent in connection with the negotiation or execution of this Lease, other than Jones Lang LaSalle Midwest LLC and Newmark Grubb Knight Frank, whose commissions shall be paid by Landlord pursuant to their separate written agreement. Tenant and Landlord shall each indemnify the other against all costs, expenses, attorneys’ fees, liens and other liability for commissions or other compensation claimed by any broker or agent claiming the same by, through, or under the indemnifying party.

Upon Tenant’s execution and submission of this Lease, Tenant shall deliver to Landlord a clean, unconditional, irrevocable letter of credit that conforms to the requirements of this Article (“Letter of Credit”). The Letter of Credit shall serve as security for the prompt, full and faithful performance by Tenant of the terms, covenants and conditions of this Lease. In the event that Tenant is in Default hereunder and fails to cure within any applicable time permitted under this Lease, or in the event that Tenant owes any amounts to Landlord upon the expiration of this Lease, Landlord may use or apply the whole or any part of the Letter of Credit proceeds for the payment of Tenant’s obligations hereunder. The use or application of the Letter of Credit proceeds or any portion thereof shall not prevent Landlord from exercising any other right or remedy provided hereunder or under any Law and shall not be construed as liquidated damages. In no event shall the Letter of Credit be considered an advance payment of Rent, and in no event shall Tenant be entitled to use the Letter of Credit for the payment of Rent. Landlord shall

have the right to transfer the Letter of Credit to any purchaser of the Property. Upon such transfer, Tenant shall look solely to such purchaser for return of the Letter of Credit and Landlord shall be relieved of any liability with respect to the Letter of Credit.

The Letter of Credit shall be: (a) in form and substance satisfactory to Landlord in its sole discretion (with the following criteria at a minimum); (b) at all times in the stated face amount of not less than One Million Two Hundred Fifty Thousand Dollars ($1,250,000.00), or such lesser amount as specified in this Article 30 and shall on its face state that multiple and partial draws are permitted and either (i) that partial draws will not cause a corresponding reduction in the stated face amount of the Letter of Credit or (ii) that, if the Letter of Credit is not reinstated to its then applicable full amount (as may be reduced in accordance with the terms hereof) within ten (10) days after any such partial draw, Landlord shall have the right to immediately draw on the remainder of the Letter of Credit (it being understood that the Letter of Credit shall at all times be not less than the total Letter of Credit amount as so required); (c) issued by a commercial bank acceptable to Landlord from time to time with a banking office in the municipality in which the Property is located, for the account of Tenant and its permitted successors and assigns under this Lease; (d) made payable to, and expressly transferable and assignable one or more times at no charge by, the owner from time to time of the Building or its lender (which transfer/assignment shall be conditioned only upon the execution of a reasonable and customary written document in connection therewith), whether or not the original account party of the Letter of Credit continues to be the Tenant under this Lease by virtue of a change in name or structure, merger, assignment, transfer or otherwise; (e) payable at sight upon presentment to a Chicago, Illinois branch of the issuer of a simple sight draft stating only that Landlord is permitted to draw on the Letter of Credit under the terms of the Lease and setting forth the amount that Landlord is drawing; (f) of a term not less than one year, and shall on its face state that the same shall be renewed automatically, without the need for any further written notice or amendment, for successive minimum one year periods, unless the issuer notifies Landlord in writing, at least sixty (60) days prior to the expiration date thereof, that such issuer has elected not to renew the Letter of Credit (which will thereafter entitle Landlord to draw on the Letter of Credit); and (g) at least thirty (30) days prior to the then current expiration date of such Letter of Credit, either (1) renewed (or automatically and unconditionally extended) from time to time through the sixtieth (60th) day after the expiration of the Lease Term, or (2) replaced by Tenant with cash or another Letter of Credit meeting the requirements of this Article. If Landlord shall ever draw upon the Letter of Credit, and if this Lease has not terminated, Tenant shall immediately deliver to Landlord either cash or an endorsement of the issuer of the Letter of Credit reinstating the credit for the portion thereof used by Landlord, or an additional Letter of Credit conforming to the requirements of this section, in an amount equal to the reduced portion of the original Letter of Credit used by Landlord. Tenant shall cooperate with Landlord to effect any modifications, transfers or replacements of the Letter of Credit requested by Landlord in order to assure that Landlord is at all times fully secured by a valid Letter of Credit that may be drawn upon by Landlord, its successors and assigns. Notwithstanding anything in this Lease to the contrary, any cure or grace period provided in connection with a Default shall not apply to any of the foregoing requirements of the Letter of Credit and, specifically, if any of the aforesaid requirements are not complied with timely, then an immediate Default shall occur and Landlord shall have the right to immediately draw upon the Letter of Credit without notice to Tenant. Each Letter of Credit shall be issued by a commercial bank that has a long term credit rating at least A- (or equivalent) by Standard & Poor’s Corporation (“S&P”), or at least A3 (or equivalent) by Moody’s Investor Service, Inc. (“Moody’s”), and shall be otherwise acceptable to Landlord in its reasonable discretion. If the issuer’s credit long term rating is reduced below A- (or equivalent) by S&P or below A3 (or equivalent) by Moody’s, or if the financial condition of such issuer changes in any other materially adverse way, then Landlord shall have the right to require that Tenant obtain from a different issuer a substitute Letter of Credit that complies in all respects with the requirements of this Article and Tenant’s failure to obtain such substitute Letter of Credit within ten (10) days following Landlord’s written demand therefor (with

no other notice or cure or grace period being applicable thereto, notwithstanding anything in this Lease to the contrary) shall entitle Landlord to immediately draw upon the then existing Letter of Credit in whole or in part, without notice to Tenant. In the event the issuer of any Letter of Credit held by Landlord is insolvent or is placed into receivership or conservatorship by the Federal Deposit Insurance Corporation, or any successor or similar entity, or if a trustee, receiver or liquidator is appointed for the issuer, then, effective as of the date of such occurrence, said Letter of Credit shall be deemed to not meet the requirements of this Article and, within ten (10) days thereof, Tenant shall replace such Letter of Credit with other collateral acceptable to Landlord in its sole and absolute discretion (and Tenant’s failure to do so shall, notwithstanding anything in this Lease to the contrary, constitute a Default for which there shall be no notice or grace or cure periods being applicable thereto other than the aforesaid ten (10) day period). Any failure or refusal of the issuer to honor the Letter of Credit shall be at Tenant’s sole risk and shall not relieve Tenant of its obligations hereunder.

Notwithstanding the foregoing, provided no material Default has occurred hereunder, Tenant may reduce the amount of the Letter of Credit to $800,000.00 after the third anniversary of the Commencement Date, to $400,000.00 after the sixth anniversary of the Commencement Date, and $150,000 after the eighth anniversary of the Commencement Date, with no further reduction thereafter.

It is expressly understood and agreed by and between the parties hereto, anything herein to the contrary notwithstanding, that each and all of the representations, warranties, covenants, undertakings, and agreements herein made on the part of Landlord while in form purporting to be the representations, warranties, covenants, undertakings, and agreements of Landlord are nevertheless each and every one of them made and intended, not as personal representations, warranties, covenants, undertakings, and agreements by Landlord or for the purpose or with the intention of binding Landlord personally, but are made and intended for the purpose only of subjecting Landlord’s interest in the Property to the terms of the Lease. The liability of Landlord to Tenant for any default by Landlord under the Lease or arising in connection herewith or with Landlord’s operation, management, leasing, repair, renovation, alteration, or any other matter relating to the Property or the Premises, shall be limited to the interest of Landlord in the Property. Tenant agrees to look solely to Landlord’s interest in the Property for the recovery of any judgment against Landlord, and Landlord shall not be personally liable for any such judgment or deficiency after execution thereon. The limitations of liability contained in this provision shall apply equally and inure to the benefit of Landlord’s present and future partners, beneficiaries, officers, directors, trustees, members, managers, shareholders, agents and employees, and their respective partners, members, shareholders, legal representatives, heirs, successors and assigns. Under no circumstances shall any present or future shareholder, officer or director of Landlord (if Landlord is a corporation), general or limited partner of Landlord (if Landlord is a partnership), manager or member of Landlord (if Landlord is a limited liability company), 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 the Lease.

(A) Binding Upon Parties. Each of the terms, covenants and conditions of this Lease shall be binding upon and inure to the benefit of the parties hereto, their respective heirs, executors, administrators, guardians, custodians, successors and assigns, subject to the provisions of Article 18 respecting Transfers; and all references herein to Landlord and Tenant shall be deemed to include all such parties. The term “Landlord” as used in this Lease, so far as covenants or obligations on the part of Landlord are concerned, shall be limited to mean only the owner or owners of the Property at the time in question.

