<PAGE>   1

EXHIBIT 10.18

                                      LEASE
                              (SINGLE TENANT; NET)


        THIS LEASE is made as of the 30th day of April, 2001, by and between THE
IRVINE COMPANY, a Delaware corporation hereafter called "LANDLORD," and HYSEQ,
INC., a Nevada corporation, hereinafter called "TENANT."


                        ARTICLE I. BASIC LEASE PROVISIONS


        Each reference in this Lease to the "BASIC LEASE PROVISIONS" shall mean
and refer to the following collective terms, the application of which shall be
governed by the provisions in the remaining Articles of this Lease.

1.      Premises: The Premises are more particularly described in Section 2.1.

2.      Address of Building: 985 Almanor Avenue, Sunnyvale, CA 94085

3.      Use of Premises: General office, medical research, production and
        development, research animal facility and other consistent legal uses,
        including a cafeteria for employee use.

4.      Commencement Date: June 1, 2001

5.      Term: One Hundred Twenty (120) months, plus such additional days as may
        be required to cause this Lease to terminate on the final day of the
        calendar month.

6.      Basic Rent: One Hundred Sixty-Six Thousand Four Hundred Thirty-Eight
        Dollars ($166,438.00) per month.

        Basic Rent is subject to Adjustment as follows:

        Commencing four (4) months following the Commencement Date, the Basic
        Rent shall be Three Hundred Eighty-One Thousand Four Hundred Twenty
        Dollars ($381,420.00) per month.

        Commencing twelve (12) months following the Commencement Date, the Basic
        Rent shall be Three Hundred Ninety-Six Thousand Six Hundred Seventy-Six
        Dollars ($396,676.00) per month.

        Commencing twenty-four (24) months following the Commencement Date, the
        Basic Rent shall be Four Hundred Twelve Thousand Five Hundred
        Forty-Three Dollars ($412,543.00) per month.

        Commencing thirty-six (36) months following the Commencement Date, the
        Basic Rent shall be Four Hundred Twenty-Nine Thousand Forty-Five Dollars
        ($429,045.00) per month.

        Commencing forty-eight (48) months following the Commencement Date, the
        Basic Rent shall be Four Hundred Forty-Six Thousand Two Hundred Seven
        Dollars ($446,207.00) per month.

        Commencing sixty (60) months following the Commencement Date, the Basic
        Rent shall be Four Hundred Sixty-Four Thousand Fifty-Five Dollars
        ($464,055.00) per month.

        Commencing seventy-two (72) months following the Commencement Date, the
        Basic Rent shall be Four Hundred Eighty-Two Thousand Six Hundred
        Seventeen Dollars ($482,617.00) per month.



                                       1
<PAGE>   2

        Commencing eighty-four (84) months following the Commencement Date, the
        Basic Rent shall be Five Hundred One Thousand Nine Hundred Twenty-Two
        Dollars ($501,922.00) per month.

        Commencing ninety-six (96) months following the Commencement Date, the
        Basic Rent shall be Five Hundred Twenty-One Thousand Nine Hundred
        Ninety-Nine Dollars ($521,999.00) per month.

        Commencing one hundred eight (108) months following the Commencement
        Date, the Basic Rent shall be Five Hundred Forty-Two Thousand Eight
        Hundred Seventy-Nine Dollars ($542,879.00) per month.

7.      Guarantor(s): Dr. George B. Rathmann

8.      Floor Area: Approximately 138,698 rentable square feet

9.      Security Deposit: $542,879.00

10.     Broker(s): CRESA Partners

11.     Additional Insureds: Insignia/ESG, Inc.

12.     Address for Payments and Notices:

                LANDLORD                                   TENANT

        THE IRVINE COMPANY                                 HYSEQ, INC.
        c/o Insignia/ESG, Inc.                             670 Almanor Avenue
        160 West Santa Clara Street                        Sunnyvale, CA  94085
        Suite 1350
        San Jose, CA  95113

        with a copy of notices to:

        THE IRVINE COMPANY
        P.O. Box 6370
        Newport Beach, CA  92658-6370
        Attn:  Senior Vice President, Operations
               Office Properties

13.     Tenant's Liability Insurance Requirement: $2,000,000.00

14.     Plan Approval Date: N/A



                                       2
<PAGE>   3

                              ARTICLE II. PREMISES


        SECTION 2.1. LEASED PREMISES. Landlord leases to Tenant and Tenant
leases from Landlord the premises shown in Exhibit A (the "PREMISES"),
containing approximately the rentable square footage set forth as the "FLOOR
AREA" in Item 8 of the Basic Lease Provisions. The Premises consist of all of
the rentable square footage within the building identified in Item 1 of the
Basic Lease Provisions (the Premises together with such building and the
underlying real property, are called the "BUILDING"). The Building is located on
the site shown on Exhibit Y (the "SITE"). All references to "Floor Area" in this
Lease shall mean the rentable square footage set forth in Item 8 of the Basic
Lease Provisions. The rentable square footage set forth in Item 8 may include or
have been adjusted by various factors, including, without limitation, a load
factor for any vertical penetrations, stairwells or similar features or areas of
the Building. Tenant agrees that the Floor Area set forth in Item 8 shall be
binding on Landlord and Tenant for purposes of this Lease regardless of whether
any future or differing measurements of the Premises or the Building are
consistent or inconsistent with the Floor Area set forth in Item 8.

        SECTION 2.2. ACCEPTANCE OF PREMISES. Tenant acknowledges that neither
Landlord nor any representative of Landlord has made any representation or
warranty with respect to the Premises, the Building or the Site or their
respective suitability or fitness for any purpose, including without limitation
any representations or warranties regarding zoning or other land use matters,
and that neither Landlord nor any representative of Landlord has made any
representations or warranties regarding (i) what other tenants or uses may be
permitted or intended in the Building or the Site, (ii) any exclusivity of use
by Tenant with respect to its permitted use of the Premises as set forth in Item
3 of the Basic Lease Provisions, or (iii) any construction of portions of the
Site not yet completed. Tenant further acknowledges that neither Landlord nor
any representative of Landlord has agreed to undertake any alterations or
additions or construct any improvements to the Premises except as expressly
provided in this Lease. As of the Commencement Date, Tenant shall be
conclusively deemed to have accepted the Premises and those portions of the
Building and Site in which Tenant has any rights under this Lease, which
acceptance shall mean that it is conclusively established that the Premises and
those portions of the Building and Site in which Tenant has any rights under
this Lease were in satisfactory condition and in conformity with the provisions
of this Lease, subject only to those defective or incomplete portions of the
Tenant Improvements constructed by Landlord pursuant to the Work Letter, if any,
attached hereto as Exhibit X ("WORK LETTER"), which Tenant shall have itemized
on a written punch list and delivered to Landlord within thirty (30) days after
the Commencement Date (as defined in Section 3.1). If no items are required of
Landlord under the Work Letter, Tenant shall be conclusively deemed to have
accepted the Premises, and those portions of the Building and Site in which
Tenant has any rights under this Lease, in their existing condition as of the
Commencement Date, and to have waived any and all right or claim regardless of
the nature thereof against Landlord arising out of the condition of the
Premises, the Building or the Site. Nothing contained in this Section shall
affect the commencement of the Term or the obligation of Tenant to pay rent.
Landlord shall diligently complete all punch list items of which it is notified
as provided above.

        SECTION 2.3. BUILDING NAME AND ADDRESS. Tenant shall not utilize any
name selected by Landlord from time to time for the Building and/or the Site as
any part of Tenant's corporate or trade name.

        SECTION 2.4. LANDLORD'S RESPONSIBILITIES. Landlord agrees and warrants
that the existing electrical and mechanical systems in the Building, including,
without limitation, the HVAC systems serving the Building, shall be in good
operating condition as of the Commencement Date. If a non-compliance with the
foregoing warranty exists as of the Commencement Date, Landlord shall, promptly
after receipt of the written notice from Tenant setting forth the nature and
extent of such non-compliance (such notice to be given within thirty (30) days
following the Commencement Date), rectify same at Landlord's sole cost and
expense.



                                       3
<PAGE>   4

                                ARTICLE III. TERM


        SECTION 3.1. GENERAL. The term of this Lease ("TERM") shall be for the
period shown in Item 5 of the Basic Lease Provisions. Subject to the provisions
of Section 3.2 below, the Term shall commence ("COMMENCEMENT DATE") on the
earlier of (a) the date Tenant acquires possession of or commences use of the
Premises for any purpose other than any construction permitted to be performed
by Tenant pursuant to the Work Letter, or (b) the date the Premises are tendered
to Tenant, provided that the Premises shall not be tendered to Tenant until any
approvals by relevant governmental authorities of the tenant improvements
constructed by Landlord pursuant to the Work Letter ("TENANT IMPROVEMENTS")
which are required for occupancy of the Premises have been obtained (as
evidenced by written approval thereof in accordance with the building permits
issued for the Tenant Improvements or issuance of a temporary or final
certificate of occupancy for the Premises). The date on which this Lease is
scheduled to terminate is referred to as the "EXPIRATION DATE." Within ten (10)
days after possession of the Premises is tendered to Tenant, the parties shall
memorialize on a form provided by Landlord the actual Commencement Date and the
Expiration Date of this Lease. Tenant's failure to execute that form shall not
affect the validity of Landlord's determination of those dates.

        SECTION 3.2. DELAY IN POSSESSION. If Landlord, for any reason
whatsoever, cannot deliver possession of the Premises to Tenant on or before the
Estimated Commencement Date as set forth in Item 4 of the Basic Lease Provisions
("ESTIMATED COMMENCEMENT DATE"), this Lease shall not be void or voidable nor
shall Landlord be liable to Tenant for any resulting loss or damage. However,
Tenant shall not be liable for any rent and the Commencement Date shall not
occur until Landlord tenders possession of the Premises in accordance with
Section 3.1(b) above, except that if Landlord cannot so tender possession of the
Premises on or before the Estimated Commencement Date due to any action or
inaction of Tenant (including without limitation any Tenant Delay described in
the Work Letter, if any, attached to this Lease), then the Commencement Date
shall be deemed to have occurred and Landlord shall be entitled to full
performance by Tenant (including the payment of rent) from the date Landlord
would have been able to deliver the Premises to Tenant but for Tenant's action
or inaction, including without limitation any Tenant Delay described in the
attached Work Letter, if any. Notwithstanding the foregoing, however, if
Landlord cannot deliver possession of the Premises to Tenant within ninety (90)
days following the Estimated Commencement Date, then Tenant shall have the right
to terminate this Lease by written notice to Landlord given thereafter but prior
to Landlord's delivery of the Premises.

