INSITE VISION INC
EXHIBIT 10.40
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<TYPE>EX-10.40
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<FILENAME>f77208ex10-40.txt
<DESCRIPTION>EXHIBIT 10.40
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                                                                   EXHIBIT 10.40

                                 AMENDMENT NO. 1
                                       TO
                        MARINA VILLAGE OFFICE TECH LEASE

THIS AMENDMENT NO. 1 TO MARINA VILLAGE OFFICE TECH LEASE is made and entered
into as of July 20, 2001, by and between ALAMEDA REAL ESTATE INVESTMENTS, a
California limited partnership ("Landlord"), and INSITE VISION INCORPORATED, a
Delaware corporation ("Tenant").

Landlord and Tenant have entered into that certain Marina Village Office Tech
Lease dated as of September 1, 1996 with respect to certain premises located in
965 Atlantic Avenue, Suite 100 and 2020 Challenger Drive, Suites 103 & 104,
Alameda, California (the "Lease"). Landlord and Tenant now desire to amend the
Lease effective January 1, 2002 and to make certain other amendments as
hereinafter provided. Accordingly, Landlord and Tenant hereby agree as follows
(unless otherwise defined, all capitalized terms used in this Amendment shall
have the same meanings as set forth in the Lease):

1.      AMENDMENT OF BASIC LEASE INFORMATION. The following provisions as set
        forth in the Basic Lease Information of the Lease are hereby amended to
        read as follows:

        LEASE EXPIRATION:           December 31, 2006

        BASE RENT:                  1/01/02 - 12/31/02    $55,864/month
                                    1/01/03 - 12/31/03    $57,819/month
                                    1/01/04 - 12/31/04    $59,843/month
                                    1/01/05 - 12/31/05    $61,937/month
                                    1/01/06 - 12/31/06    $64,104/month

        BASE YEAR:                  None - Effective January 1, 2002

2.      AMENDMENT OF PARAGRAPH 4 TO THE LEASE. Effective January 1, 2002
        Paragraph 4 of the Lease is hereby deleted in its entirely and restated
        as follows:

        "TAXES AND OPERATING EXPENSES.

        a. Tenant shall pay its percentage share, as specified in the Basic
        Lease Information, of all Property Taxes assessed with respect to the
        Building during the Lease term and its percentage share of all Operating
        Expenses paid or incurred by Landlord during the Lease term. For the
        purposes hereof, "Property Taxes" shall mean all real property taxes and
        assessments or governmentally imposed fees or charges (and any tax
        levied wholly or partly in lieu thereof) levied, assessed, confirmed,
        imposed or which have become a lien against the Building (which for the
        purposes of defining "Property Taxes" shall include the land underlying
        the Building). "Operating Expenses" shall mean: (1) all costs of
        management, operation, maintenance, and repair of the Building, (2) the
        cost of all insurance maintained by Landlord with respect to the
        Building and (3) the share allocable to the Building of dues and
        assessments payable under any reciprocal easement or common area
        maintenance agreements or declaration or by any owners' associations
        affecting the Building. Operating Expenses for each calendar year shall
        be adjusted to equal Landlord's reasonable estimate of Operating
        Expenses had the total rentable area of the Building been 95% occupied.
        Tenant's Share of Property Taxes and Operating Expenses shall not
        include the following (i) any state, local, federal, personal or
        corporate income tax measured by the income of the Landlord from all
        sources or form sources other than rent alone; (ii) any estate or
        inheritance taxes, any franchise, succession, or transfer taxes, or any
        interest on taxes or any penalties resulting from Landlord's failure to
        pay taxes of any kind; (iii) taxes that are separately assess by
        government agencies to, and paid by, other tenants of the Building for
        taxes attributable to tenant improvements or other alterations,
        additions or improvements made by or for other tenants in the Building;
        (iv) any increase in excess of a 12% increase in the total of Property
        Taxes and Assessment Bonds (net of any tax increments received by
        Landlord which increase result from a sale of the Building; (v)
        Landlord's general overhead expenses not related to the Building; (vi)
        brokerage commissions, legal fees, advertising costs and other related
        expenses incurred in connection with the leasing of the Building; (vii)
        repairs, alteration, additions, improvements, or replacements made to
        correct any defect in the design, materials or workmanship of the
        Building or common areas or to comply with any requirements of any
        governmental authority in effect as of the date of this Lease other than
        as may be required pursuant to Tenant's specific use; (viii) damage and
        repairs covered under any insurance policy carried by Landlord in
        connection with the Building; (ix) damage and repairs to the Building
        necessitated by the negligence or willful misconduct of Landlord or
        Landlord's employees, contractors or agents; (x) structural repairs or
        capital nature; (xi) damage and repairs attributable to condemnation,
        fir or other casualty, (xii) damage and repairs necessitated by the
        negligence or willful misconduct of Landlord or Landlord's employees,
        contractors or its; (xiii) executive salaries of Landlord;