(B) No Recording. Landlord and Tenant agree that in no event and under no circumstances shall this Lease be recorded. A short-form memorandum may be recorded at Landlord’s sole election. If a memorandum is recorded, Tenant shall, at Landlord’s request, deliver to Landlord a fully executed quitclaim and release agreement in recordable form wherein Tenant terminates the memorandum.

(D) Survival. All obligations or rights of either party arising during or attributable to the period ending upon expiration or earlier termination of this Lease shall survive such expiration or earlier termination.

(E) Quiet Enjoyment. Landlord agrees that, if Tenant timely pays the Rent and performs the terms, covenants and conditions hereunder, and subject to all other terms, covenants and conditions of this Lease, Tenant shall hold and enjoy the Premises during the Term, free of lawful claims by any Person acting by or through Landlord.

(F) Light and Air. This Lease does not grant any legal rights to “light and air” outside the Premises nor any particular view or cityscape visible from the Premises.

(G) Time of Essence. Time is of the essence of this Lease and each and all of its provisions.

(H) Severability. The invalidity or unenforceability of any provision of this Lease shall not affect or impair any other provisions.

(I) Joint and Several. If Tenant is comprised of more than one party, each such party shall be jointly and severally liable for Tenant’s obligations under this Lease.

(J) Force Majeure. Notwithstanding anything in this Lease to the contrary, neither party shall be chargeable with, or liable to the other for, anything or in any amount for any failure to perform or delay caused by any of the following (“Force Majeure Delays”): fire; earthquake; explosion; flood; hurricane; the elements; act of God or the public enemy; actions, restrictions, limitations or interference of governmental authorities or agents; enforcement of Laws; war, terrorist act or acts, invasion; insurrection; rebellion; riots; strikes or lockouts; inability to perform, control or prevent which is beyond the reasonable control of that party; and any such failure or delay due to said causes or any of them shall not be deemed a breach of or default in the performance of this Lease by that Party; provided, however, lack of funds shall not be deemed a Force Majeure Delay.

(K) Pronouns. Any pronoun used in place of a noun shall indicate and include the masculine or feminine, the singular or plural number, individuals, firms or corporations, and their and each of their respective successors, executors, administrators, assigns, according to the context hereof.

(L) Captions and Severability. The captions of the Articles, Sections and Paragraphs of this Lease are for convenience only and shall in no way modify any provision of this Lease. If any term or provision of this Lease shall be found invalid, void, illegal, or unenforceable by a court of competent jurisdiction, it shall not affect, impair or invalidate any other term or provision hereof.

(M) Definitions. “Law” shall mean all federal, state, county and local governmental and municipal laws, statutes, ordinances, rules, regulations, codes, decrees, and orders, as well as applicable decisions by courts in the State of Illinois and by federal courts applying Illinois law. “Person” shall mean an individual, trust, partnership, joint venture, association, corporation, limited liability company and any other entity.

(N) Prohibited Party Transactions. Tenant represents and warrants to Landlord that (1) Tenant is not acting, directly or indirectly, for or on behalf of any person, group, entity, or nation named by any Executive Order or the United States Treasury Department as a terrorist, “Specially Designated National,” “Blocked Person,” or other banned or blocked person, entity, nation, or transaction pursuant to any law, order, rule, or regulation that is enforced or administered by the Office of Foreign Assets Control; and (2) Tenant is not engaged in this transaction, directly or indirectly on behalf of, or instigating or facilitating this transaction, directly or indirectly on behalf of, any such person, group, entity or nation. Tenant agrees to defend, indemnify, and hold harmless Landlord from and against any and all claims, damages, losses, risks, liabilities, and expenses (including reasonable attorney’s fees and costs) arising or related to any breach of the foregoing representation and warranty.

(O) Financial Statements. Within 15 days after Landlord’s request, Tenant will furnish Tenant’s most recent audited financial statements (including any notes to them) to Landlord, or, if no such audited statements have been prepared, such other financial statements (and notes to them) as may have been prepared by an independent certified public accountant or, failing those, Tenant’s internally prepared financial statements. If Tenant is a publicly traded corporation on a United States exchange, Tenant may satisfy its obligations hereunder by providing to Landlord Tenant’s most recent annual and quarterly reports, unless such reports are publicly available online, in which case such online availability shall satisfy the requirements of this section without further action by Tenant. Landlord will not disclose any aspect of Tenant’s financial statements that Tenant designates to Landlord as confidential except i) to Landlord’s Holder or prospective mortgagees or purchasers of the Building, ii) in litigation between Landlord and Tenant, and iii) if required by law (including securities laws) or court order. Tenant shall not be required to deliver the financial statements required under this subsection more than once in any 12-month period unless requested by Landlord’s Holder or a prospective buyer or lender of the Building or a Tenant defaults under this Lease and fails to timely cure.

(P) Confidentiality. Tenant acknowledges that the financial terms and conditions of this Lease (such as rent rates, rent abatement, right of first offer options, renewal options, termination options and tenant allowances) are to remain confidential for Landlord’s benefit and may not be disclosed by Tenant to anyone, by any manner or means, directly or indirectly, without Landlord’s prior written consent. The consent by Landlord to any disclosures shall not be deemed to be a waiver on the part of Landlord of any prohibition against any future disclosure. Any press release or securities filing pertaining to this Lease that Tenant desires to make must be approved in advance by Landlord in order to ensure that it discloses only information comparable to Landlord’s own press releases and securities filings. Notwithstanding anything to the contrary contained in this Lease, the confidentiality requirements herein shall not apply to disclosures (i) to Tenant’s officers, directors, shareholders, lenders, attorneys, accountants or employees who are also obligated to keep such information confidential (and Tenant shall be responsible for their wrongful disclosure), (ii) in litigation between Landlord and Tenant, (iii) if required by law (including securities laws) or court order, or (iv) of information which is public or known to other Persons not as a result of disclosure by Tenant.

(Q) Signage. Landlord shall provide Tenant, at Tenant’s expense, with Building standard suite entry and lobby directory signage. Subject to compliance with the alterations provisions of this

Lease (including without limitation Article 6), Tenant may also install at Tenant’s expense, elevator lobby signage on each full floor leased and occupied by Tenant, such signage to be subject to Landlord’s approval not to be unreasonably withheld, conditioned or delayed. Tenant must remove such signage upon the expiration or earlier termination of this Lease or sooner if Tenant no longer leases and occupies the full floor.

This Lease, together with Rider One and the Exhibits attached hereto (each of which is hereby incorporated into this Lease), contains all the terms, covenants and conditions between Landlord and Tenant relative to the matters set forth herein and no prior agreement or understanding pertaining to the same shall be of any force or effect. Without limitation, Tenant hereby acknowledges and agrees that Landlord’s leasing agents and field personnel are only authorized to show the Premises and negotiate terms, covenants and conditions for leases subject to Landlord’s final approval, and are not authorized to bind Landlord to any agreements, representations, understandings or obligations with respect to the condition of the Premises or the Property, the suitability of the same for Tenant’s business, or any other matter, and no agreement, representation, understanding or obligation not expressly contained herein shall be of any effect. Neither this Lease, nor any Rider or Exhibit referred to above may be modified, except in writing signed by both parties.

Tenant shall have the right to use the Building’s common conference room, to the extent Landlord permits such use by other tenants of the Building on a non-exclusive basis, unless Landlord elects to lease the conference room on an exclusive basis to a third party. Tenant’s usage of the conference room shall be subject to availability and Landlord’s reasonable rules and regulations, and Tenant’s use must be scheduled in advance with Landlord. Landlord reserves the right to charge Tenant separately (at Building standard rates) for conference clean-up after Tenant’s use thereof.