        SECTION 3.3. RIGHT(S) TO EXTEND THIS LEASE. Provided that Tenant is not
in default under any provision of this Lease at the time of exercise of the
extension right granted herein, Tenant shall have two (2) successive options to
extend the Term of this Lease for periods of sixty (60) months each. Tenant
shall exercise its right to extend the Term by and only by delivering to
Landlord, not less than six (6) months or more than twelve (12) months prior to
the then-current scheduled expiration date of the Term, Tenant's written notice
of its irrevocable commitment to extend (the "Commitment Notice"). Should Tenant
fail timely to deliver the Commitment Notice, then this extension right shall
thereupon lapse and be of no further force or effect. The Basic Rent payable
under the Lease during the extension of the Term shall be at the prevailing
market rental rate (including periodic adjustments) for comparable and similarly
improved space within the City of Sunnyvale (but exclusive of the value of any
tenant improvements installed at Tenant's expense) as of the commencement of the
extension period, as reasonably determined by Landlord based on then-current
leasing rates. In no event shall the monthly Basic Rent payable for the
extension period be less than the Basic Rent payable during the month
immediately preceding the commencement of such extension period. Promptly
following receipt of the Commitment Notice, Landlord shall prepare an
appropriate amendment to the Lease memorializing the extension of the Term in
accordance with the foregoing, and Tenant shall duly execute and return same to
Landlord within fifteen (15) days. Should Tenant fail timely to execute and
deliver the amendment, then Landlord may, at its sole written election, either
specifically enforce the Commitment Notice or extinguish Tenant's right to
extend the Term. Should Landlord elect the latter, then this Lease shall
terminate upon the scheduled date of expiration and Tenant's rights under this
paragraph shall be of no further force or effect. Any attempt to assign or
transfer any right or interest created by this paragraph shall be void from its
inception. Tenant shall have no other right to extend the Term beyond the two
sixty (60) month extension periods created by this paragraph. Unless agreed to
in a writing signed by Landlord



                                       4
<PAGE>   5

and Tenant, any extension of the Term, whether created by an amendment to this
Lease or by a holdover of the Premises by Tenant, or otherwise, shall be deemed
a part of, and not in addition to, any duly exercised extension period permitted
by this paragraph. Time is specifically made of the essence of this paragraph.

        SECTION 3.4 EARLY OCCUPANCY OF OFFICE SPACE. Landlord agrees that,
effective upon the full execution and delivery of this Lease and the delivery by
Tenant of all sums and instruments then required hereunder (viz., the first
month's Basic Rent, Security Deposit, Guaranty, letter of credit and insurance
certificates), Tenant shall be permitted to take early occupancy of the office
portion of the Premises only. Tenant's occupancy of that portion of the Premises
prior to the Commencement Date shall be subject to all of the provisions of this
Lease, excluding the obligation to pay Basic Rent and Operating Expenses, except
on the portion of the Premises that Tenant occupies.


                     ARTICLE IV. RENT AND OPERATING EXPENSES


        SECTION 4.1. BASIC RENT. From and after the Commencement Date, Tenant
shall pay to Landlord without deduction or offset, the rental amount for the
Premises shown in Item 6 of the Basic Lease Provisions (the "BASIC RENT"),
including subsequent adjustments, if any. Any rental adjustment to Basic Rent
shown in Item 6 shall be deemed to occur on the specified monthly anniversary of
the Commencement Date, whether or not the Commencement Date occurs at the end of
a calendar month. The rent shall be due and payable in advance commencing on the
Commencement Date (as prorated for any partial month) and continuing thereafter
on the first day of each successive calendar month of the Term. No demand,
notice or invoice shall be required for the payment of Basic Rent. An
installment of rent in the amount of one (1) full month's Basic Rent at the
initial rate specified in Item 6 of the Basic Lease Provisions and one (1)
month's estimated Tenant's Share of Operating Expenses (as defined in Section
4.2) shall be delivered to Landlord concurrently with Tenant's execution of this
Lease and shall be applied against the Basic Rent and Operating Expenses first
due hereunder.

        (a) SECTION 4.2. OPERATING EXPENSES.


        (a) Tenant shall pay to Landlord, as additional rent, Tenant's Share of
all Operating Expenses, as defined in Section 4.2(f), incurred by Landlord in
the operation of the Building and the Site. The term "TENANT'S SHARE" means one
hundred percent (100%) of any Operating Expenses reasonably determined by
Landlord to benefit or relate substantially to the Building and/or the Site,
plus an allocated portion of any Operating Expenses, as determined from time to
time by Landlord, which benefit or relate both to the Building or the Site. The
full amount of any management fee payable by Landlord for the management of
Tenant's Premises that is calculated as a percentage of the rent payable by
Tenant shall be paid in full by Tenant as additional rent, provided that such
management fee shall not exceed the rate generally payable for other commercial
buildings in the vicinity.

        (b) Prior to the start of each full Expense Recovery Period (as defined
in this Section 4.2), Landlord shall give Tenant a written estimate of the
amount of Tenant's Share of Operating Expenses for the applicable Expense
Recovery Period. Failure to provide such estimate shall not relieve Tenant from
its obligation to pay Tenant's Share of Operating Expenses or estimated amounts
thereof, if and when Landlord provides such estimate or final payment amount.
Tenant shall pay the estimated amounts to Landlord in equal monthly
installments, in advance concurrently with payments of Basic Rent. If Landlord
has not furnished its written estimate for any Expense Recovery Period by the
time set forth above, Tenant shall continue to pay monthly the estimated
Tenant's Share of Operating Expenses in effect during the prior Expense Recovery
Period; provided that when the new estimate is delivered to Tenant, Tenant
shall, at the next monthly payment date, pay any accrued estimated Tenant's
Share of Operating Expenses based upon the new estimate. For purposes hereof,
"EXPENSE RECOVERY PERIOD" shall mean every twelve month period during the Term
(or portion thereof for the first and last lease years) commencing July 1 and
ending June 30, provided that Landlord shall have the right to change the date
on which an Expense Recovery Period commences in which event appropriate
reasonable adjustments shall be made to Tenant's Share of Operating Expenses so
that the amount payable by Tenant shall not materially vary as a result of such
change.



                                       5
<PAGE>   6

        (c) Within one hundred twenty (120) days after the end of each Expense
Recovery Period, Landlord shall furnish to Tenant a statement showing in
reasonable detail the actual or prorated Tenant's Share of Operating Expenses
incurred by Landlord during the period, and the parties shall within thirty (30)
days thereafter make any payment or allowance necessary to adjust Tenant's
estimated payments of Tenant's Share of Operating Expenses, if any, to the
actual Tenant's Share of Operating Expenses as shown by the annual statement.
Any delay or failure by Landlord in delivering any statement hereunder shall not
constitute a waiver of Landlord's right to require Tenant to pay Tenant's Share
of Operating Expenses pursuant hereto. Any amount due Tenant shall be credited
against installments next coming due under this Section 4.2, and any deficiency
shall be paid by Tenant together with the next installment. Should Tenant fail
to object in writing to Landlord's determination of Tenant's Share of Operating
Expenses within sixty (60) days following delivery of Landlord's expense
statement, Landlord's determination of Tenant's Share of Operating Expenses for
the applicable Expense Recovery Period shall be conclusive and binding on the
parties for all purposes and any future claims to the contrary shall be barred.

        (d) Even though this Lease has terminated and the Tenant has vacated the
Premises, when the final determination is made of Tenant's Share of Operating
Expenses for the Expense Recovery Period in which this Lease terminates, Tenant
shall within thirty (30) days of written notice pay the entire increase over the
estimated Tenant's Share of Operating Expenses already paid. Conversely, any
overpayment by Tenant shall be rebated by Landlord to Tenant not later than
thirty (30) days after such final determination.

        (e) If, at any time during any Expense Recovery Period, any one or more
of the Operating Expenses are increased to a rate(s) or amount(s) in excess of
the rate(s) or amount(s) used in calculating the estimated Tenant's Share of
Operating Expenses for the year, then the estimate of Tenant's Share of
Operating Expenses may be increased by written notice from Landlord for the
month in which such rate(s) or amount(s) becomes effective and for all
succeeding months by an amount equal to Tenant's Share of the increase. If
Landlord gives Tenant written notice of the amount or estimated amount of the
increase, the month in which the increase will or has become effective, then
Tenant shall pay the increase to Landlord as a part of Tenant's monthly payments
of the estimated Tenant's Share of Operating Expenses as provided in Section
4.2(b), commencing with the month following Tenant's receipt of Landlord's
notice. In addition, Tenant shall pay upon written request any such increases
which were incurred prior to the Tenant commencing to pay such monthly increase.

        (f) The term "OPERATING EXPENSES" shall mean and include all Site Costs,
as defined in subsection (g), and Property Taxes, as defined in subsection (h).

        (g) The term "SITE COSTS" shall include all expenses of operation,
repair and maintenance of the Building and the Site, including without
limitation all appurtenant Common Areas (as defined in Section 6.2), and shall
include the following charges by way of illustration but not limitation: water
and sewer charges; insurance premiums (which shall be based on commercially
reasonable deductibles) and deductibles and/or reasonable premium and deductible
equivalents should Landlord elect to self-insure all or any portion of any risk
that Landlord is authorized to insure hereunder; license, permit, and inspection
fees; heat; light; power; air conditioning; supplies; materials; equipment;
tools; the cost of any environmental, insurance, tax or other consultant
utilized by Landlord in connection with the Building and/or Site; establishment
of reasonable reserves for replacements and/or repairs; costs incurred in
connection with compliance with any laws or changes in laws applicable to the
Building or the Site; the cost of any capital investments or replacements (other
than tenant improvements for specific tenants) to the extent of the amortized
amount thereof over the useful life of such capital investments or replacements
calculated at a market cost of funds, all as reasonably determined by Landlord,
for each such year of useful life during the Term; labor; reasonably allocated
wages and salaries, fringe benefits, and payroll taxes for administrative and
other personnel directly applicable to the Building and/or Site, including both
Landlord's personnel and outside personnel; any expense incurred pursuant to
Sections 6.1, 6.2, 6.4, 7.2, and 10.2; and a reasonable overhead/management fee
(consistent with that charged for other commercial projects in the vicinity) for
the professional operation of the Building and the Site. It is understood and
agreed that Site Costs may include competitive charges for direct services
provided by any subsidiary, division or affiliate of Landlord.



                                       6
<PAGE>   7

        (h) The term "PROPERTY TAXES" as used herein shall include any form of
federal, state, county or local government or municipal taxes, fees, charges or
other impositions of every kind (whether general, special, ordinary or
extraordinary) related to the ownership, leasing or operation of the Premises,
Building or Site, including without limitation, the following: (i) all real
estate taxes or personal property taxes, as such property taxes may be
reassessed from time to time; and (ii) other taxes, charges and assessments
which are levied with respect to this Lease or to the Building and/or the Site,
and any improvements, fixtures and equipment and other property of Landlord
located in the Building and/or the Site, (iii) all assessments and fees for
public improvements, services, and facilities and impacts thereon, including
without limitation arising out of any Community Facilities Districts, "Mello
Roos" districts, similar assessment districts, and any traffic impact mitigation
assessments or fees; (iv) any tax, surcharge or assessment which shall be levied
in addition to or in lieu of real estate or personal property taxes, other than
taxes covered by Article VIII; and (v) costs and expenses incurred in contesting
the amount or validity of any Property Tax by appropriate proceedings.
Notwithstanding the foregoing, general net income or franchise taxes imposed
against Landlord shall be excluded.

        SECTION 4.3. SECURITY DEPOSIT. Concurrently with Tenant's delivery of
this Lease, Tenant shall deposit with Landlord the sum, if any, stated in Item 9
of the Basic Lease Provisions, to be held by Landlord as security for the full
and faithful performance of all of Tenant's obligations under this Lease (the
"SECURITY DEPOSIT"). Landlord shall not be required to keep this Security
Deposit separate from its general funds, and Tenant shall not be entitled to
interest on the Security Deposit. Subject to the last sentence of this Section,
the Security Deposit shall be understood and agreed to be the property of
Landlord upon Landlord's receipt thereof, and may be utilized by Landlord in its
sole and absolute discretion towards the payment of all expenses by Landlord for
which Tenant would be required to reimburse Landlord under this Lease, including
without limitation brokerage commissions and Tenant Improvement costs. Upon any
Event of Default by Tenant (as defined in Section 14.1), Landlord may, in its
sole and absolute discretion, retain, use or apply the whole or any part of the
Security Deposit to pay any sum which Tenant is obligated to pay under this
Lease, sums that Landlord may expend or be required to expend by reason of the
Event of Default by Tenant or any loss or damage that Landlord may suffer by
reason of the Event of Default or costs incurred by Landlord in connection with
the repair or restoration of the Premises pursuant to Section 15.3 of this Lease
upon expiration or earlier termination of this Lease. In no event shall Landlord
be obligated to apply the Security Deposit upon an Event of Default and
Landlord's rights and remedies resulting from an Event of Default, including
without limitation, Tenant's failure to pay Basic Rent, Tenant's Share of
Operating Expenses or any other amount due to Landlord pursuant to this Lease,
shall not be diminished or altered in any respect due to the fact that Landlord
is holding the Security Deposit. If any portion of the Security Deposit is
applied by Landlord as permitted by this Section, Tenant shall within five (5)
days after written demand by Landlord deposit cash with Landlord in an amount
sufficient to restore the Security Deposit to its original amount. If Tenant
fully performs its obligations under this Lease, the Security Deposit shall be
returned to Tenant (or, at Landlord's option, to the last assignee of Tenant's
interest in this Lease) within thirty (30) days after the expiration of the
Term, provided that Tenant agrees that Landlord may retain the Security Deposit
to the extent and until such time as all amounts due from Tenant in accordance
with this Lease have been determined and paid in full and Tenant agrees that
Tenant shall have no claim against Landlord for Landlord's retaining such
Security Deposit to the extent provided in this Section.