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        (xiv) salaries of service personnel to the extend that such service
        personnel perform services not solely in connection with the management,
        operation, repair or maintenance of the Building or common areas; (xv)
        Landlord's general overhead expenses not related to the Building; (xvi)
        payments of principal or interest on any mortgage or other encumbrance
        including ground lease payments and points, commissions and legal fees
        associated with financing; (xvii) depreciation; (xviii) legal fees,
        accountant's fees and other expenses incurred in connection with
        disputes with tenant or other tenants or occupancy of the Building or
        associated with the enforcement of any lease or defense of Landlord's
        title to or interest in the Building or any part thereof; (xiv) costs
        (including permit, license and inspection fees) incurred in renovation
        or otherwise improving, decorating, painting or altering space for the
        other tenants in the building (xx) costs incurred due to violation by
        Landlord or any other tenant in the Building of the terms and conditions
        of any lease; (xxi) the cost of any service provided to Tenant or other
        occupancy of the Building for which Landlord is entitle to be
        reimbursed; (xxii) charitable or political contributions; (xxiii)
        interest, penalties or other costs arising out of Landlord's failure to
        make timely payments of its obligations; (xxiv) property management fee
        of any property management firm in excess of three percent (3%) of the
        gross revenues of the Building; (xxv) costs incurred in advertising and
        promotional activities for the Building; and (xxvi) any other expense
        which under generally accepted accounting principles and practice would
        not be considered a normal maintenance and operating expense.

        b. In the event the Building is not separately assessed for tax
        purposes, then the Property Taxes to be paid by Tenant shall be Tenant's
        percentage share of the product obtained by multiplying the total of the
        real property taxes and assessments levied against the tax parcel of
        which the Building is a part by a fraction, the numerator of which is
        the rentable area of the Building and the denominator of which is total
        rentable area of all improvements located within the tax parcel of which
        the Building is a part.

        c. Tenant shall pay to Landlord each month at the same time and in the
        same manner as monthly Base Rent 1/12th of Landlord's estimate of
        Property Taxes and Operating Expenses for the then current calendar
        year. Within 90 days after the close of each calendar year, or as soon
        after such 90-day period as practicable, Landlord shall deliver to
        Tenant a statement of actual Property Taxes and Operating Expenses for
        such calendar year. If, on the basis of such statement Tenant owes an
        amount that is less than the estimated payments for such calendar year
        previously made by Tenant, Landlord shall credit the overpayment against
        the next monthly installment of property taxes and operating expenses.
        If on the basis of such statement Tenant owes an amount that is more
        than the estimated payments for such calendar year previously made by
        Tenant, Tenant shall pay the deficiency to Landlord within 30 days after
        delivery of the statement. The obligations of Landlord and Tenant under
        this subparagraph with respect to the reconciliation between estimated
        payments and actual Property Taxes and Operating Expenses for the last
        year of the term shall survive the termination of the Lease."

3.      CONDITION OF PREMISES. Landlord shall have no obligation to improve or
        otherwise alter the Premises in connection with the extension of the
        term under Amendment No. 1. Landlord shall reimburse Tenant for its cost
        to complete repainting, carpet replacement and cleaning and other work
        within the Premises with the Landlord's reimbursement not exceeding
        $58,804. Landlord will reimburse Tenant within 30 days following
        Tenant's submittal of copies of Tenant's receipted invoices covering the
        renovation work, together with evidence of lien-free completion.
        Landlord's obligation to reimburse Tenant for the renovation work will
        expire December 31, 2002.

4.      LANDLORD'S WORK. During calendar year 2003 Landlord, at Landlord's
        expense, will replace ten (10) air conditioning package units serving
        their premises, specifically air conditioning unit No. 1 located at 965
        Atlantic Avenue and air conditioning units No. 1 through 3, 9, 10 and 12
        through 14 located at 2020 Challenger Drive, with new air conditioning
        package units. Landlord's replacement of the package units will be done
        in compliance with applicable codes.