From the date Tenant commences business at the Premises, and except as set forth herein, for the balance of the Term, Tenant shall have the option to lease reserved parking for up to two (2) automobiles in the public garage of the Building. Within sixty (60) days after the Commencement Date, Tenant will advise Landlord whether Tenant or Tenant’s employees intend to lease either or both of the reserved parking spaces. Additional non-reserved parking may be available on a monthly basis. Tenant or Tenant’s employees shall pay Landlord or the operator of the garage, as directed by Landlord, rent for such reserved and non-reserved monthly parking at the standard rate in effect from time to time for such parking in the garage. Tenant acknowledges that the monthly and hourly rates in effect may vary from time to time based on, among other things, the time of day, type of parking (e.g. valet, self-park or tandem) and general rate increases. Tenant shall provide Landlord with advance written notice of the names of each individual to whom Tenant from time to time distributes Tenant’s parking rights hereunder and shall cause each such individual to execute Landlord’s standard agreement and waiver form for garage users. As of the date hereof, the monthly parking charges are $310 for non-reserved spaces and $465 for reserved spaces. If the parking charge is not paid when due and such failure continues for thirty (30) days after written notice to Tenant of such failure, then Landlord may terminate Tenant’s parking

rights under this Article with respect to the parking right(s) that are not being paid for upon written notice to Tenant of such termination. Further, if at any time Tenant ceases using one or more of the reserved parking rights for a period of sixty (60) consecutive days, Tenant releases to Landlord that reserved parking right, Tenant’s right to that/those reserved parking right(s) under this Article shall automatically terminate, and if Tenant again desires a reserved parking right in the future it shall be subject to availability. The parking spaces to be made available to Tenant hereunder may contain a reasonable mix of spaces for compact cars. Landlord shall take reasonable actions to ensure the availability of the reserved parking spaces leased by Tenant; provided, however, that Landlord does not guarantee the availability of non-reserved parking spaces at all times against the actions of other tenants of the Building and users of the parking facility. Without limiting the foregoing, in no event shall this Lease be void or voidable, nor shall Landlord be liable to Tenant for any loss or damage, nor shall there be any abatement of rent hereunder (other than the parking charge paid hereunder for any space no longer made available), by reason of any reduction in Tenant’s parking rights hereunder by reason of strikes, lockouts, labor disputes, shortages of material or labor, fire, flood, or other casualty, acts of God, or any other cause beyond the control of Landlord Access to the reserved and non-reserved parking spaces to be made available to Tenant shall, at Landlord’s option, be by card, pass, sticker, decal, or other appropriate identification issued by Landlord, and Tenant’s right to use the parking facility is conditioned on Tenant’s abiding by and shall otherwise be subject to such reasonable rules and regulations as may be promulgated by Landlord from time to time for the parking facility. Landlord reserves the right to assign specific spaces, and to reserve spaces for visitors, environmentally-friendly vehicles, handicapped individuals, and other tenants, visitors of tenants or other Persons, and Tenant and its employees and visitors shall not park in any such assigned or reserved spaces except as applicable to Tenant. Landlord may restrict or prohibit full size vans and other large vehicles. Landlord reserves the right upon reasonable prior notice to Tenant, to close all or a portion of the parking areas or facilities in order to make repairs or perform maintenance services, or to alter, modify, re-stripe or renovate the same, or if required by casualty, strike, condemnation, act of God, Law or governmental requirement, or any other reason beyond Landlord’s reasonable control. In the event access is denied for any reason, any monthly parking charges shall be abated to the extent access is denied, as Tenant’s sole recourse. Tenant acknowledges that such parking areas or facilities may be operated by an independent contractor not affiliated with Landlord, and Tenant acknowledges that in such event, except for the negligence or willful misconduct of Landlord and Landlord’s members, managers, employees and agents, Landlord shall have no liability for claims arising through acts or omissions of such independent contractor.

Cars must be parked entirely within the stall lines. Only compact cars may be parked in areas reserved for compact cars. All directional signs and arrows must be observed. The speed limit shall be 5 miles per hour. Every parker is required to park and lock his own car. Washing, waxing, cleaning or servicing of any vehicle is prohibited. Parking spaces may be used only for parking automobiles; parking is prohibited in: (a) areas not striped or designated for parking, (b) aisles, (c) areas where “no parking” signs are posted, and (d) loading areas and other specially designated areas. Delivery trucks and vehicles shall use only those areas designated therefor.

Provided: (a) this Lease is then in full force and effect and (b) Tenant is not in Default under this Lease, Tenant shall have the right, at Tenant’s option, to terminate this Lease as to the entire Premises (“Termination Option”) effective as of the last day of the 84^th Lease Month (“Termination Date”). The Termination Option shall be exercised, if at all, by Tenant by giving written notice of the exercise to Landlord (“Termination Notice”) no later than one year prior to the Termination Date. It shall be a condition to the exercise of Tenant’s Termination Option that Tenant pay to Landlord a termination fee

(“Termination Fee”) in the sum of (x) Landlord’s unamortized transaction costs under this Lease including Landlord’s brokerage costs, construction allowances (including the Construction Allowance, Base Building Allowance, construction allowances on expansion space, and any other allowance given by Landlord pursuant to this Lease), legal fees in connection with the negotiation of this Lease and rent abatement, all amortized over the initial term of this Lease with eight percent (8%) per annum interest (except that costs attributable to expansion space shall be amortized starting as of the expansion space rent commencement date), plus (y) three (3) months’ Base Rent, Taxes and Operating Expenses payable by Tenant at the Termination Date. Half of the Termination Fee shall be payable contemporaneously with Tenant’s transmittal to Landlord of the Termination Notice; the balance shall be payable on or before the Termination Date. At Tenant’s request, Landlord will provide information necessary to calculate the Termination Fee.

Provided Tenant properly and timely exercises the Termination Option and timely and properly pays Landlord the Termination Fee, then this Lease shall terminate effective as of the Termination Date, as if said Termination Date were set forth in this Lease as the Expiration Date of the Term of the Lease. Tenant shall vacate and deliver possession of the Premises to Landlord in the manner set forth in this Lease on or before 11:59 p.m. on the Termination Date. Tenant shall also pay to Landlord on or before the Termination Date, and be responsible for, all sums due under this Lease which accrue under this Lease on or prior to the Termination Date. Tenant’s rights under this Article are personal to the Tenant named in this Lease and its Permitted Transferees.

Subject to existing renewal options, expansion options, and other preferential rights to lease of other tenants, in each such case existing in writing as of the date that this Lease is executed by Tenant and Landlord, and provided no Default then exists, Landlord shall, prior to offering the same to any party (other than the then-current tenant therein), first offer to lease to Tenant any space that Landlord desires to make available for lease on the thirty-fourth (34^th) floor of the Building (the “Offer Space”); such offer shall be in writing (the “Offer Notice”) and specify the lease terms for the Offer Space, including the rent to be paid for the Offer Space (which shall be market rate for the Building) and the date on which the Offer Space shall be included in the Premises, which date shall be the earlier of the date Tenant commences business in the Offer Space and 120 days after the date of the Offer Notice. Tenant shall notify Landlord in writing whether Tenant irrevocably elects to lease the entire Offer Space on the terms set forth in the Offer Notice, within ten (10) business days after Landlord delivers to Tenant the Offer Notice. If Tenant timely elects to lease the Offer Space, then Landlord and Tenant shall execute an amendment to this Lease, effective as of the date the Offer Space is to be included in the Premises, on the terms set forth in the Offer Notice and, to the extent not inconsistent with the Offer Notice terms, the terms of this Lease; however, Tenant shall accept the Offer Space in an “AS-IS” condition and Landlord shall not provide to Tenant any allowances (e.g., moving allowance, construction allowance, and the like) or other tenant inducements except as specifically provided in the Offer Notice and further provided that the term of Tenant’s lease of the Offer Space shall end contemporaneously with the expiration of the Term set forth in this Lease (as it may be renewed or extended), unless sooner terminated as provided in this Lease, and provided that at least three (3) years of rent paying term must remain after the Offer Space rent commencement date. Notwithstanding the foregoing, if prior to Landlord’s delivery to Tenant of the Offer Notice, Landlord has received an offer to lease all or part of the Offer Space from a third party who desires to lease at least 150,000 rentable square feet in the Building that is contiguous to the Premises or the Offer Space (a “Third Party Offer”), Tenant must exercise its rights hereunder, if at all, as to all of the space contained in the Third Party Offer. “Contiguous” for purposes of the preceding sentence shall mean adjacent to, or on the floor immediately above or below, the applicable space.

If Tenant fails or is unable to timely exercise its right hereunder, then such right shall lapse, time being of the essence with respect to the exercise thereof, and Landlord may lease all or a portion of the Offer Space to third parties on such terms as Landlord may elect, so long Landlord’s new deal terms are not 10% or more lower on a net effective basis than Landlord’s offer to Tenant. Tenant may not exercise its right of first offer if a Default exists or if Tenant is not occupying at least 63% of the Premises. For purposes hereof, if an Offer Notice is delivered for less than all of the Offer Space but such Offer Notice provides for an expansion, right of first refusal, or other preferential right to lease some of the remaining portion of the Offer Space, then such remaining portion of the Offer Space shall thereafter be excluded from the provisions of Tenant’s right of first offer set forth in this Article 38 in the event of exercise of such preferential right. In no event shall Landlord be obligated to pay a commission with respect to any space leased by Tenant under this Article other than to Tenant’s designated broker who is actively involved in negotiations on Tenant’s behalf at the time and Tenant and Landlord shall each indemnify the other against all costs, expenses, attorneys’ fees, and other liability for commissions or other compensation claimed by any other broker or agent claiming the same by, through, or under the indemnifying party.