        SECTION 4.4 LETTER OF CREDIT. In addition to the Security Deposit
described above, Tenant shall deliver to Landlord, concurrently with Tenant's
execution of this Lease, a letter of credit in the amount of Four Million
Dollars ($4,000,000.00), which letter of credit shall be in form and with the
substance of Exhibit G attached hereto. The letter of credit shall be issued by
a financial institution acceptable to Landlord with a branch in the San
Francisco Bay area or Los Angeles/Orange County area at which draws on the
letter of credit will be accepted. The letter of credit shall provide for
automatic yearly renewals throughout the Term of this Lease and shall have an
outside expiration date (if any) that is not earlier than thirty (30) days after
the expiration of the Lease Term. In the event the letter of credit is not
continuously renewed through the period set forth above, or upon any default
under this Lease by Tenant, including specifically Tenant's failure to pay rent
or to abide by its obligations under Sections 7.1 and 15.3 below, Landlord shall
be entitled to draw upon said letter of credit by the issuance of Landlord's
sole written demand to the issuing financial institution. Any such draw shall be
without waiver of any rights Landlord may have under this Lease or at law or in
equity as a result of any default hereunder by Tenant. Upon the expiration of
the sixtieth (60th) Lease month, Landlord shall



                                       7
<PAGE>   8

authorize termination of the Letter of Credit; provided that such termination
shall be conditioned upon: (i) Tenant not having been in monetary default under
this Lease at any time; and (ii) a written request for such termination having
been submitted to Landlord. Landlord shall execute any reasonable documentation
required to effect the termination of the Letter of Credit.


                                 ARTICLE V. USES


        SECTION 5.1. USE. Tenant shall use the Premises only for the purposes
stated in Item 3 of the Basic Lease Provisions, all in accordance with
applicable laws and restrictions and pursuant to approvals to be obtained by
Tenant from all relevant and required governmental agencies and authorities. The
parties agree that any contrary use shall be deemed to cause material and
irreparable harm to Landlord and shall entitle Landlord to injunctive relief in
addition to any other available remedy. Tenant, at its expense, shall procure,
maintain and make available for Landlord's inspection throughout the Term, all
governmental approvals, licenses and permits required for the proper and lawful
conduct of Tenant's permitted use of the Premises. Tenant shall not use or allow
the Premises to be used for any unlawful purpose, nor shall Tenant permit any
nuisance or commit any waste in the Premises or the Site. Tenant shall not
perform any work or conduct any business whatsoever in the Site other than
inside the Premises. Tenant shall not do or permit to be done anything which
will invalidate or increase all applicable insurance policy(ies) covering the
Building, the Site and/or their contents, and shall comply with all applicable
insurance underwriters rules. Tenant shall comply at its expense with all
present and future laws, ordinances, restrictions, regulations, orders, rules
and requirements of all governmental authorities that pertain to Tenant or its
use of the Premises, including without limitation all federal and state
occupational health and safety requirements, whether or not Tenant's compliance
will necessitate expenditures or interfere with its use and enjoyment of the
Premises. Tenant shall comply at its expense with all present and future
covenants, conditions, easements or restrictions now or hereafter affecting or
encumbering the Building and/or Site, and any amendments or modifications
thereto, including without limitation the payment by Tenant of any periodic or
special dues or assessments charged against the Premises or Tenant which may be
allocated to the Premises or Tenant in accordance with the provisions thereof.
Tenant shall promptly upon demand reimburse Landlord for any additional
insurance premium charged by reason of Tenant's failure to comply with the
provisions of this Section, and shall indemnify Landlord from any liability
and/or expense resulting from Tenant's noncompliance.

        SECTION 5.2. SIGNS. Tenant shall have the exclusive right to install
exterior signage on the Building and the Building monument, together with such
additional signage as may reasonably be approved by Landlord. Any such
installation by Tenant shall be subject to the provisions of this Section 5.2.
The size, design, graphics, material, style, color and other physical aspects of
any permitted sign shall be subject to Landlord's reasonable prior written
approval, as well as any required approval by the City in which the Premises are
located. Prior to placing or erecting any such signs, Tenant shall obtain and
deliver to Landlord a copy of any applicable municipal or other governmental
permits and approvals and comply with any applicable insurance requirements for
such signage. Tenant shall be responsible for the cost of any permitted sign,
including the fabrication, installation, maintenance and removal thereof and the
cost of any permits therefor. If Tenant fails to maintain its sign in good
condition, or if Tenant fails to remove same upon termination of this Lease and
repair and restore any damage caused by the sign or its removal, Landlord may do
so at Tenant's expense. Landlord shall have the right to temporarily remove any
signs in connection with any repairs or maintenance in or upon the Building. The
term "sign" as used in this Section shall include all signs, designs, monuments,
displays, advertising materials, logos, banners, projected images, pennants,
decals, pictures, notices, lettering, numerals or graphics.


                SECTION 5.3. HAZARDOUS MATERIALS.


        (a) For purposes of this Lease, the term "HAZARDOUS MATERIALS" includes
(i) any "hazardous material" as defined in Section 25501(o) of the California
Health and Safety Code, (ii) hydrocarbons, polychlorinated biphenyls or
asbestos, (iii) any toxic or hazardous materials, substances, wastes or
materials as defined pursuant to any other applicable state, federal or local
law or regulation, and (iv) any other substance or matter which may result in
liability to any



                                       8
<PAGE>   9

person or entity as result of such person's possession, use, release or
distribution of such substance or matter under any statutory or common law
theory.

        (b) Except as set forth in the "Environmental Questionnaire" (as defined
below), Tenant shall not cause or permit any Hazardous Materials to be brought
upon, stored, used, generated, released or disposed of on, under, from or about
the Premises (including without limitation the soil and groundwater thereunder)
without the prior written consent of Landlord, which consent may be given or
withheld in Landlord's sole and absolute discretion. Notwithstanding the
foregoing, Tenant shall have the right, without obtaining prior written consent
of Landlord, to utilize within the Premises a reasonable quantity of standard
office products that may contain Hazardous Materials (such as photocopy toner,
"White Out", and the like), provided however, that (i) Tenant shall maintain
such products in their original retail packaging, shall follow all instructions
on such packaging with respect to the storage, use and disposal of such
products, and shall otherwise comply with all applicable laws with respect to
such products, and (ii) all of the other terms and provisions of this Section
5.3 shall apply with respect to Tenant's storage, use and disposal of all such
products. Landlord may, in its sole and absolute discretion, place such
conditions as Landlord deems appropriate with respect to Tenant's use of any
such Hazardous Materials, and may further require that Tenant demonstrate that
any such Hazardous Materials are necessary or useful to Tenant's business and
will be generated, stored, used and disposed of in a manner that complies with
all applicable laws and regulations pertaining thereto and with good business
practices. Tenant understands that Landlord may utilize an environmental
consultant to assist in determining conditions of approval in connection with
the storage, generation, release, disposal or use of Hazardous Materials by
Tenant on or about the Premises, and/or to conduct periodic inspections of the
storage, generation, use, release and/or disposal of such Hazardous Materials by
Tenant on and from the Premises, and Tenant agrees that any costs incurred by
Landlord in connection therewith shall be reimbursed by Tenant to Landlord as
additional rent hereunder upon demand.

        (c) Prior to the execution of this Lease, Tenant shall complete, execute
and deliver to Landlord an Environmental Questionnaire and Disclosure Statement
(the "ENVIRONMENTAL QUESTIONNAIRE") in the form of Exhibit B attached hereto.
The completed Environmental Questionnaire shall be deemed incorporated into this
Lease for all purposes, and Landlord shall be entitled to rely fully on the
information contained therein. On each anniversary of the Commencement Date
until the expiration or sooner termination of this Lease, Tenant shall disclose
to Landlord in writing the names and amounts of all Hazardous Materials which
were stored, generated, used, released and/or disposed of on, under or about the
Premises for the twelve-month period prior thereto, and which Tenant desires to
store, generate, use, release and/or dispose of on, under or about the Premises
for the succeeding twelve-month period. In addition, to the extent Tenant is
permitted to utilize Hazardous Materials upon the Premises, Tenant shall comply
with all applicable laws, ordinances and regulations with respect thereto, and
shall promptly provide Landlord with complete and legible copies of all the
following environmental documents relating thereto: reports filed pursuant to
any self-reporting requirements; permit applications, permits, monitoring
reports, emergency response or action plans, workplace exposure and community
exposure warnings or notices and all other reports, disclosures, plans or
documents (even those which may be characterized as confidential) relating to
water discharges, air pollution, waste generation or disposal, and underground
storage tanks for Hazardous Materials; orders, reports, notices, listings and
correspondence (even those which may be considered confidential) of or
concerning the release, investigation of, compliance, cleanup, remedial and
corrective actions, and abatement of Hazardous Materials; and all complaints,
pleadings and other legal documents filed by or against Tenant related to
Tenant's use, handling, storage, release and/or disposal of Hazardous Materials.

        (d) Landlord and its agents shall have the right, but not the
obligation, to inspect, sample and/or monitor the Premises and/or the soil or
groundwater thereunder at any time to determine whether Tenant is complying with
the terms of this Section 5.3, and in connection therewith Tenant shall provide
Landlord with full access to all facilities, records and personnel related
thereto. If Tenant is not in compliance with any of the provisions of this
Section 5.3, or in the event of a release of any Hazardous Material on, under or
about the Premises caused or permitted by Tenant, its agents, employees,
contractors, licensees or invitees, Landlord and its agents shall have the
right, but not the obligation, without limitation upon any of Landlord's other
rights and remedies under this Lease, to immediately enter upon the Premises
without notice and to discharge Tenant's obligations under this Section 5.3 at
Tenant's expense, including without limitation the taking of emergency or
long-term remedial action. Landlord and its agents



                                       9
<PAGE>   10

shall endeavor to minimize interference with Tenant's business in connection
therewith, but shall not be liable for any such interference. In addition,
Landlord, at Tenant's expense, shall have the right, but not the obligation, to
join and participate in any legal proceedings or actions initiated in connection
with any claims arising out of the storage, generation, use, release and/or
disposal by Tenant or its agents, employees, contractors, licensees or invitees
of Hazardous Materials on, under, from or about the Premises.