5.      OPTION TO EXTEND TERM.

        a. Tenant shall have the option to extend the term of the Lease for a
        period of five (5) years (the "Option Period") from January 1, 2007 to
        December 31, 2011 subject to the following conditions:

                i.      At the time the option is exercised and as of the
                        commencement of the Option Period, the Lease shall be in
                        full force and effect, Tenant shall not be in default
                        thereunder and Tenant shall not have assigned the Lease
                        or sublet the premises; and

                ii.     The option to extend the term must be exercised, if at
                        all, by notice given to Landlord not earlier than
                        January 1, 2006 or no later than March 31, 2006.

        b. In the event the option is timely and effectively exercised the term
        of the Lease shall be extended for the Option Period upon all of the
        terms and conditions of the Lease; provided,



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        however, the monthly Base Rent during the Option Period shall be the
        then fair market rent of the premises, but in no event less than the
        Base Rent for December 2006. Determination of the fair market rent shall
        be as follows:

                i.      For the purposes hereof, the fair market rent of the
                        premises during the option. Shall be the product of the
                        monthly rental rate per square foot of rentable area
                        then prevailing for comparable space in the City of
                        Alameda that is then being offered for lease to
                        prospective tenants multiplied by the rentable area of
                        the premises. Fair market rent may include periodic
                        increases. Within 30 days prior to commencement of the
                        Option Period, Landlord shall provide Tenant with
                        Landlord's determination of fair market rent. Tenant may
                        dispute Landlord's determination of fair market rent by
                        notice given to Landlord within 15 days after Landlord's
                        determination is given to Tenant and Landlord and the
                        parties shall then negotiate in good faith to resolve
                        the dispute. If such dispute is not resolved by
                        negotiation between the parties within 30 days, then
                        fair market rent shall be determined by appraisal. If
                        Tenant does not timely dispute Landlord's determination,
                        then the amount determined by Landlord shall be the fair
                        market rent. If fair market rent has not been determined
                        prior to the commencement of the Option Period, Tenant
                        shall pay monthly Base Rent when due based upon
                        Landlord's determination of fair market rent, subject to
                        retroactive adjustment between the parties if the
                        determination by appraisal is different from Landlord's
                        determination.

                ii.     When fair market rent is to be determined by appraisal,
                        within 10 days after the expiration of the 30-day
                        negotiation period, Landlord and Tenant shall each
                        appoint as an appraiser, a real estate appraiser with at
                        least ten years of experience in appraising commercial
                        real property in Alameda County, and give notice of such
                        appointment to the other. If either Landlord or Tenant
                        shall fail to appoint an appraiser within 10 days after
                        receiving notice of the identity of the other party's
                        appointed appraiser, then the single appraiser appointed
                        shall be the sole appraiser and determine the fair
                        market rent of the premises. In the event each party
                        appoints an appraiser, such appraisers shall, within 30
                        days after the appointment of the last of them to be
                        appointed, complete their determinations of fair market
                        rent and furnish the same to Landlord and Tenant. If the
                        low appraisal varies from the higher appraisal by 5% of
                        the lower appraisal, or less, the fair market rent shall
                        be the average of the two valuations. If the low
                        appraisal varies from the high appraisal by more than
                        5%, the two appraisers shall, within 10 days after
                        submission of the last appraisal report, appoint a third
                        appraiser who shall meet the qualifications set forth in
                        this paragraph. If the two appraisers shall be unable to
                        agree on the selection of a third appraiser in a timely
                        manner then either Landlord or Tenant may request such
                        appointment by the presiding judge of the Superior Court
                        of Alameda County. The third appraiser, however
                        selected, shall be a person who has not previously acted
                        in any capacity for or against either party. Such third
                        appraiser shall, within 30 days after appointment, make
                        a determination of fair market rent and said third
                        appraiser shall select the opinion of fair market rent
                        as determined by the one appraisal, completed by the two
                        appraisers, which most closely matches the third
                        appraiser's opinion of fair market rent. The fair market
                        rent for the premises shall be the fair market rent
                        selected by said third appraiser. All fees and costs of
                        the third appraiser in connection with the determination
                        of fair market rent by appraisal shall be paid one-half
                        by Landlord and one-half by Tenant. Prior to the
                        commencement of the Option Period or if an appraisal is
                        required, as soon thereafter as is practical, Tenant and
                        Landlord shall execute an amendment to this Lease
                        setting forth the monthly Base Rent amounts during the
                        Option Period and the revised date for term expiration.



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6.      RATIFICATION. Landlord and Tenant hereby ratify and confirm all of the
        terms of the Lease as modified by paragraph 1 through 5 above. Except as
        expressly set forth to the contrary in this Amendment, the Lease, as
        amended, remains unmodified and in full force and effect. To the extent
        of any conflict between the terms of this Amendment and terms of the
        Lease, the terms of this Amendment shall control.

IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment No. 1 of
the date first set forth above.

TENANT:                             LANDLORD:

INSITE VISION INCORPORATED,         ALAMEDA REAL ESTATE INVESTMENTS,
a Delaware corporation              a California limited partnership

                                    By: Vintage Alameda Investments, LP
                                        a California limited partnership,
                                        operating general partner

                                        By: Vintage Properties-Alameda
                                            Commercial,
                                            a California corporation,
                                            managing general partner


By:                                          By:
  ---------------------------                   --------------------------------

Title:                                       Title: President
      -----------------------



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