Tenant’s right of first offer rights shall terminate if (a) the Lease or Tenant’s right to possession of the Premises is terminated, (b) Tenant assigns any of its interest in the Lease or sublets any portion of the Premises other than to a Permitted Transferee, (c) Tenant is not occupying at least sixty-three percent (63%) of the Premises, (d) Tenant exercised its Termination Option, or (e) fewer than three (3) full calendar years remain in the term of this Lease.

Landlord shall make available to Tenant approximately 6,722 rentable square feet of temporary swing space in Suite 2020 in the Building (the “Temporary Space”), commencing on the date of full execution of this Lease and expiring on the earlier of the date that Tenant vacates the Temporary Space or thirty (30) days after the Commencement Date. The Temporary Space shall be delivered to Tenant “as is.” Tenant’s use of the Temporary Space shall be subject to all the terms and conditions of the Lease as if such space were part of the Premises except Tenant shall not be required to pay Base Rent, Taxes, or Expenses for the Temporary Space (provided that Landlord may bill Tenant for Landlord’s customary janitorial costs), Tenant shall not make any alterations to the Temporary Space without first obtaining Landlord’s prior written approval, if any, Landlord reserves the right to require Tenant to remove and restore any alterations made by Tenant before Tenant vacates the Temporary Space, and Tenant may not sublet the Temporary Space. Without limitation of the preceding sentence, Tenant shall be responsible for the cost of utilities for the Temporary Space, all overtime HVAC charges for the Temporary Space, and other work orders requested by Tenant for the Temporary Space. Tenant shall be entitled to and responsible for moving Tenant’s property to and from the Temporary Space and for any damage to the Temporary Space or Building caused by its use of the Temporary Space. Tenant shall vacate and surrender the Temporary Space no later than the date that is thirty (30) days after the Commencement Date. Tenant shall be considered a holdover Tenant with holdover rent payable at 150% of $51,272.75 per month (i.e., $76,909.13) in the event that Tenant fails timely to vacate the Temporary Space, plus, beginning on the thirty-first (31^st) day of such holdover, consequential damages, if any, suffered by Landlord. No brokerage commission shall be payable with respect to the Temporary Space and Tenant shall indemnify Landlord for any claim made by Tenant’s broker with respect to a commission for same. No allowance, incentive, or inducement shall be applicable or payable with respect to the Temporary Space.

IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of the day and year first above written.

(1) On Saturdays, Sundays and Holidays, and on other days between the hours of 6:00 P.M. and 8:00 A.M. the following day, or such other hours as Landlord shall reasonably determine from time to time, access to the Property or to the passageways, entrances, exits, shipping areas, halls, corridors, elevators or stairways and other areas in the Property may be restricted and access gained by use of a key to the outside doors of the Property, or pursuant to such security procedures Landlord may from time to time impose. All such areas, and all roofs, are not for use of the general public and Landlord shall in all cases retain the right to control and prevent access thereto by all persons whose presence in the judgment of Landlord shall be prejudicial to the safety, character, reputation and interests of the Property and its tenants provided, however, that nothing herein contained shall be construed to prevent such access to persons with whom Tenant deals in the normal course of Tenant’s business unless such persons are engaged in activities which are illegal or violate these Rules. Tenant and no employee or invitee of Tenant shall enter into areas reserved for the exclusive use of Landlord, its employees or invitees. Tenant shall keep doors to corridors and lobbies closed except when persons are entering or leaving.

(2) Tenant shall not paint, display, inscribe, maintain or affix any sign, placard, picture, advertisement, name, notice, lettering or direction on any part of the outside or inside of the Property, or on any part of the inside of the Premises which can be seen from the outside of the Premises, without the prior consent of Landlord, and then only such name or names or matter and in such color, size, style, character and material as may be first approved by Landlord in writing. Landlord shall prescribe the suite number and identification sign for the Premises (which shall be prepared and installed by Landlord at Tenant’s expense). Landlord reserves the right to remove at Tenant’s expense all matter not so installed or approved without notice to Tenant.

(3) Tenant shall not in any manner use the name of the Property for any purpose other than that of the business address of the Tenant, or use any picture or likeness of the Property, in any letterheads, envelopes, circulars, notices, advertisements, containers or wrapping material without Landlord’s express consent in writing.

(4) Tenant shall not place anything or allow anything to be placed in the Premises near the glass of any door, partition, wall or window which may be unsightly from outside the Premises, and Tenant shall not place or permit to be placed any article of any kind on any window ledge or on exterior walls. Blinds, shades, awnings or other forms of inside or outside window ventilators or similar devices, shall not be placed in or about the outside windows in the Premises except to the extent, if any, that the character, shape, color, material and make thereof is first approved by the Landlord.

(5) Furniture, freight and other large or heavy articles, and all other deliveries may be brought into the Property only at reasonable times and in the manner designated by Landlord, and always at the Tenant’s sole responsibility and risk. Landlord may impose reasonable charges for use of freight elevators after or before normal business hours. All damage done to the Property by moving or maintaining such furniture, freight or articles shall be repaired by Landlord at Tenant’s expense. Landlord may inspect items brought into the Property or Premises with respect to weight or dangerous nature. Landlord may require that all furniture, equipment, cartons and similar articles removed from the Premises or the Property be listed and a removal permit therefor first be obtained from Landlord. Tenant shall not take or permit to be taken in or out of other entrances or elevators of the Property, any item normally taken, or which Landlord otherwise reasonably requires to be taken, in or out through service doors or on freight elevators. Tenant shall not allow anything to remain in or obstruct in any way, any lobby, corridor, sidewalk, passageway, entrance, exit, hall, stairway, shipping area, or other such area.

Tenant shall move all supplies, furniture and equipment as soon as received directly to the Premises, and shall move all such items and waste (other than waste customarily removed by Property employees) that are at any time being taken from the Premises directly to the areas designated for disposal. Any hand-carts used at the Property shall have rubber wheels.

(6) Tenant shall not overload any floor or part thereof in the Premises, or the Property, including any public corridors or elevators therein bringing in or removing any large or heavy articles, and Landlord may direct and control the location of safes and all other heavy articles and require supplementary supports at Tenant’s expense of such material and dimensions as Landlord may deem necessary to properly distribute the weight.

(7) Tenant shall not attach or permit to be attached additional locks or similar devices to any door or window, change existing locks or the mechanism thereof, or make or permit to be made any keys for any door other than those provided by Landlord. If more than two keys for one lock are desired, Landlord will provide them upon payment therefor by Tenant. Tenant, upon termination of its tenancy, shall deliver to the Landlord all keys of offices, rooms and toilet rooms which have been furnished Tenant or which the Tenant shall have had made, and in the event of loss of any keys so furnished shall pay Landlord therefor.

(8) If Tenant desires signal, communication, alarm or other utility or similar service connections installed or changed, Tenant shall not install or change the same without the prior approval of Landlord, and then only under Landlord’s direction at Tenant’s expense. Tenant shall not install in the Premises any equipment which requires more electric current than Landlord is required to provide under this Lease, without Landlord’s prior approval, and Tenant shall ascertain from Landlord the maximum amount of load or demand for or use of electrical current which can safely be permitted in the Premises, taking into account the capacity of electric wiring in the Property and the Premises and the needs of tenants of the Property, and shall not in any event connect a greater load than such safe capacity.

(9) Tenant shall not obtain for use upon the Premises ice, drinking water, towel, janitor and other similar services, except from Persons approved by the Landlord. Any Person engaged by Tenant to provide janitor or other services shall be subject to direction by the manager or security personnel of the Property.

(10) The toilet rooms, urinals, wash bowls and other such apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein and the expense of any breakage, stoppage or damage resulting from the violation of this Rule shall be borne by the tenant who, or whose employees or invitees shall have caused it.

(11) The janitorial closets, utility closets, telephone closets, broom closets, electrical closets, storage closets, and other such closets, rooms and areas shall be used only for the purposes and in the manner designated by Landlord, and may not be used by tenants, or their contractors, agents, employees, or other parties without Landlord’s prior written consent.

(12) Landlord reserves the right to exclude or expel from the Property any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of these Rules. Tenant shall not at any time manufacture, sell, use or give away, any spirituous, fermented, intoxicating or alcoholic liquors on the Premises, nor permit any of the same to occur (except in connection with occasional social or business events conducted in the Premises for which Tenant maintains insurance and which do not violate any Laws nor bother or annoy any other tenants). Tenant shall not at any time sell, purchase or give away, food in any form by or to any of Tenant’s agents or employees or any other parties on the Premises, nor permit any of the same to occur

(other than in lunch rooms or kitchens for employees as may be permitted or installed by Landlord, which does not violate any Laws or bother or annoy any other tenant).

(13) Tenant shall not make any room-to-room canvass to solicit business or information or to distribute any article or material to or from other tenants or occupants of the Property and shall not exhibit, sell or offer to sell, use, rent or exchange any products or services in or from the Premises unless ordinarily embraced within the Tenant’s use of the Premises specified in the Lease.