        (e) If the presence of any Hazardous Materials on, under, from or about
the Premises or the Site caused or permitted by Tenant or its agents, employees,
contractors, licensees or invitees results in (i) injury to any person, (ii)
injury to or any contamination of the Premises or the Site, or (iii) injury to
or contamination of any real or personal property wherever situated, Tenant, at
its expense, shall promptly take all actions necessary to return the Premises
and the Site and any other affected real or personal property owned by Landlord
to the condition existing prior to the introduction of such Hazardous Materials
and to remedy or repair any such injury or contamination, including without
limitation, any cleanup, remediation, removal, disposal, neutralization or other
treatment of any such Hazardous Materials. Notwithstanding the foregoing, Tenant
shall not, without Landlord's prior written consent, which consent may be given
or withheld in Landlord's sole and absolute discretion, take any remedial action
in response to the presence of any Hazardous Materials on, from, under or about
the Premises or the Site or any other affected real or personal property owned
by Landlord or enter into any similar agreement, consent, decree or other
compromise with any governmental agency with respect to any Hazardous Materials
claims; provided however, Landlord's prior written consent shall not be
necessary in the event that the presence of Hazardous Materials on, under or
about the Premises or the Site or any other affected real or personal property
owned by Landlord (i) imposes an immediate threat to the health, safety or
welfare of any individual and (ii) is of such a nature that an immediate
remedial response is necessary and it is not possible to obtain Landlord's
consent before taking such action. To the fullest extent permitted by law,
Tenant shall indemnify, hold harmless, protect and defend (with attorneys
reasonably acceptable to Landlord) Landlord and any successors to all or any
portion of Landlord's interest in the Premises and the Site and any other real
or personal property owned by Landlord from and against any and all liabilities,
losses, damages, diminution in value, judgments, fines, demands, claims,
recoveries, deficiencies, costs and expenses (including without limitation
attorneys' fees, court costs and other professional expenses), whether
foreseeable or unforeseeable, arising directly or indirectly out of the use,
generation, storage, treatment, release, on- or off-site disposal or
transportation of Hazardous Materials (A) on, into, from, under or about the
Premises during the Term regardless of the source of such Hazardous Materials
unless caused solely by Landlord or (B) on, into, from, under or about the
Premises, the Building or the Site and any other real or personal property owned
by Landlord caused or permitted by Tenant, its agents, employees, contractors,
licensees or invitees. Such indemnity obligation shall specifically include,
without limitation, the cost of any required or necessary repair, restoration,
cleanup or detoxification of the Premises, the Building and the Site and any
other real or personal property owned by Landlord, the preparation of any
closure or other required plans, whether or not such action is required or
necessary during the Term or after the expiration of this Lease and any loss of
rental due to the inability to lease the Premises or any portion of the Building
or Site as a result of such Hazardous Material or remediation thereof. If it is
at any time discovered that Hazardous Materials have been released on, into,
from, under or about the Premises during the Term, or that Tenant or its agents,
employees, contractors, licensees or invitees may have caused or permitted the
release of a Hazardous Material on, under, from or about the Premises, the
Building or the Site or any other real or personal property owned by Landlord,
Tenant shall, at Landlord's request, immediately prepare and submit to Landlord
a comprehensive plan, subject to Landlord's reasonable approval, specifying the
actions to be taken by Tenant to return the Premises, the Building or the Site
or any other real or personal property owned by Landlord to the condition
existing prior to the introduction of such Hazardous Materials. Upon Landlord's
approval of such cleanup plan, Tenant shall, at its expense, and without
limitation of any rights and remedies of Landlord under this Lease or at law or
in equity, immediately implement such plan and proceed to cleanup such Hazardous
Materials in accordance with all applicable laws and as required by such plan
and this Lease. The provisions of this Section 5.3(e) shall expressly survive
the expiration or sooner termination of this Lease.

        (f) Landlord hereby discloses to Tenant, and Tenant hereby acknowledges,
certain facts relating to Hazardous Materials at the Site known by Landlord to
exist as of the date of this Lease, as more particularly described in Exhibit C
attached hereto. Tenant shall have no liability or responsibility with respect
to the Hazardous Materials facts described in Exhibit C, nor with



                                       10
<PAGE>   11

respect to any Hazardous Materials which Tenant proves were neither released on
the Premises during the Term nor caused or permitted by Tenant, its agents,
employees, contractors, licensees or invitees. Notwithstanding the preceding two
sentences, Tenant agrees to notify its agents, employees, contractors,
licensees, and invitees of any exposure or potential exposure to Hazardous
Materials at the Premises that Landlord brings to Tenant's attention. Tenant
hereby acknowledges that this disclosure satisfies any obligation of Landlord to
Tenant pursuant to California Health & Safety Code Section 25359.7, or any
amendment or substitute thereto or any other disclosure obligations of Landlord.


                       ARTICLE VI. COMMON AREAS; SERVICES


        SECTION 6.1. UTILITIES AND SERVICES. Tenant shall be responsible for and
shall pay promptly, directly to the appropriate supplier, all charges for water,
gas, electricity, sewer, heat, light, power, telephone, telecommunications
service, refuse pickup, janitorial service, interior landscape maintenance and
all other utilities, materials and services furnished directly to Tenant or the
Premises or used by Tenant in, on or about the Premises during the Term,
together with any taxes thereon. If any utilities or services are not separately
metered or assessed to Tenant, Landlord shall make a reasonable determination of
Tenant's proportionate share of the cost of such utilities and services,
including without limitation, after-hours HVAC usage, and Tenant shall pay such
amount to Landlord, as an item of additional rent, within ten (10) days after
receipt of Landlord's statement or invoice therefor. Alternatively, Landlord may
elect to include such cost in the definition of Site Costs in which event Tenant
shall pay Tenant's proportionate share of such costs in the manner set forth in
Section 4.2. Landlord shall not be liable for damages or otherwise for any
failure or interruption of any utility or other service furnished to the
Premises, and no such failure or interruption shall be deemed an eviction or
entitle Tenant to terminate this Lease or withhold or abate any rent due
hereunder.

        SECTION 6.2. OPERATION AND MAINTENANCE OF COMMON AREAS. During the Term,
Landlord shall operate all Common Areas within the Site. The term "COMMON AREAS"
shall mean all areas of the Site which are not held for exclusive use by persons
entitled to occupy space including Tenant, and their respective employees and
invitees, including without limitation parking areas and structures, driveways,
sidewalks, landscaped and planted areas, and electrical and utility rooms and
roof access entries, if any, in the Building.

        SECTION 6.3. USE OF COMMON AREAS. The occupancy by Tenant of the
Premises shall include the use of the Common Areas as provided in this Article
VI, subject, however, to compliance with all rules and regulations as are
prescribed from time to time by Landlord. Landlord shall operate and maintain
the Common Areas in the manner Landlord may determine to be appropriate. All
costs incurred by Landlord for the maintenance and operation of the Common Areas
shall be included in Site Costs. Landlord shall at all times during the Term
have exclusive control of the Common Areas, and may restrain or permit any use
or occupancy, except as authorized by Landlord's rules and regulations. Tenant
shall keep the Common Areas clear of any obstruction or unauthorized use related
to Tenant's operations or use of Premises, including without limitation,
planters and furniture. Nothing in this Lease shall be deemed to impose
liability upon Landlord for any damage to or loss of the property of, or for any
injury to, Tenant, its invitees or employees. Landlord may temporarily close any
portion of the Common Areas for repairs, remodeling and/or alterations, to
prevent a public dedication or the accrual of prescriptive rights, or for any
other reason deemed sufficient by Landlord, without liability to Landlord.

        SECTION 6.4. PARKING. Tenant shall be entitled to use all of the vehicle
parking spaces within the Site. All parking spaces shall be used only for
parking of vehicles no larger than full size passenger automobiles, sports
utility vehicles or pickup trucks. Tenant shall not permit or allow any vehicles
that belong to or are controlled by Tenant or Tenant's employees, suppliers,
shippers, customers or invitees to be loaded, unloaded or parked in areas other
than those designated by Landlord for such activities. If Tenant permits or
allows any of the prohibited activities described above, then Landlord shall
have the right, without notice, in addition to such other rights and remedies
that Landlord may have, to remove or tow away the vehicle involved and charge
the costs to Tenant. Parking within the Common Areas shall be limited to striped
parking stalls, and no parking shall be permitted in any driveways, access ways
or in any area which would prohibit or impede the free flow of traffic within
the Common Areas.



                                       11
<PAGE>   12

There shall be no parking of any vehicles for longer than a forty-eight (48)
hour period unless otherwise authorized by Landlord, and vehicles which have
been abandoned or parked in violation of the terms hereof may be towed away at
the owner's expense. Nothing contained in this Lease shall be deemed to create
liability upon Landlord for any damage to motor vehicles of visitors or
employees, for any loss of property from within those motor vehicles, or for any
injury to Tenant, its visitors or employees, unless ultimately determined to be
caused by the sole active negligence or willful misconduct of Landlord. Landlord
shall have the right to construct, maintain and operate lighting facilities
within the parking areas, and to do and perform such other acts in and to the
parking areas and improvements therein as, in the use of good business judgment,
Landlord shall determine to be advisable. Any person using the parking area
shall observe all directional signs and arrows and any posted speed limits.
Parking areas shall be used only for parking vehicles. Washing, waxing, cleaning
or servicing of vehicles, or the storage of vehicles for longer than 48-hours,
is prohibited unless otherwise authorized by Landlord. Tenant shall be liable
for any damage to the parking areas caused by Tenant or Tenant's employees,
suppliers, shippers, customers or invitees, including without limitation damage
from excess oil leakage. Tenant shall have no right to install any fixtures,
equipment or personal property in the parking areas.

        SECTION 6.5. CHANGES AND ADDITIONS BY LANDLORD. Landlord reserves the
right to make alterations or additions to the Building or the Site, or to the
attendant fixtures, equipment and Common Areas. Landlord may at any time
relocate or remove any of the driveways, sidewalks, landscaped and planted areas
from time to time. No change shall entitle Tenant to any abatement of rent or
other claim against Landlord, provided that the change does not deprive Tenant
of reasonable access to or use of the Premises.


                      ARTICLE VII. MAINTAINING THE PREMISES


        SECTION 7.1. TENANT'S MAINTENANCE AND REPAIR. Tenant at its sole expense
shall maintain and make all repairs and replacements necessary to keep the
Premises and the Building in the condition as existed on the Commencement Date
(or on any later date that the improvements may have been installed), excepting
ordinary wear and tear, including without limitation all interior and exterior
glass, windows, doors, door closures, hardware, fixtures, electrical, plumbing,
heating, ventilation and air conditioning, mechanical, fire extinguisher
equipment and other equipment. Any damage or deterioration of the Premises shall
not be deemed ordinary wear and tear if the same could have been prevented by
good maintenance practices by Tenant. As part of its maintenance obligations
hereunder, Tenant shall, at Landlord's request, provide Landlord with copies of
all maintenance schedules (which shall be subject to Landlord's reasonable
approval), reports and notices prepared by, for or on behalf of Tenant. Upon
request by Landlord, Tenant shall meet with representatives of Landlord from
time to time to review Tenant's maintenance program and all work performed
thereunder. All repairs and replacements shall be at least equal in quality to
the original work, shall be made only by a licensed contractor reasonably
approved in writing in advance by Landlord. Landlord may impose reasonable
restrictions and requirements with respect to repairs, as provided in Section
7.3, and the provisions of Section 7.4 shall apply to all repairs.
Alternatively, Landlord may elect to perform any repair and maintenance of the
electrical and mechanical systems and any air conditioning, ventilating or
heating equipment serving the Premises and include the cost thereof as part of
Tenant's Share of Operating Expenses, but only if such work is not performed to
Landlord's reasonable satisfaction by Tenant. If Tenant fails to properly
maintain and/or repair the Premises or the Building as herein provided following
Landlord's notice and the expiration of the applicable cure period (or earlier
if Landlord determines that such work must be performed prior to such time in
order to avoid damage to the Premises or Building or other detriment), then
Landlord may elect, but shall have no obligation, to perform any repair or
maintenance required hereunder on behalf of Tenant and at Tenant's expense, and
Tenant shall reimburse Landlord upon demand for all costs incurred upon
submission of an invoice.