(14) Tenant shall not waste electricity, water, heat or air conditioning or other utilities or services, and agrees to cooperate fully with Landlord to assure the most effective and energy efficient operation of the Property and shall not allow the adjustment (except by Landlord’s authorized Property personnel) of any controls. Tenant shall keep corridor doors closed and shall not open any windows, except that if the air circulation shall not be in operation, windows which are openable may be opened with Landlord’s consent. As a condition to claiming any deficiency in the air-conditioning or ventilation services provided by Landlord, Tenant shall close any blinds or drapes in the Premises to prevent or minimize direct sunlight.

(15) Tenant shall conduct no auction, fire or “going out of business sale” or bankruptcy sale in or from the Premises, and such prohibition shall apply to Tenant’s creditors.

(16) Tenant shall cooperate and comply with any reasonable safety or security programs, including fire drills and air raid drills, and the appointment of “fire wardens” developed by Landlord for the Property, or required by Law. Before leaving the Premises unattended, Tenant shall close and securely lock all doors or other means of entry to the Premises and shut off all lights and water faucets in the Premises (except heat to the extent necessary to prevent the freezing or bursting of pipes).

(17) Tenant will comply with all municipal, county, state, federal or other government laws, statutes, codes, regulations and other requirements, including without limitation, environmental, health, safety and police requirements and regulations respecting the Premises, now or hereinafter in force, at its sole cost, and will not use the Premises for any immoral purposes.

(18) Tenant shall not (i) carry on any business, activity or service except those ordinarily embraced within the permitted use of the Premises specified in the Lease and more particularly, but without limiting the generality of the foregoing, shall not (ii) install or operate any internal combustion engine, boiler, machinery, refrigerating, heating or air conditioning equipment in or about the Premises, (iii) use the Premises for housing, lodging or sleeping purposes or for the washing of clothes, (iv) place any radio or television antennae other than inside of the Premises, (v) operate or permit to be operated any musical or sound producing instrument or device which may be heard outside the Premises, (vi) use any source of power other than electricity, (vii) operate any electrical or other device from which may emanate electrical or other waves which may interfere with or impair radio, television, microwave, or other broadcasting or reception from or in the Property or elsewhere, (viii) bring or permit any bicycle or other vehicle, or dog (except in the company of a disabled person or except where specifically permitted) or other animal or bird in the Property, (ix) make or permit objectionable noise or odor to emanate from the Premises, (x) do anything in or about the Premises tending to create or maintain a nuisance or do any act tending to injure the reputation of the Property, (xi) throw or permit to be thrown or dropped any article from any window or other opening in the Property, (xii) use or permit upon the Premises anything that will invalidate or increase the rate of insurance on any policies of insurance now or hereafter carried on the Property or violate the certificates of occupancy issued for the premises or the Property, (xiii) use the Premises for any purpose, or permit upon the Premises anything, that may be dangerous to persons or property (including but not limited to flammable oils, fluids, paints, chemicals, firearms or any explosive

articles or materials) nor (xiv) do or permit anything to be done upon the Premises in any way tending to disturb any other tenant at the Property or the occupants of neighboring property.

(19) Tenant shall not use any draperies or other window coverings instead of or in addition to the Building standard window coverings designated and approved by Landlord for exclusive use throughout the Property.

(20) Landlord may require that all persons who enter or leave the Property identify themselves to watchmen, by registration or otherwise. Landlord, however, shall have no responsibility or liability for any theft, robbery or other crime in the Property. Tenant shall assume full responsibility for protecting the Premises, including keeping all doors to the Premises locked after the close of business.

(21) Tenant shall not use the freight or passenger elevators, loading docks or receiving areas of the Property except in accordance with reasonable regulations for their use established by Landlord.

(22) In no event shall Tenant allow its employees to use the public areas of the Property as smoking areas. Washrooms are considered to be public areas.

(23) Tenant and Tenant’s employees, agents, and contractors shall not harass, discriminate against, or retaliate against any employee or other occupant of the Building because of his or her race, national original, age, sex, religion, disability, marital status, or other category protected by law. In the event of any complaint made to Landlord or property management with respect to any of Tenant’s employees, agents or contractors, the parties agree to cooperate in the prompt investigation and resolution of such complaint. If any such person is a threat to another person, the building manager has a right to refuse the offending person access to the Building.

(24) During the Term of Tenant’s Lease and for a period of 1 year thereafter, Tenant will not (a) encourage any employee, contractor or consultant of Landlord or Landlord’s property manager or any of their affiliates to reduce or cease its/his/her relationship with Landlord, Landlord’s property manager, or their affiliates, (b) solicit any employee, contractor or consultant on behalf of any person or entity other than Landlord, or (c) hire any employee, contractor or consultant of Landlord, Landlord’s property manager, or their affiliates.

(25) During the Term of Tenant’s Lease and thereafter, Tenant shall not (and Tenant shall take such steps as are necessary to ensure that Tenant’s employees and agents do not) make any statement regarding Landlord, Landlord’s property manager, or any of their affiliates, or any of their employees or agents, whether verbally, in writing, electronically or otherwise, that portrays any of them (or any services provided by any of them) in a negative light. This rule does not restrict the right to make any statement to Tenant’s attorney or to a governmental agency.

(a) Preparation and Delivery. Tenant shall provide to Landlord for its approval final architectural and MEP working drawings of all improvements that Tenant proposes to install in the Premises; such working drawings shall include the partition layout, ceiling plan, electrical outlets and switches, telephone outlets, drawings for any modifications to the mechanical and plumbing systems of the Building, and detailed plans and specifications for the construction of the improvements called for under this Exhibit in accordance with all applicable Laws. The architect (the “Architect”) and engineer engaged by Tenant shall be acceptable to Landlord in Landlord’s reasonable discretion. In addition, Tenant shall provide Tenant’s proposed life safety plan for the Premises, which shall be subject to the review and approval of Landlord, which approval shall not be unreasonably withheld, conditioned or delayed. Tenant’s life safety plan must be consistent and compatible with the Building’s systems.

(b) Approval Process. Landlord shall notify Tenant whether it approves of the submitted working drawings within seven (7) business days after Tenant’s submission thereof. If Landlord disapproves of such working drawings, then Landlord shall notify Tenant thereof specifying in reasonable detail the reasons for such disapproval, in which case Tenant shall, within three (3) business days after such notice, revise such working drawings in accordance with Landlord’s objections and submit the revised working drawings to Landlord for its review and approval. Landlord shall notify Tenant in writing whether it approves of the resubmitted working drawings within five (5) business days after its receipt thereof. This process shall be repeated until the working drawings have been finally approved by Tenant and Landlord. If the working drawings are not fully approved (or deemed approved) by both Landlord and Tenant by the 20th business day after the delivery of the initial draft thereof, then each day after such time period that such working drawings are not fully approved (or deemed approved) by both Landlord and Tenant shall constitute a Tenant Delay Day, unless any delay is due to Landlord’s failure to respond within the time periods set forth in this subparagraph, in which case each day of such Landlord’s delay shall not apply to the calculation of Tenant Delay Days.

(a) Tenant’s General Contractor. Tenant shall enter into a construction contract with a general contractor selected by Tenant (and approved by Landlord, which approval shall not be unreasonably withheld, conditioned or delayed), which shall comply with the provisions of this Section 5 and provide for, among other things, (i) a one-year warranty for all defective Work; (ii) a requirement that Tenant’s Contractor maintain insurance in accordance with Landlord’s reasonable insurance requirements; (iii) a requirement that the contractor perform the Work in substantial accordance with the Working Drawings and in a good and workmanlike manner; (iv) a requirement that the contractor is responsible for daily cleanup work and final clean up (including removal of debris); and (v) those items described in Section 5.(b) (collectively, the “Approval Criteria”). Landlord shall have three business days to notify Tenant whether it approves the proposed construction agreements. If Landlord disapproves of the proposed construction agreements, then it shall specify in reasonable detail the reasons for such disapproval, in which case Tenant shall revise the proposed construction agreements to correct the objections and resubmit them to Landlord within two (2) business days after Landlord notifies Tenant of its objections thereto, following which Landlord shall have two (2) business days to notify Tenant whether it approves the revised construction agreements.

(b) All Construction Contracts. Unless otherwise agreed in writing by Landlord and Tenant, each of Tenant’s construction contracts shall: (i) provide a schedule and sequence of construction activities and completion reasonably acceptable to Landlord, (ii) require the contractor and each subcontractor to name Landlord, Landlord’s property management company, and Tenant as additional insured on such contractor’s insurance maintained in connection with the construction of the Work, (iii) be assignable following a Default by Tenant under the Lease to Landlord and Landlord’s Holder, and (iv) contain at least a one-year warranty for all workmanship and materials.

It is the intent of this agreement and contractor agrees to keep tenant areas properly maintained and cleaned to equivalent or greater of a class “A” office building. Specific duties and frequencies are subject to change at the direction of Building Management.

Wash all wastebaskets and like receptacles once per month or as directed by Building Management.

It is the intent of this agreement and contractor agrees to keep all Washrooms properly maintained and clean at all times to equivalent or greater of a class “A” office building.

It is the intent of this agreement and contractor agrees to keep all corridor areas incorporated into tenant space, properly maintained and clean at all times to equivalent or greater of a class “A” office building.

It is the intent of this agreement and contractor agrees to keep the lobby properly maintained and clean at all times to equivalent or greater of a class “A” office building.

It is the intent of this agreement and contractor agrees to keep all elevators properly maintained and cleaned at all times to equivalent or greater of a class “A” office building.

It is the intent of this agreement and contractor agrees to keep all exterior areas maintained and cleaned at all times to equivalent or greater of a class “A” office building. Frequencies and specific time and scope of duties subject to change at the direction of Building Management.

It is the intent of this agreement and contractor agrees to keep all stairwells and dock areas maintained and cleaned at all times to equivalent or greater of a class “A” office building. Frequencies and specific time and scope of duties subject to change at the direction of Building Management.

Tenant is hereby granted the option (“Extension Option”) to extend the term of the Lease for one (1) period of ten (10) Lease Years (“Extension Term”). The Extension Option may be exercised only by giving Landlord irrevocable and unconditional written notice thereof no earlier than eighteen (18) months and no later than twelve (12) months prior to the commencement of the Extension Term. Tenant may not exercise the Extension Option if Tenant is in default under the Lease beyond the expiration of any applicable notice and cure period either at the date of said notice or at the time of commencement of the Extension Term. Upon exercise of the Extension Option, all references in the Lease to the Term shall be deemed to be references to the Term as extended pursuant to the Extension Option.

The Extension Term shall be on the same terms, covenants and conditions as are contained in the Lease, except that (i) no additional extension option shall be conferred by the exercise of the Extension Option, (ii) Base Rent applicable to the Premises for the Extension Term shall be determined as provided below, and (iii) any initial rent abatement, concession or allowance which are in the nature of economic concessions or inducements shall not be applicable to any Extension Term. In addition to Base Rent, Tenant shall pay Additional Rent, and other Rent during the Extension Term as provided in this Lease.

Base Rent per annum per rentable square foot of the Premises for the Extension Term shall be one hundred percent (100%) of the Current Market Rate for lease terms commencing on or about the date of commencement of the Extension Term. The term “Current Market Rate” means the prevailing net rental rate per rentable square foot under office lease renewals recently executed for comparable space in the Building. The determination of Current Market Rate shall take into consideration that this is a net lease; any differences in the size of space being leased, the location of space in the building and the length of lease terms; any differences in definitions of rentable square feet or rentable area with respect to which rental rates are computed; the value of rent abatements, allowances (for demolition, space planning, architectural and engineering fees, construction, moving expenses or other purposes), the creditworthiness of Tenant; and other pertinent factors. The Current Market Rate may include an escalation of a fixed net rental rate (based on a fixed step or index) then prevailing in the market.

Within thirty (30) days after receipt of Tenant’s notice to extend Landlord shall deliver to Tenant written notice of the Current Market Rate and shall advise Tenant of the required adjustment to Base Rent, if any.

Tenant shall, within fifteen (15) business days after receipt of Landlord’s notice, notify Landlord in writing whether Tenant (a) accepts Landlord’s determination of the Current Market Rate; (b) rejects Landlord’s determination of the Current Market Rate, or (c) requests that the Current Market Rate be determined by an appraiser (“Arbitration Request”). If Tenant rejects Landlord’s determination, Tenant’s exercise of the Extension Option granted herein shall be deemed revoked and of no further force of effect. If Tenant requests that the Current Market Rate be determined by an appraiser, Landlord and Tenant, within ten (10) days after the date of the Arbitration Request, shall each simultaneously submit to the other, in a sealed envelope, its good faith estimate of the Current Market Rate (collectively referred to as the “Estimates”). If the higher of such Estimates is not more than one hundred five percent (105%) of the lower of such Estimates, then Current Market Rate shall be the average of the two Estimates. If the Current Market Rate is not resolved by the exchange of Estimates, Landlord and Tenant, within seven (7) days after the exchange of Estimates, shall each select an appraiser to determine which of the two Estimates most closely reflects the Current Market Rate. Each appraiser so selected shall be certified as an MAI appraiser and shall have had at least five (5) years experience within the previous ten (10) years as a real estate appraiser working in the Chicago Loop market, with working knowledge of current office rental rates and practices. For purposes of this Lease, an “MAI” appraiser means an individual who holds an MAI designation conferred by, and is an independent member of, the American Institute of Real Estate

Appraisers (or its successor organization, or in the event there is no successor organization, the organization and designation most similar). Upon selection, Landlord’s and Tenant’s appraisers shall work together in good faith to agree upon which of the two Estimates most closely reflects the Current Market Rate. The Estimate chosen by such appraisers shall be binding on both Landlord and Tenant as the Current Market Rate. If either Landlord or Tenant fails to appoint an appraiser within the seven day period referred to above, the appraiser appointed by the other party shall be the sole appraiser for the purposes hereof. If the two appraisers cannot agree upon which of the two Estimates most closely reflects the Current Market Rate within the twenty (20) days after their appointment, then, within ten (10) days after the expiration of such twenty (20) day period, the two (2) appraisers shall select a third appraiser meeting the aforementioned criteria. Once the third appraiser has been selected as provided for above, then, as soon thereafter as practicable but in any case within fourteen (14) days, the appraiser shall make his determination of which of the two Estimates most closely reflects the Current Market Rate and such Estimate shall be binding on both Landlord and Tenant as the Current Market Rate. The parties shall share equally in the costs of the third appraiser. Any fees of any appraiser, counsel or experts engaged directly by Landlord or Tenant, however, shall be borne by the party retaining such appraiser, counsel or expert. In the event that the Current Market Rate has not been determined by the commencement date of the Extension Term at issue, Tenant shall pay the most recent Base Rent set forth in the Lease until such time as the Current Market Rate has been determined. Upon such determination, Base Rent shall be retroactively adjusted. If such adjustment results in an underpayment of Base Rent by Tenant, Tenant shall pay Landlord the amount of such underpayment within thirty (30) days after the determination thereof. If such adjustment results in an overpayment of Base Rent by Tenant, Landlord shall credit such overpayment against the next installment of Base Rent due under the Lease and, to the extent necessary, any subsequent installments until the entire amount of such overpayment has been credited against Base Rent.

Tenant must timely exercise the Extension Option or the Extension Option shall terminate. Tenant may not exercise the Extension Option if Tenant exercised its Termination Option or if Tenant is not occupying and conducting business in the Premises or a portion thereof. Tenant’s exercise of the Extension Option shall not operate to cure any default by Tenant of any of the terms or provisions in the Lease, nor to extinguish or impair any rights or remedies of Landlord arising by virtue of such default. If the Lease or Tenant’s right to possession of the Premises shall terminate in any manner whatsoever before Tenant shall exercise the Extension Option, or if Tenant shall have assigned the Lease to a Person that is not a Permitted Transferee, or If Tenant is not occupying at least sixty-three percent (63%) of the Premises, then the Extension Option shall terminate and become null and void. The Extension Option is personal to Tenant and its Permitted Transferees.

1. Condition of Premises. Tenant has accepted possession of the Premises pursuant to the Lease. Any improvements required by the terms of the Lease to be made by Landlord have been completed to the full and complete satisfaction of Tenant in all respects except for the punchlist items described on Exhibit A hereto (the “Punchlist Items”), and except for such Punchlist Items, Landlord has fulfilled all of its duties under the Lease with respect to such initial tenant improvements.

3. Expiration Date. The Term is scheduled to expire on the last day of the th full calendar month of the Term, which date is , 20 .

5. Ratification. Tenant hereby ratifies and confirms its obligations under the Lease, and represents and warrants to Landlord that as of the date hereof and to Tenant’s knowledge, Tenant has no defenses thereto. Additionally, Tenant further confirms and ratifies that, as of the date hereof, (a) the Lease is and remains in good standing and in full force and effect, and (b) to Tenant’s knowledge, Tenant has no claims, counterclaims, set-offs or defenses against Landlord arising out of the Lease or in any way relating thereto or arising out of any other transaction between Landlord and Tenant.