        SECTION 7.2. LANDLORD'S MAINTENANCE AND REPAIR. Subject to Section 7.1
and Article XI, Landlord shall maintain in good repair the roof, foundations,
footings, the exterior surfaces of the exterior walls of the Building (excluding
exterior glass), and the structural systems, except that Tenant at its expense
shall make all repairs which Landlord deems reasonably necessary as a result of
the act or negligence of Tenant, its agents, employees, invitees, subtenants or
contractors. Landlord shall have the right to employ or designate any



                                       12
<PAGE>   13

reputable person or firm, including any employee or agent of Landlord or any of
Landlord's affiliates or divisions, to perform any service, repair or
maintenance function. Landlord need not make any other improvements or repairs
except as specifically required under this Lease, and nothing contained in this
Section shall limit Landlord's right to reimbursement from Tenant for
maintenance, repair costs and replacement costs as provided elsewhere in this
Lease. Tenant understands that it shall not make repairs at Landlord's expense
or by rental offset. Tenant further understands that Landlord shall not be
required to make any repairs to the roof, foundations, footings, the exterior
surfaces of the exterior walls of the Building (excluding exterior glass), or
structural, electrical or mechanical systems unless and until Tenant has
notified Landlord in writing of the need for such repair and Landlord shall have
a reasonable period of time thereafter to commence and complete said repair, if
warranted. All costs of any maintenance, repairs and replacement on the part of
Landlord provided hereunder shall be considered part of Site Costs. Tenant
further agrees that if Tenant fails to report any such need for repair in
writing within sixty (60) days of its discovery by Tenant, Tenant shall be
responsible for any costs and expenses and other damages related to such repair
which are in excess of those which would have resulted had such need for repair
been reported to Landlord within such sixty (60) day period.

        SECTION 7.3. ALTERATIONS. Except as otherwise provided in this Section,
Tenant shall make no alterations, additions, fixtures or improvements
("ALTERATIONS") to the Premises or the Building without the prior written
consent of Landlord, which consent shall not be unreasonably withheld or
delayed. Landlord may impose any reasonable condition to its consent, including
but not limited to a requirement that the installation and/or removal of all
Alterations be covered by a lien and completion bond satisfactory to Landlord in
its sole and absolute discretion and requirements as to the manner and time of
performance of such work. Landlord shall in all events, whether or not
Landlord's consent is required, have the right to approve the contractor
performing the installation and removal of Alterations and Tenant shall not
permit any contractor not reasonably approved by Landlord to perform any work on
the Premises or on the Building. Tenant shall obtain all required permits for
the installation and removal of Alterations and shall perform the installation
and removal of Alterations in compliance with all applicable laws, regulations
and ordinances, including without limitation the Americans with Disabilities
Act, all covenants, conditions and restrictions affecting the Site, and the
Rules and Regulations as described in Article XVII. Under no circumstances shall
Tenant make any Alterations which incorporate any Hazardous Materials, including
without limitation asbestos-containing construction materials into the Premises,
the Building or the Common Area. If any governmental entity requires, as a
condition to any proposed Alterations by Tenant, that improvements be made to
the Common Areas, and if Landlord consents to such improvements to the Common
Areas (which consent may be withheld in the sole and absolute discretion of
Landlord), then Tenant shall, at Tenant's sole expense, make such required
improvements to the Common Areas in such manner, utilizing such materials, and
with such contractors, architects and engineers as Landlord may require in its
sole and absolute discretion. Any request for Landlord's consent to any proposed
Alterations shall be made in writing and shall contain architectural plans
describing the work in detail reasonably satisfactory to Landlord. Unless
Landlord otherwise agrees in writing, all Alterations made or affixed to the
Premises, the Building or to the Common Area (excluding moveable trade fixtures
and furniture), including without limitation all Tenant Improvements constructed
pursuant to the Work Letter (except as otherwise provided in the Work Letter),
shall become the property of Landlord and shall be surrendered with the Premises
at the end of the Term; except that Landlord may, by notice to Tenant given at
least thirty (30) days prior to the expiration or termination of this Lease,
require Tenant to remove by the Expiration Date, or sooner termination date of
this Lease, all or any of the Alterations installed either by Tenant or by
Landlord at Tenant's request to the extent such Alterations were installed after
May 31, 2006. Tenant shall also be responsible for removing any items that are
otherwise required by applicable law to be removed. In connection therewith,
Tenant shall repair any damage to the Premises, the Building or the Common Area
arising from that removal and restore the Premises to their condition prior to
making such Alterations.

        SECTION 7.4. MECHANIC'S LIENS. Tenant shall keep the Premises and the
Site free from any liens arising out of any work performed, materials furnished,
or obligations incurred by or for Tenant. Upon request by Landlord, Tenant shall
promptly (but in no event later than five (5) business days following such
request) cause any such lien to be released by posting a bond in accordance with
California Civil Code Section 3143 or any successor statute. In the event that
Tenant shall not, within thirty (30) days following the imposition of any lien,
cause the lien to be released of record by payment or posting of a proper bond,
Landlord shall



                                       13
<PAGE>   14

have, in addition to all other available remedies, the right to cause the lien
to be released by any means it deems proper, including payment of or defense
against the claim giving rise to the lien. All expenses so incurred by Landlord,
including Landlord's attorneys' fees, and any consequential or other damages
incurred by Landlord arising out of such lien, shall be reimbursed by Tenant
upon demand, together with interest from the date of payment by Landlord at the
maximum rate permitted by law until paid. Tenant shall give Landlord no less
than twenty (20) days' prior notice in writing before commencing construction of
any kind on the Premises or Common Area and shall again notify Landlord that
construction has commenced, such notice to be given on the actual date on which
construction commences, so that Landlord may post and maintain notices of
nonresponsibility on the Premises or Common Area, as applicable, which notices
Landlord shall have the right to post and which Tenant agrees it shall not
disturb. Tenant shall also provide Landlord notice in writing within ten (10)
days following the date on which such work is substantially completed.

        SECTION 7.5. ENTRY AND INSPECTION. Landlord shall at all reasonable
times, upon 24 hour prior written or oral notice (except in emergencies, when no
notice shall be required), have the right to enter the Premises to inspect them,
to supply services and make repairs in accordance with this Lease, and to submit
the Premises to prospective or actual purchasers or encumbrance holders (or,
during the last one hundred and eighty (180) days of the Term or when an uncured
Tenant Event of Default exists, to prospective tenants), all without being
deemed to have caused an eviction of Tenant and without abatement of rent except
as provided elsewhere in this Lease. Landlord shall have the right, if desired,
to retain a key which unlocks all of the doors in the Premises, excluding
Tenant's vaults and safes, and Landlord shall have the right to use any and all
means which Landlord may deem proper to open the doors in an emergency in order
to obtain entry to the Premises, and any entry to the Premises obtained by
Landlord shall not under any circumstances be deemed to be a forcible or
unlawful entry into, or a detainer of, the Premises, or any eviction of Tenant
from the Premises.

            ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PROPERTY

        Tenant shall be liable for and shall pay, at least ten (10) days before
delinquency, all taxes and assessments levied against all personal property of
Tenant located in the Premises, and, if required by Landlord, against all Non
Standard Improvements to the Premises (as defined in Section 7.3) made by
Landlord or Tenant, and against any Alterations (as defined in Section 7.3) made
to the Premises or the Building by or on behalf of Tenant. If requested by
Landlord, Tenant shall cause its personal property, Non-Standard Improvements
and Alterations to be assessed and billed separately from the real property of
which the Premises form a part. If any taxes required to be paid by Tenant on
Tenant's personal property, Non-Standard Improvements and/or Alterations are
levied against Landlord or Landlord's property and if Landlord pays the same, or
if the assessed value of Landlord's property is increased by the inclusion of a
value placed upon the personal property, Non-Standard Improvements and/or
Alterations and if Landlord pays the taxes based upon the increased assessment,
Landlord shall have the right to require that Tenant pay to Landlord the taxes
so levied against Landlord or the proportion of the taxes resulting from the
increase in the assessment. In calculating what portion of any tax bill which is
assessed against Landlord separately, or Landlord and Tenant jointly, is
attributable to Tenant's Non-Standard Improvements, Alterations and personal
property, Landlord's reasonable determination shall be conclusive.


                      ARTICLE IX. ASSIGNMENT AND SUBLETTING

        (b) SECTION 9.1. RIGHTS OF PARTIES.


        (a) Notwithstanding any provision of this Lease to the contrary, and
except as to transfers expressly permitted without Landlord's consent pursuant
to Section 9.4, Tenant will not, either voluntarily or by operation of law,
assign, sublet, encumber, or otherwise transfer all or any part of Tenant's
interest in this Lease or the Premises, or permit the Premises to be occupied by
anyone other than Tenant, without Landlord's prior written consent, which
consent shall not unreasonably be withheld in accordance with the provisions of
Section 9.1(b). No assignment (whether voluntary, involuntary or by operation of
law) and no subletting shall be valid or effective without Landlord's prior
written consent and, at Landlord's election, any such assignment or subletting
shall be void and of no force and effect and any such attempted



                                       14
<PAGE>   15

assignment or subletting shall constitute an Event of Default of this Lease.
Landlord shall not be deemed to have given its consent to any assignment or
subletting by any course of action other than written consent. To the extent not
prohibited by provisions of the Bankruptcy Code, 11 U.S.C. Section 101 et seq.,
(the "BANKRUPTCY CODE"), including Section 365(f)(1), Tenant on behalf of itself
and its creditors, administrators and assigns waives the applicability of
Section 365(e) of the Bankruptcy Code unless the proposed assignee of the
Trustee for the estate of the bankrupt meets Landlord's standard for consent as
set forth in Section 9.1(b) of this Lease. If this Lease is assigned to any
person or entity pursuant to the provisions of the Bankruptcy Code, any and all
monies or other considerations to be delivered in connection with the assignment
shall be delivered to Landlord, shall be and remain the exclusive property of
Landlord and shall not constitute property of Tenant or of the estate of Tenant
within the meaning of the Bankruptcy Code. Any person or entity to which this
Lease is assigned pursuant to the provisions of the Bankruptcy Code shall be
deemed to have assumed all of the obligations arising under this Lease on and
after the date of the assignment, and shall upon demand execute and deliver to
Landlord an instrument confirming that assumption.