6. Binding Effect; Governing Law. Except as modified hereby, the Lease shall remain in full effect and this letter shall be binding upon Landlord and Tenant and their respective successors and assigns. If any inconsistency exists or arises between the terms of this letter and the terms of the Lease, the terms of this letter shall prevail. This letter shall be governed by the Laws of the State of Illinois.

Please indicate your agreement to the above matters by signing this letter in the space indicated below and returning an executed original to us.

There is a $15.00 monthly fee for use of the facilities. Members shall be billed in advance for each month and payment shall be due and payable no later than the first (1^st) day of the applicable month. Ownership has the right to terminate membership and access to the facilities if payment is not received by Ownership on the first (1^st) day of the applicable month. The monthly fee shall be subject to change from time to time upon prior notice.

The term of the Agreement shall extend for twelve (12) months, and shall commence and terminate on the dates provided above. Notwithstanding the foregoing, Member may terminate the Agreement at any time on thirty (30) days prior written notice to Ownership.

In order to provide an environment that will be clean safe and pleasant to all members the following guidelines must be adhered to when in the facility.

I, , UNDERSTAND THAT IT IS MY RESPONSIBILITY TO CONTACT PAY PAL DIRECTLY TO SET UP MONTHLY AND RE-OCCURRING PAYMENTS TO OWNERSHIP THROUGH THEIR SYSTEM AS OF THE EFFECTIVE DATE/START DATE OF MEMBERSHIP (AS FIRST WRITTEN ABOVE). MEMBERSHIP WILL NOT COMMENCE UNTIL CONFIRMATION OF SUCH PAYMENTS ARE RECEIVED BY OWNERSHIP.

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EFFECTIVE DATE OF TERMINATION (If cancelled mid month, membership will continue until the end of the month of such cancellation. Fees will not be prorated, nor will a refund be due for any mid-month cancellation):

I , hereby terminate my fitness center membership at 500 West Monroe. I understand it is my responsibility to contact Pay Pal directly to discontinue future re-occurring payments through their system as of the Effective Date (above).

LOTS 5, 6, 7 AND 8 (EXCEPT THAT PART OF SAID LOTS FALLING WITHIN THE ALLEY) IN BLOCK 49 IN SCHOOL SECTION ADDITION TO CHICAGO IN SECTION 16, TOWNSHIP 39 NORTH, RANGE 14, EAST OF THE THIRD PRINCIPAL MERIDIAN, IN COOK COUNTY, ILLINOIS.

1. I have reviewed this Quarterly Report on Form 10-Q of Durata Therapeutics, 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 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 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.

1. I have reviewed this Quarterly Report on Form 10-Q of Durata Therapeutics, 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.

In connection with the Quarterly Report on Form 10-Q of Durata Therapeutics, Inc. (the “Company”) for the period ended June 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Paul R. Edick, Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that to his knowledge:

(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.

In connection with the Quarterly Report on Form 10-Q of Durata Therapeutics, Inc. (the “Company”) for the period ended June 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Corey N. Fishman, Chief Financial Officer and Chief Operating Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that to his knowledge:

(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.


Delaware		27-1247903
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

200 South Wacker Drive, Suite 2550 Chicago, Illinois		60606
(Address of Principal Executive Offices)		(Zip Code)


	June 30, 2014			December 31, 2013
Assets
Current assets:
Cash and cash equivalents	$	20,900		$	36,853
Short-term investments		13,811			22,880
Prepaid expenses and other current assets		6,875			3,367

Total current assets		41,586			63,100

Intangible assets, net of amortization		15,165			15,292
Goodwill		5,811			5,811
Property and equipment, net		766			897
Restricted cash		2,247			1,147
Deferred charge, net		9,997			10,081
Other assets		3,871			3,816

Total assets	$	79,443		$	100,144

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	3,725		$	5,275
Accrued expenses		6,335			7,116
Current portion of long-term debt		1,000			—
Income taxes payable		—			1,609

Total current liabilities		11,060			14,000
Long-term debt		39,000			25,000
Non-current income tax payable		1,377			1,377
Contingent liability		25,000			20,889
Other liabilities		278			299

Total liabilities	$	76,715		$	61,565

Commitments and contingencies (note 9)
Stockholders’ equity:
Common stock, $0.01 par value; 125,000,000 shares authorized at June 30, 2014 and December 31, 2013, respectively; 26,773,970 and 26,625,749 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively		268			266
Preferred stock, $0.01 par value; 5,000,000 shares authorized at June 30, 2014 and December 31, 2013; no shares issued and outstanding at June 30, 2014 or December 31, 2013		—			—
Additional paid-in capital		209,772			207,754
Accumulated deficit during the development stage		(207,312	)		(169,441	)

Total stockholders’ equity	$	2,728		$	38,579

Total liabilities and stockholders’ equity	$	79,443		$	100,144


	Three month period ended June 30,						Six month period ended June 30,						Period from inception (November 4, 2009) to June 30,
	2014			2013			2014			2013			2014
Operating expenses:
Amortization of intangible assets	$	127		$	—		$	127		$	—		$	127
Research and development expenses		6,186			13,179			15,194			24,271			139,355
General and administrative expenses		11,064			4,514			18,302			8,565			54,686
Acquisition related charges, net		1,413			289			4,111			573			13,708

Operating loss		18,790			17,982			37,734			33,409			207,876
Other (income) expense
Interest expense		1,040			654			1,935			762			4,161
Loss on early extinguishment of debt		—			—			—			—			2,228
Interest income		(14	)		(11	)		(27	)		(26	)		(148	)
Other income		(115	)		—			(115	)		—			(616	)

Total other (income) expense		911			643			1,793			736			5,625
Loss before income tax expense (benefit)		19,701			18,625			39,527			34,145			213,501
Income tax expense (benefit)		(1,787	)		210			(1,656	)		458			(6,189	)

Net loss	$	(17,914	)	$	(18,835	)	$	(37,871	)	$	(34,603	)	$	(207,312	)

Net loss per common share—Basic and Diluted	$	(0.67	)	$	(0.75	)	$	(1.42	)	$	(1.59	)
Weighted-average common shares—Basic and Diluted		26,656,805			25,169,543			26,645,110			21,787,331


	Six month period ended June 30,						Period from Inception (November 4, 2009) to June 30,
	2014			2013			2014
Cash flows from operating activities:
Net loss	$	(37,871	)	$	(34,603	)	$	(207,312	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on early extinguishment of debt		—			—			2,228
Depreciation and amortization		258			123			525
Stock based compensation expense		1,803			1,214			6,927
Acquisition related charges, net		4,111			573			13,708
Non-cash interest expense		43			259			612
Deferred income taxes		—			—			(6,824	)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(1,136	)		4,031			(3,143	)
Contingent receivable		—			—			5,421
Deferred charge		84			1,181			(9,997	)
Other assets		(58	)		—			(668	)
Accounts payable		(1,550	)		(3,118	)		3,725
Accrued expenses		(781	)		(2,045	)		5,177
Income taxes payable/receivable		(3,913	)		(1,986	)		(2,768	)
Other liabilities		(21	)		97			278

Net cash used in operating activities		(39,031	)		(34,274	)		(192,111	)

Cash flows from investing activities:
Acquisition of in process research and development		—			—			(10,000	)
Purchases of property and equipment		—			(423	)		(1,164	)
Purchases of short-term investments		(3,998	)		(15,044	)		(46,980	)
Proceeds from sale of short-term investments		13,000			5,997			33,000
Other investing activities		(1,100	)		(291	)		(2,241	)
Other assets		—			—			(40	)

Net cash provided by (used in) investing activities		7,902			(9,761	)		(27,425	)

Cash flows from financing activities:
Proceeds from issuance of Series A Preferred Stock		—			—			77,198
Proceeds from issuance of common stock, net		—			54,104			128,016
Payment of offering costs		—			(342	)		(3,057	)
Proceeds from issuance of long-term debt		15,000			20,000			60,000
Payment of debt financing fees		(41	)		(652	)		(1,125	)
Payment to retire long-term debt		—			—			(21,694	)
Proceeds from stock options exercised		212			52			413
Excess tax benefit on stock-based awards		5			—			106
Proceeds from receipt of contingent receivable		—			—			579

Net cash provided by financing activities		15,176			73,162			240,436

Net (decrease) increase in cash		(15,953	)		29,127			20,900
Cash and cash equivalents, beginning of year and period		36,853			32,257			—

Cash and cash equivalents, end of year and period	$	20,900		$	61,384		$	20,900


Supplemental Disclosures of Cash Flow Information

Non-cash financing activities:
Equity offering costs included in current liabilities	$	—		$	40		$	—

Conversion of Series A Preferred Stock to common stock (shares)		—			—			77,197,936