        (b) If Tenant desires to transfer an interest in this Lease or the
Premises, it shall first notify Landlord of its desire and shall submit in
writing to Landlord: (i) the name and address of the proposed transferee; (ii)
the nature of any proposed transferee's business to be carried on in the
Premises; (iii) the terms and provisions of any proposed sublease, assignment or
other transfer, including a copy of the proposed assignment, sublease or
transfer form; (iv) evidence that the proposed assignee, subtenant or transferee
will comply with the requirements of Exhibit D hereto; (v) a completed
Environmental Questionnaire from the proposed assignee, subtenant or transferee;
(vi) any other information requested by Landlord and reasonably related to the
transfer and (vii) the fee described in Section 9.1(e). Except as provided in
Section 9.1 (c), Landlord shall not unreasonably withhold its consent, provided
that the parties agree that it shall be reasonable for Landlord to withhold its
consent if: (1) the use of the Premises will not be consistent with the
provisions of this Lease; (2) the proposed assignee or subtenant has been
required by any prior landlord, lender or governmental authority to take
remedial action in connection with Hazardous Materials contaminating a property
arising out of the proposed assignee's or subtenant's actions or use of the
property in question or is subject to any enforcement order issued by any
governmental authority in connection with the use, disposal or storage of a
Hazardous Material; (3) insurance requirements of the proposed assignee or
subtenant may not be brought into conformity with Landlord's then current
leasing practice; (4) a proposed subtenant or assignee has not demonstrated to
the reasonable satisfaction of Landlord that it is financially responsible or
has failed to submit to Landlord all reasonable information as requested by
Landlord concerning the proposed subtenant or assignee, including, but not
limited to, a certified balance sheet of the proposed subtenant or assignee as
of a date within ninety (90) days of the request for Landlord's consent,
statements of income or profit and loss of the proposed subtenant or assignee
for the two-year period preceding the request for Landlord's consent, and/or a
certification signed by the proposed subtenant or assignee that it has not been
evicted or been in arrears in rent at any other leased premises for the 3-year
period preceding the request for Landlord's consent; (5) the proposed assignee
or subtenant is a prospect with whom Landlord is negotiating to become a tenant
at the Site; or (6) the proposed transfer will impose additional burdens or
adverse tax effects on Landlord. If Tenant has any exterior sign rights under
this Lease, such rights are personal to Tenant and may not be assigned or
transferred to any assignee of this Lease or subtenant of the Premises without
Landlord's prior written consent, which shall not be unreasonably withheld or
delayed.

        If Landlord consents to the proposed transfer, Tenant may within ninety
(90) days after the date of the consent effect the transfer upon the terms
described in the information furnished to Landlord; provided that any material
change in the terms shall be subject to Landlord's consent as set forth in this
Section 9.1. Landlord shall approve or disapprove any requested transfer within
twenty (20) days following receipt of Tenant's written request, the information
set forth above, and the fee set forth below.

        (c) Notwithstanding the provisions of Section 9.1(b) above, in lieu of
consenting to a proposed assignment or subletting of more than fifty percent
(50%) of Premises, Landlord may elect, within the twenty (20) day period
permitted for Landlord to approve or disapprove a requested transfer, to (i)
sublease the Premises (or the portion proposed to be subleased), or take an
assignment of Tenant's interest in this Lease, upon substantially the same terms
as offered to the proposed subtenant or assignee (excluding terms relating to
the purchase of personal property, the use of Tenant's name or the continuation
of Tenant's business), or (ii) terminate this



                                       15
<PAGE>   16

Lease as to the portion of the Premises proposed to be subleased or assigned
with a proportionate abatement in the rent payable under this Lease, effective
thirty (30) days' following written notice by Landlord of its election to so
sublease or terminate. Landlord may thereafter, at its option, assign, sublet or
re-let any space so sublet, obtained by assignment or obtained by termination to
any third party, including without limitation the proposed transferee of Tenant.
Notwithstanding the foregoing, however, the provisions of this Section 9.1(c)
shall not apply to any proposed subletting if the following conditions are
satisfied: such subletting would, in combination with all existing and proposed
sublettings, constitute fifty-five percent (55%), or less, of the aggregate
rentable square footage of the Premises, and the term of the proposed sublease
would be less than sixty percent (60%) of the remaining Lease Term. Not
withstanding the foregoing, this Section C shall not apply to any transfer by
Tenant during the initial ten (10) years.

        (d) In the event that Landlord approves the requested assignment or
subletting, Tenant agrees that fifty percent (50%) of any amounts paid by the
assignee or subtenant, however described, in excess of (i) the Basic Rent
payable by Tenant hereunder, or in the case of a sublease of a portion of the
Premises, in excess of the Basic Rent reasonably allocable to such portion as
determined by Landlord, plus (ii) Tenant's direct out-of-pocket costs which
Tenant certifies to Landlord have been paid to provide occupancy related
services to such assignee or subtenant of a nature commonly provided by
landlords of similar space, plus (iii) the portion of the tenant improvement
costs expended by Tenant in the applicable portion of the Premises for its own
use prior to May 31, 2006 (which tenant improvement costs shall be amortized on
a straight-line basis over ten years), shall be the property of Landlord and
such amounts shall be payable directly to Landlord by the assignee or subtenant
or, at Landlord's option, by Tenant within ten (10) days of Tenant's receipt
thereof. Landlord shall have the right to review or audit the books and records
of Tenant, or have such books and records reviewed or audited by an outside
accountant, to confirm any such direct out-of-pocket costs. In the event that
such direct out-of-pocket costs claimed by Tenant are overstated by more than
five percent (5%), Tenant shall reimburse Landlord for any of Landlord's costs
related to such review or audit. At Landlord's request, a written agreement
shall be entered into by and among Tenant, Landlord and the proposed assignee or
subtenant confirming the requirements of this Section 9.1(d).

        (e) Tenant shall pay to Landlord a fee equal to the greater of (i)
Landlord's actual costs related to such assignment, subletting or other transfer
or (ii) Five Hundred Dollars ($500.00), to process any request by Tenant for an
assignment, subletting or other transfer under this Lease. Tenant shall pay
Landlord the sum of Five Hundred Dollars ($500.00) concurrently with Tenant's
request for consent to any assignment, subletting or other transfer, and
Landlord shall have no obligation to consider such request unless accompanied by
such payment. Tenant shall pay Landlord upon demand any costs in excess of such
payment to the extent Landlord's actual costs related to such request exceeds
$500.00. Such fee is hereby acknowledged as a reasonable amount to reimburse
Landlord for its costs of review and evaluation of a proposed transfer.

        (f) Notwithstanding the foregoing, Tenant may, without Landlord's prior
consent but with prior written notice to Landlord and subject to the provisions
of Section 9.2, assign or transfer its right, title and interest in this Lease
or sublease the Premises to any of the following: (i) any entity resulting from
a merger or consolidation with Tenant; (ii) any entity succeeding to the
business and assets of Tenant; or (iii) any entity controlling, controlled by,
or under common control with, Tenant (collectively, "Tenant Affiliate").

        SECTION 9.2. EFFECT OF TRANSFER. No subletting or assignment, even with
the consent of Landlord, shall relieve Tenant of its obligation to pay rent and
to perform all its other obligations under this Lease. Moreover, Tenant shall
indemnify and hold Landlord harmless, as provided in Section 10.3, for any act
or omission by an assignee or subtenant. Each assignee, other than Landlord,
shall assume all obligations of Tenant under this Lease and shall be liable
jointly and severally with Tenant for the payment of all rent, and for the due
performance of all of Tenant's obligations, under this Lease. No assignment or
subletting to other than a Tenant Affiliate shall be effective or binding on
Landlord unless documentation in form and substance satisfactory to Landlord in
its reasonable discretion evidencing the transfer, and in the case of an
assignment, the assignee's assumption of the obligations of Tenant under this
Lease, is delivered to Landlord and both the assignee/subtenant and Tenant
deliver to Landlord an executed consent to transfer instrument prepared by
Landlord and consistent with the requirements of this Article. The acceptance by
Landlord of any payment due under this



                                       16
<PAGE>   17

Lease from any other person shall not be deemed to be a waiver by Landlord of
any provision of this Lease or to be a consent to any transfer. Consent by
Landlord to one or more transfers shall not operate as a waiver or estoppel to
the future enforcement by Landlord of its rights under this Lease or as a
consent to any subsequent transfer.

        SECTION 9.3. SUBLEASE REQUIREMENTS. The following terms and conditions
shall apply to any subletting by Tenant of all or any part of the Premises and
shall be deemed included in each sublease:

        (a) Each and every provision contained in this Lease (other than with
respect to the payment of rent hereunder) is incorporated by reference into and
made a part of such sublease, with "LANDLORD" hereunder meaning the sublandlord
therein and "TENANT" hereunder meaning the subtenant therein.

        (b) Tenant hereby irrevocably assigns to Landlord all of Tenant's
interest in all rentals and income arising from any sublease of the Premises,
and Landlord may collect such rent and income and apply same toward Tenant's
obligations under this Lease; provided, however, that until there is an Event of
Default by Tenant, Tenant shall have the right to receive and collect the
sublease rentals. Landlord shall not, by reason of this assignment or the
collection of sublease rentals, be deemed liable to the subtenant for the
performance of any of Tenant's obligations under the sublease. Tenant hereby
irrevocably authorizes and directs any subtenant, upon receipt of a written
notice from Landlord stating that an uncured Event of Default exists in the
performance of Tenant's obligations under this Lease, to pay to Landlord all
sums then and thereafter due under the sublease. Tenant agrees that the
subtenant may rely on that notice without any duty of further inquiry and
notwithstanding any notice or claim by Tenant to the contrary. Tenant shall have
no right or claim against the subtenant or Landlord for any rentals so paid to
Landlord.

        (c) In the event of the termination of this Lease for any reason,
including without limitation as the result of an Event of Default by Tenant or
by the mutual agreement of Landlord and Tenant, Landlord may, at its sole
option, take over Tenant's entire interest in any sublease and, upon notice from
Landlord, the subtenant shall attorn to Landlord. In no event, however, shall
Landlord be liable for any previous act or omission by Tenant under the sublease
or for the return of any advance rental payments or deposits under the sublease
that have not been actually delivered to Landlord, nor shall Landlord be bound
by any sublease modification executed without Landlord's consent or for any
advance rental payment by the subtenant in excess of one month's rent. The
general provisions of this Lease, including without limitation those pertaining
to insurance and indemnification, shall be deemed incorporated by reference into
the sublease despite the termination of this Lease. In the event Landlord does
not elect to take over Tenant's interest in a sublease in the event of any such
termination of this Lease, such sublease shall terminate concurrently with the
termination of this Lease and such subtenant shall have no further rights under
such sublease and Landlord shall have no obligations to such subtenant.

        SECTION 9.4. CERTAIN TRANSFERS. The following shall be deemed to
constitute an assignment of this Lease; (a) the sale of all or substantially all
of Tenant's assets (other than bulk sales in the ordinary course of business),
(b) if Tenant is a corporation, an unincorporated association, a limited
liability company or a partnership, the transfer, assignment or hypothecation of
any stock or interest in such corporation, association, limited liability
company or partnership in the aggregate of twenty-five percent (25%) (except for
publicly traded shares of stock constituting a transfer of twenty-five percent
(25%) or more in the aggregate, so long as no change in the controlling interest
of Tenant occurs as a result thereof), or (c) any other direct or indirect
change of control of Tenant, including, without limitation, change of control of
Tenant's parent company or a merger by Tenant or its parent company.
Notwithstanding the foregoing, Landlord's consent shall not be required for the
assignment of this Lease as a result of a merger by Tenant with or into another
entity or a reorganization of Tenant, so long as (i) the net worth of the
successor or reorganized entity after such merger is at least equal to the
greater of the net worth of Tenant as of the execution of this Lease by Landlord
or the net worth of Tenant immediately prior to the date of such merger or
reorganization, evidence of which, satisfactory to Landlord, shall be presented
to Landlord prior to such merger or reorganization, (ii) Tenant shall provide to
Landlord, prior to such merger or reorganization, written notice of such merger
or reorganization and such assignment documentation and other information as
Landlord may require in connection therewith, and (iii) all of the other terms
and requirements Section 9.2 and 9.3 shall apply with respect to such
assignment.



                                       17
<PAGE>   18

                       ARTICLE X. INSURANCE AND INDEMNITY


        SECTION 10.1. TENANT'S INSURANCE. Tenant, at its sole cost and expense,
shall provide and maintain in effect the insurance described in Exhibit D.
Evidence of that insurance must be delivered to Landlord prior to the
Commencement Date.