Cash paid for interest	$	1,892		$	504		$	3,549

Cash paid for income taxes	$	2,168		$	1,338		$	14,075


PART I FINANCIAL INFORMATION

Item 1.	Financial Statements	2
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	25

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 6.	Exhibits	47

Signatures		48
Exhibit Index		49


Classification		Estimated Useful Lives
Leasehold improvements		Lesser of useful life or lease term
Furniture and fixtures		5 years
Information technology related		3-5 years


	June 30, 2014
	Fair Value		Level 1		Level 2		Level 3
Assets:
Money market fund investments	$	14,226	$	14,226	$	—	$	—
Available for sale securities:
Federal agency bonds		9,811		9,811		—		—
Corporate commercial paper		4,000		4,000		—		—

Total available for sale securities	$	13,811	$	13,811	$	—	$	—

Liabilities:
Contingent liability	$	25,000	$	—	$	—	$	25,000


	December 31, 2013
	Fair Value		Level 1		Level 2		Level 3
Assets:
Money market fund investments	$	27,156	$	27,156	$	—	$	—
Available for sale securities:
Federal agency bonds		14,847		14,847		—		—
Corporate commercial paper		3,998		3,998		—		—
Corporate bonds		4,035		4,035		—		—

Total available for sale securities	$	22,880	$	22,880	$	—	$	—

Liabilities:
Contingent liability	$	20,889	$	—	$	—	$	20,889


Balance at December 31, 2013	$	20,889
Contingent liability expense		4,111
Transfers in and/or out of Level 3		—

Balance at June 30, 2014	$	25,000


	Shares			Weighted average exercise price per share		Weighted average remaining contractual life (years)
Outstanding balance, December 31, 2013		2,651,886		$	4.26		7.67
Granted		1,106,040			15.21		—
Forfeited or expired		(17,335	)		9.73		—
Exercised		(113,007	)		1.88		—

Outstanding balance, June 30, 2014		3,627,584		$	7.65		8.02


		Six month period ended June 30, 2014
Risk-free interest rate		2.2%-2.25%
Expected volatility		56%
Expected term (years)		7
Expected dividend yield		0%


	June 30,
	2014		2013
Stock options, warrants, and unvested restricted stock		3,631,005		2,614,431


	Three Month Period Ended
(In Thousands)	June 30, 2014		June 30, 2013
Operating Expenses:
Amortization of intangible assets	$	127	$	—
Research and development expenses		6,186		13,179
General and administrative expenses		11,064		4,514
Acquisition related charges, net		1,413		289


	Six Month Period Ended
(In Thousands)	June 30, 2014		June 30, 2013
Operating Expenses:
Amortization of intangible assets	$	127	$	—
Research and development expenses		15,194		24,271
General and administrative expenses		18,302		8,565
Acquisition related charges, net		4,111		573


Exhibit Number		Description of Exhibit

10.1		Amended and Restated Employment Agreement – Michael W. Dunne

10.2		Lease Agreement dated May 27, 2014 between Registrant and Piedmont West Monroe Fee LLC

31.1		Certification of Principal Executive Officer pursuant to 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 Principal Financial Officer pursuant to 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		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document*

101.SCH		XBRL Taxonomy Extension Schema Document*

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document*

101.LAB		XBRL Taxonomy Extension Label Linkbase Database*

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document*

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document*


DURATA THERAPEUTICS

By:		/s/ Patricia Adams
		Patricia Adams
		Senior Director, Human Resources

EMPLOYEE

/s/ Michael Dunne
Michael Dunne
Chief Medical Officer


	Page No.
ARTICLE 1 Premises and Term		1
ARTICLE 2 Base Rent		2
ARTICLE 3 Additional Rent		3
ARTICLE 4 Use and Rules		7
ARTICLE 5 Services and Utilities		7
ARTICLE 6 Alterations and Liens		9
ARTICLE 7 Repairs		11
ARTICLE 8 Casualty Damage		11
ARTICLE 9 Insurance, Subrogation, and Waiver of Claims		12
ARTICLE 10 Condemnation		14
ARTICLE 11 Return of Possession		15
ARTICLE 12 Holding Over		16
ARTICLE 13 No Waiver		16
ARTICLE 14 Attorneys’ Fees and Jury Trial		16
ARTICLE 15 Personal Property Taxes, Rent Taxes and Other Taxes		16
ARTICLE 16 Subordination, Attornment and Mortgagee Protection		17
ARTICLE 17 Estoppel Certificate		18
ARTICLE 18 Assignment and Subletting		18
ARTICLE 19 Rights Reserved By Landlord		21
ARTICLE 20 Landlord’s Remedies		22
ARTICLE 21 Landlord’s Right to Cure		25
ARTICLE 22 Conveyance by Landlord and Liability		25
ARTICLE 23 Indemnification		26
ARTICLE 24 Safety and Security Devices, Services and Programs		26
ARTICLE 25 Communications and Computer Lines		27
ARTICLE 26 Hazardous Materials		28
ARTICLE 27 Offer		29
ARTICLE 28 Notices		30
ARTICLE 29 Real Estate Brokers		30
ARTICLE 30 Security Deposit		30
ARTICLE 31 Exculpatory Provisions		32
ARTICLE 32 Mortgagee’s Consent		32
ARTICLE 33 Miscellaneous		33
ARTICLE 34 Entire Agreement		35
ARTICLE 35 Building Conference Facility		35
ARTICLE 36 Parking		35
ARTICLE 37 Termination Option		36
ARTICLE 38 Right of First Offer		37
ARTICLE 39 Temporary Space		38


RIDER ONE		RULES
EXHIBIT A		FLOOR PLAN OF PREMISES
EXHIBIT B		WORKLETTER AGREEMENT
EXHIBIT C		JANITORIAL SPECIFICATIONS
EXHIBIT D		RENEWAL OPTION


EXHIBIT E		COMMENCEMENT DATE CONFIRMATION
EXHIBIT F		FITNESS FACILITY AGREEMENT AND WAIVER OF LIABILITY
EXHIBIT G		LEGAL DESCRIPTION OF PROPERTY


Abatement Period			3
Additional Rent			7
Affiliate			21
Alterations			9
ANSI			3
Approval Criteria			2
Arbitration Request			1
Architect			1
Base Building Allowance			4
Base Rent			2
BOMA			3
Building			1
Commencement Date			1
Completed Application for Payment			4
Construction Allowance			3
Current Market Rate			1
Default			23
Default Rate			25
Estimates			1
Expiration Date			1
Extension Option			1
Extension Term			1
Fitness Facility			8
Force Majeure Delays			34
Hazardous Material			29
Holder			17
Holidays			8
Landlord			1
Law			34
Lease Month			3
Lease Year			3
Letter of Credit			31
Line Problems			28
Lines			27
Moody’s			32
Mortgage			17
MSDS			29
Offer Notice			38
Offer Space			38
Operating Expenses			4
Other Lease			25
Permitted Alterations			10
Permitted Transfer			21
Permitted Transferee			21
Person			34
Premises			1
Prime Rate			25
Property			1
Rent			7
Rules			7


S&P			32
Statement			5
Subject Space			19
Substantial Completion			3
Substantially Completed			3
Systems and Equipment			1
Tangible Net Worth			21
Taxes			3
Temporary Space			39
Tenant			1
Tenant Delay Day			3
Tenant Work			9
Tenant’s Prorata Share			3
Term			1
Termination Date			37
Termination Fee			37
Termination Notice			37
Termination Option			37
Third Party Offer			38
Total Construction Costs			3
Transfer Premium			20
Transferee			19
Transfers			19
Work			1
Working Drawings			1
Workletter			2


Time Period	Annual Amount		Monthly Amount
Lease Months 1-12	$	615,273.00	$	51,272.75
Lease Months 13-24	$	630,654.83	$	52,554.57
Lease Months 25-36	$	646,421.20	$	53,868.43
Lease Months 37-48	$	662,581.73	$	55,215.14
Lease Months 49-60	$	679,146.27	$	56,595.52
Lease Months 61-72	$	696,124.93	$	58,010.41
Lease Months 73-84	$	713,528.05	$	59,460.67
Lease Months 85-96	$	731,366.25	$	60,947.19
Lease Months 97-108	$	749,650.41	$	62,470.87
Lease Months 109-120	$	768,391.67	$	64,032.64
Lease Months 121-132	$	787,601.46	$	65,633.45
Lease Months 133-144	$	807,291.49	$	67,274.29


LANDLORD:

PIEDMONT 500 WEST MONROE FEE LLC, a Delaware limited liability company

By:
		Name:
		Title:

TENANT:

DURATA THERAPEUTICS INC., a Delaware corporation

By:
Name:
Title:


Landlord’s Representative:		The Building’s property manager or an individual
		designated by the Building’s property manager

Tenant’s Representative:		Telephone: - -
		Telecopy: - -