        SECTION 10.2. LANDLORD'S INSURANCE. Landlord may, at its election,
provide any or all of the following types of insurance, with or without
deductible and in amounts and coverages as may be reasonably determined by
Landlord in its sole and absolute discretion: "all risk" or similar property
insurance, subject to standard exclusions, covering the Building and/or Site,
and such other risks as Landlord or its mortgagees may from time to time deem
appropriate, including Tenant Improvements made by Landlord pursuant to the Work
Letter, and commercial general liability coverage. Landlord shall not be
required to carry insurance of any kind on Tenant's Alterations or on Tenant's
other property, including, leasehold improvements, trade fixtures, furnishings,
equipment, plate glass, signs and all other items of personal property, and
shall not be obligated to repair or replace that property should damage occur.
All proceeds of insurance maintained by Landlord upon the Building and/or Site
shall be the property of Landlord, whether or not Landlord is obligated to or
elects to make any repairs. At Landlord's option, Landlord may self-insure all
or any portion of the risks for which Landlord elects to provide insurance
hereunder.

        SECTION 10.3. TENANT'S INDEMNITY. To the fullest extent permitted by
law, Tenant shall defend, indemnify, protect, save and hold harmless Landlord,
its agents, and any and all affiliates of Landlord, including, without
limitation, any corporations or other entities controlling, controlled by or
under common control with Landlord, from and against any and all claims,
liabilities, costs or expenses arising either before or after the Commencement
Date from Tenant's use or occupancy of the Premises, the Building or the Common
Areas, including, without limitation, the use by Tenant, its agents, employees,
invitees or licensees of any recreational facilities within the Common Areas, or
from the conduct of its business, or from any activity, work, or thing done,
permitted or suffered by Tenant or its agents, employees, invitees or licensees
in or about the Premises, the Building or the Common Areas, or from any Event of
Default in the performance of any obligation on Tenant's part to be performed
under this Lease, or from any act or negligence of Tenant or its agents,
employees, visitors, patrons, guests, invitees or licensees. Landlord may, at
its option, require Tenant to assume Landlord's defense in any action covered by
this Section through counsel reasonably satisfactory to Landlord. The provisions
of this Section shall expressly survive the expiration or sooner termination of
this Lease. Tenant's obligations under this Section shall not apply in the event
that the claim, liability, cost or expense is caused solely by the active
negligence or willful misconduct of Landlord.

        SECTION 10.4. LANDLORD'S NONLIABILITY. Landlord shall not be liable to
Tenant, its employees, agents and invitees, and Tenant hereby waives all claims
against Landlord and knowingly assumes the risk of for loss of or damage to any
property, or loss or interruption of business or income, or any other loss,
cost, damage, injury or liability whatsoever (including without limitation any
consequential damages and lost profit or opportunity costs) resulting from, but
not limited to, Acts of God, acts of civil disobedience or insurrection, acts or
omissions of third parties and/or of other tenants within the Site or their
agents, employees, contractors, guests or invitees, fire, explosion, falling
plaster, steam, gas, electricity, water or rain which may leak or flow from or
into any part of the Premises or from the breakage, leakage, obstruction or
other defects of the pipes, sprinklers, wires, appliances, plumbing, air
conditioning, electrical works, roof, windows or other fixtures in the Building,
whether the damage or injury results from conditions arising in the Premises or
in the Building. It is understood that any such condition may require the
temporary evacuation or closure of all or a portion of the Building. Landlord
shall have no liability (including without limitation consequential damages and
lost profit or opportunity costs) and, except as provided in Sections 11.1 and
12.1 below, there shall be no abatement of rent, by reason of any injury to or
interference with Tenant's business arising from the making of any repairs,
alterations or improvements to any portion of the Building, including repairs to
the Premises, nor shall any related activity by Landlord constitute an actual or
constructive eviction; provided, however, that in making repairs, alterations or
improvements, Landlord shall interfere as little as reasonably



                                       18
<PAGE>   19

practicable with the conduct of Tenant's business in the Premises. Neither
Landlord nor its agents shall be liable for interference with light or other
similar intangible interests. Tenant shall immediately notify Landlord in case
of fire or accident in the Premises, the Building or the Site and of defects in
any improvements or equipment.

        SECTION 10.5. WAIVER OF SUBROGATION. Landlord and Tenant each hereby
waives all rights of recovery against the other and the other's agents on
account of loss and damage occasioned to the property of such waiving party to
the extent only that such loss or damage is required to be insured against, or,
if not required, is actually insured against, under any property insurance
policies contemplated by this Article X; provided however, that (i) the
foregoing waiver shall not apply to the extent of Tenant's obligations to pay
deductibles under any such policies and this Lease and (ii) to the extent Tenant
fails to maintain the insurance required to be maintained by Tenant pursuant to
this Lease, Landlord shall not be deemed to have waived any right of recovery
against Tenant. By this waiver it is the intent of the parties that neither
Landlord nor Tenant shall be liable to any insurance company (by way of
subrogation or otherwise) insuring the other party for any loss or damage
insured against under any property insurance policies contemplated by this
Lease, even though such loss or damage might be occasioned by the negligence of
such party, its agents, employees, contractors, guests or invitees.


                        ARTICLE XI. DAMAGE OR DESTRUCTION

        SECTION 11.1. RESTORATION.


        (a) If the Premises or the Building or a part thereof are materially
damaged by any fire, flood, earthquake or other casualty, Landlord shall have
the right to terminate this Lease upon written notice to Tenant if: (i) Landlord
reasonably determines that proceeds necessary to pay the full cost of repair is
not available from Landlord's insurance, including without limitation earthquake
insurance, plus such additional amounts Tenant elects, at its option, to
contribute, excluding however the deductible (for which Tenant shall be
responsible for Tenant's Share); (ii) Landlord reasonably determines that the
Premises cannot, with reasonable diligence, be fully repaired by Landlord (or
cannot be safely repaired because of the presence of hazardous factors,
including without limitation Hazardous Materials, earthquake faults, and other
similar dangers) within three hundred sixty five (365) days after the date of
the damage; (iii) an uncured Event of Default by Tenant has occurred; or (iv)
the material damage occurs during the final twelve (12) months of the Term as
the Term maybe extended to Tenant pursuant to Section 3.3. Landlord shall notify
Tenant in writing ("LANDLORD'S NOTICE") within sixty (60) days after the damage
occurs as to (A) whether Landlord is terminating this Lease as a result of such
material damage and (B) if Landlord is not terminating this Lease, the number of
days within which Landlord has estimated that the Premises, with reasonable
diligence, are likely to be fully repaired. In the event Landlord elects to
terminate this Lease, this Lease shall terminate as of the date specified for
termination by Landlord's Notice (which termination date shall in no event be
later than sixty (60) days following the date of the damage, or, if no such date
is specified, such termination shall be the date of Landlord's Notice).

        (b) If Landlord has the right to terminate this Lease pursuant to
Section 11.1(a) and does not elect to so terminate this Lease, and provided that
at the time of Landlord's Notice neither an Event of Default exists nor has
Landlord delivered Tenant a notice of any failure by Tenant to fulfill an
obligation under this Lease which, unless cured by Tenant within the applicable
grace period, would constitute an Event of Default, then within ten (10) days
following delivery of Landlord's Notice pursuant to Section 11.1(a), Tenant may
elect to terminate this Lease by written notice to Landlord, but only if (i)
Landlord's Notice specifies that Landlord has determined that the Premises
cannot be repaired, with reasonable diligence, within two hundred seventy (270)
days after the date of damage or (ii) the casualty has occurred within the final
twelve (12) months of the Term and such material damage has a materially adverse
impact on Tenant's continued use of the Premises. If Tenant fails to provide
such termination notice within such ten (10) day period, Tenant shall be deemed
to have waived any termination right under this Section 11.1(b) or any other
applicable law.

        (c) In the event that neither Landlord nor Tenant terminates this Lease
pursuant to this Section 11.1 as a result of material damage to the Building or
Premises resulting from a



                                       19
<PAGE>   20

casualty, Landlord shall repair all material damage to the Premises or the
Building as soon as reasonably possible and this Lease shall continue in effect
for the remainder of the Term. Subject to any provision to the contrary in the
Work Letter, such repair by Landlord shall include repair of material damage to
the Tenant Improvements constructed pursuant to the Work Letter, so long as
insurance proceeds from insurance required to be carried by Tenant are made
available to Landlord. Landlord shall have the right, but not the obligation, to
repair or replace any other leasehold improvements made by Tenant or any
Alterations (as defined in Section 7.3) constructed by Tenant. If Landlord
elects to repair or replace such leasehold improvements and/or Alterations, all
insurance proceeds available for such repair or replacement shall be made
available to Landlord. Landlord shall have no liability to Tenant in the event
that the Premises or the Building has not been fully repaired within the time
period specified by Landlord in Landlord's Notice to Tenant as described in
Section 11.1(a). Notwithstanding the foregoing, the repair of damage to the
Premises to the extent such damage is not material shall be governed by Sections
7.1 and 7.2.

        (d) Commencing from and after the sixth business day following such
material damage to the Building, and ending on the sooner of the date the damage
is repaired or the date this Lease is terminated, the rental to be paid under
this Lease shall be abated in the same proportion that the Floor Area of the
Premises that is rendered unusable by the damage from time to time bears to the
total Floor Area of the Premises, as determined by Landlord.

        (e) Landlord shall not be required to repair or replace any improvements
or fixtures that Tenant is obligated to repair or replace pursuant to Section
7.1 or any other provision of this Lease and Tenant shall continue to be
obligated to so repair or replace any such improvements or fixtures,
notwithstanding any provisions to the contrary in this Article XI. In addition,
in the event the damage or destruction to the Premises or Building are due in
substantial part to the fault or neglect of Tenant or its employees, subtenants,
invitees or representatives, notwithstanding the provisions of Section 10.5, the
costs of such repairs or replacement to the Premises or Building shall be borne
by Tenant to the extent that insurance proceeds sufficient to complete such
repair or replacement are not made available to Landlord and in addition, Tenant
shall not be entitled to terminate this Lease as a result, notwithstanding the
provisions of Section 11.1(b).

        (f) Tenant shall fully cooperate with Landlord in removing Tenant's
personal property and any debris from the Premises to facilitate all inspections
of the Premises and the making of any repairs. Notwithstanding anything to the
contrary contained in this Lease, if Landlord in good faith believes there is a
risk of injury to persons or damage to property from entry into the Building or
Premises following any damage or destruction thereto, Landlord may restrict
entry into the Building or the Premises by Tenant, its employees, agents and
contractors in a non-discriminatory manner, without being deemed to have
violated Tenant's rights of quiet enjoyment to, or made an unlawful detainer of,
or evicted Tenant from, the Premises. Upon request, Landlord shall consult with
Tenant to determine if there are safe methods of entry into the Building or the
Premises solely in order to allow Tenant to retrieve files, data in computers,
and necessary inventory, subject however to all indemnities and waivers of
liability from Tenant to Landlord contained in this Lease and any additional
indemnities and waivers of liability which Landlord may require.

        SECTION 11.2. LEASE GOVERNS. Tenant agrees that the provisions of this
Lease, including without limitation Section 11.1, shall govern any damage or
destruction and shall accordingly supersede any contrary statute or rule of law.


                           ARTICLE XII. EMINENT DOMAIN


        SECTION 12.1. TOTAL OR PARTIAL TAKING. If all or a material portion of
the Premises is taken by any lawful authority by exercise of the right of
eminent domain, or sold to prevent a taking, either Tenant or Landlord may
terminate this Lease effective as of the date possession is required to be
surrendered to the authority. In the event neither party has elected to
terminate this Lease as provided above, then Landlord shall promptly, after
receipt of a sufficient condemnation award, proceed to restore the Premises to
substantially their condition prior to the taking, and a proportionate allowance
shall be made to Tenant for the rent corresponding to the time during which, and
to the part of the Premises of which, Tenant is deprived on account of the



                                       20
<PAGE>   21

taking and restoration. In the event of a taking, Landlord shall be entitled to
the entire amount of the condemnation award without deduction for any estate or
interest of Tenant; provided that nothing in this Section shall be deemed to
give Landlord any interest in, or prevent Tenant from seeking any award against
the taking authority for, the taking of personal property and fixtures belonging
to Tenant or for relocation or business interruption expenses recoverable from
the taking authority.

        SECTION 12.2. TEMPORARY TAKING. No temporary taking of the Premises
shall terminate this Lease or give Tenant any right to abatement of rent, and
any award specifically attributable to a temporary taking of the Premises shall
belong entirely to Tenant. A temporary taking shall be deemed to be a taking of
the use or occupancy of the Premises for a period of not to exceed ninety (90)
days.

        SECTION 12.3. TAKING OF PARKING AREA. In the event there shall be a
taking of the parking area of the Site such that more than ten percent (10%) of
the vehicle parking spaces are taken, Landlord may substitute reasonably
equivalent parking in a location reasonably close to the Building; provided that
if Landlord fails to make that substitution within ninety (90) days following
the taking and if the taking materially impairs Tenant's use and enjoyment of
the Premises, Tenant may, at its option, terminate this Lease by written notice
to Landlord. If this Lease is not so terminated by Tenant, there shall be no
abatement of rent and this Lease shall continue in effect.


          ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE; FINANCIALS


        SECTION 13.1. SUBORDINATION. At the option of Landlord or any lender of
Landlord's that obtains a security interest in the Building, this Lease shall be
either superior or subordinate to all ground or underlying leases, mortgages and
deeds of trust, if any, which may hereafter affect the Building, and to all
renewals, modifications, consolidations, replacements and extensions thereof;
provided, that so long as no Event of Default exists under this Lease, Tenant's
possession and quiet enjoyment of the Premises shall not be disturbed and this
Lease shall not terminate in the event of termination of any such ground or
underlying lease, or the foreclosure of any such mortgage or deed of trust, to
which this Lease has been subordinated pursuant to this Section. Tenant shall
execute and deliver any documents or agreements requested by Landlord or such
lessor or lender which provide Tenant with the non-disturbance protections set
forth in this Section. In the event of a termination or foreclosure, Tenant
shall become a tenant of and attorn to the successor-in-interest to Landlord
upon the same terms and conditions as are contained in this Lease, and shall
execute any instrument reasonably required by Landlord's successor for that
purpose. Tenant shall also, upon written request of Landlord, execute and
deliver all instruments as may be required from time to time to subordinate the
rights of Tenant under this Lease to any ground or underlying lease or to the
lien of any mortgage or deed of trust (provided that such instruments include
the nondisturbance and attornment provisions set forth above), or, if requested
by Landlord, to subordinate, in whole or in part, any ground or underlying lease
or the lien of any mortgage or deed of trust to this Lease. Tenant agrees that
any purchaser at a foreclosure sale or lender taking title under a deed-in-lieu
of foreclosure shall not be responsible for any act or omission of a prior
landlord, shall not be subject to any offsets or defenses Tenant may have
against a prior landlord, and shall not be liable for the return of the security
deposit to the extent it is not actually received by such purchaser or bound by
any rent paid for more than the current month in which the foreclosure occurred.


        SECTION 13.2. ESTOPPEL CERTIFICATE.


        (a) Tenant shall, at any time upon not less than ten (10) days prior
written notice from Landlord, execute, acknowledge and deliver to Landlord, in
any form that Landlord may reasonably require, a statement in writing (i)
certifying that this Lease is unmodified and in full force and effect (or, if
modified, stating the nature of the modification and certifying that this Lease,
as modified, is in full force and effect) and the dates to which the rental,
additional rent and other charges have been paid in advance, if any, and (ii)
acknowledging that, to Tenant's knowledge, there are no uncured defaults on the
part of Landlord, or specifying each default if



                                       21
<PAGE>   22

any are claimed, and (iii) setting forth all further information that Landlord
or any purchaser or encumbrancer may reasonably require. Tenant's statement may
be relied upon by any prospective purchaser or encumbrancer of all or any
portion of the Building or Site.

        (b) Notwithstanding any other rights and remedies of Landlord, Tenant's
failure to deliver any estoppel statement within the provided time shall be
conclusive upon Tenant that (i) this Lease is in full force and effect, without
modification except as may be represented by Landlord, (ii) there are no uncured
Events of Default in Landlord's performance, and (iii) not more than one month's
rental has been paid in advance.


        SECTION 13.3. FINANCIALS.


        (a) Tenant shall deliver to Landlord, prior to the execution of this
Lease and thereafter at any time upon Landlord's request, Tenant's current tax
returns and financial statements, certified true, accurate and complete by the
chief financial officer of Tenant, including a balance sheet and profit and loss
statement for the most recent prior year, or, in the event Tenant is a publicly
traded corporation on a nationally recognized stock exchange, Tenant's current
financial reports filed with the Securities and Exchange Commission
(collectively, the "STATEMENTS"), which Statements shall accurately and
completely reflect the financial condition of Tenant. Landlord agrees that it
will keep the Statements confidential, except that Landlord shall have the right
to deliver the same to any proposed purchaser of the Building or Site, and to
any encumbrancer of all or any portion of the Building or Site.

        (b) Tenant acknowledges that Landlord is relying on the Statements in
its determination to enter into this Lease, and Tenant represents to Landlord,
which representation shall be deemed made on the date of this Lease and again on
the Commencement Date, that no material change in the financial condition of
Tenant, as reflected in the Statements, has occurred since the date Tenant
delivered the Statements to Landlord. The Statements are represented and
warranted by Tenant to be correct and to accurately and fully reflect Tenant's
true financial condition as of the date of submission by any Statements to
Landlord.


                   ARTICLE XIV. EVENTS OF DEFAULT AND REMEDIES


        SECTION 14.1. TENANT'S DEFAULTS. In addition to any other breaches of
this Lease which are defined as Events of Default in this Lease, the occurrence
of any one or more of the following events shall constitute an Event of Default
by Tenant:

        (a) The failure by Tenant to make any payment of Basic Rent or
additional rent required to be made by Tenant, as and when due, where the
failure continues for a period of five (5) days after written notice from
Landlord to Tenant; provided, however, that any such notice shall be in lieu of,
and not in addition to, any notice required under California Code of Civil
Procedure Section 1161 and 1161(a) as amended. For purposes of these Events of
Default and remedies provisions, the term "ADDITIONAL RENT" shall be deemed to
include all amounts of any type whatsoever other than Basic Rent to be paid by
Tenant pursuant to the terms of this Lease.

        (b) The assignment, sublease, encumbrance or other transfer of this
Lease by Tenant, either voluntarily or by operation of law, whether by judgment,
execution, transfer by intestacy or testacy, or other means, without the prior
written consent of Landlord when consent is required by this Lease.

        (c) The discovery by Landlord that any financial statement provided by
Tenant, or by any affiliate, successor or guarantor of Tenant, was materially
false.

        (d) The failure of Tenant to timely and fully provide any reasonable
subordination agreement, estoppel certificate or financial statements in
accordance with the requirements of Article XIII.

        (e) The abandonment of the Premises by Tenant.



                                       22
<PAGE>   23

        (f) The failure or inability by Tenant to observe or perform any of the
express or implied covenants or provisions of this Lease to be observed or
performed by Tenant, other than as specified in this Section 14.1, where the
failure continues for a period of thirty (30) days after written notice from
Landlord to Tenant or such shorter period as is specified in any other provision
of this Lease; provided, however, that any such notice shall be in lieu of, and
not in addition to, any notice required under California Code of Civil Procedure
Section 1161 and 1161(a) as amended. However, if the nature of the failure is
such that more than thirty (30) days are reasonably required for its cure, then
Tenant shall not be deemed to have committed an Event of Default if Tenant
commences the cure within thirty (30) days, and thereafter diligently pursues
the cure to completion.

        (g) (i) The making by Tenant of any general assignment for the benefit
of creditors; (ii) the filing by or against Tenant of a petition to have Tenant
adjudged a Chapter 7 debtor under the Bankruptcy Code or to have debts
discharged 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 thirty (30) days); (iii) the appointment of a
trustee or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, if possession is
not restored to Tenant within thirty (30) days; (iv) the attachment, execution
or other judicial seizure of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease, where the seizure is not
discharged within thirty (30) days; (v) Tenant's convening of a meeting of its
creditors for the purpose of effecting a moratorium upon or composition of its
debts or (vi) the failure of Tenant to pay its material obligations to creditors
as and when they become due and payable, other than as a result of a good faith
dispute by Tenant as to the amount due to such creditors. Landlord shall not be
deemed to have knowledge of any event described in this Section 14.1(g) unless
notification in writing is received by Landlord, nor shall there be any
presumption attributable to Landlord of Tenant's insolvency. In the event that
any provision of this Section 14.1(g) is contrary to applicable law, the
provision shall be of no force or effect.


                        SECTION 14.2. LANDLORD'S REMEDIES.


        (a) If an Event of Default by Tenant occurs, then in addition to any
other remedies available to Landlord, Landlord may exercise the following
remedies:

                (i) Landlord may terminate Tenant's right to possession of the
Premises by any lawful means, in which case this Lease shall terminate and
Tenant shall immediately surrender possession of the Premises to Landlord. Such
termination shall not affect any accrued obligations of Tenant under this Lease.
Upon termination, Landlord shall have the right to reenter the Premises and
remove all persons and property. Landlord shall also be entitled to recover from
Tenant:

                        (1) The worth at the time of award of the unpaid Basic
Rent and additional rent which had been earned at the time of termination;

                        (2) The worth at the time of award of the amount by
which the unpaid Basic Rent and additional rent which would have been earned
after termination until the time of award exceeds the amount of such loss that
Tenant proves could have been reasonably avoided;

                        (3) The worth at the time of award of the amount by
which the unpaid Basic Rent and additional rent for the balance of the Term
after the time of award exceeds the amount of such loss that Tenant proves could
be reasonably avoided;

                        (4) Any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result from Tenant's Event of Default, including, but not limited to,
the cost of recovering possession of the Premises, refurbishment of the
Premises, marketing costs, commissions and other expenses of reletting,
including necessary repair, the unamortized portion of any tenant improvements
and brokerage commissions funded by Landlord in connection with this Lease,
reasonable attorneys' fees, and any other reasonable costs; and



                                       23
<PAGE>   24

                        (5) At Landlord's election, all other amounts in
addition to or in lieu of the foregoing as may be permitted by law. Any sum,
other than Basic Rent, shall be computed on the basis of the average monthly
amount accruing during the twenty-four (24) month period immediately prior to
the Event of Default, except that if it becomes necessary to compute such rental
before the twenty-four (24) month period has occurred, then the computation
shall be on the basis of the average monthly amount during the shorter period.
As used in Sections 14.2(a)(i) (1) and (2) above, the "worth at the time of
award" shall be computed by allowing interest at the rate of ten percent (10%)
per annum. As used in Section 14.2(a)(i)(3) above, the "worth at the time of
award" shall be computed by discounting the amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of award plus one percent
(1%).

                (ii) Landlord may elect not to terminate Tenant's right to
possession of the Premises, in which event Landlord may continue to enforce all
of its rights and remedies under this Lease, including the right to collect all
rent as it becomes due. Efforts by the Landlord to maintain, preserve or relet
the Premises, or the appointment of a receiver to protect the Landlord's
interests under this Lease, shall not constitute a termination of the Tenant's
right to possession of the Premises. In the event that Landlord elects to avail
itself of the remedy provided by this Section 14.2(a)(ii), Landlord shall not
unreasonably withhold its consent to an assignment or subletting of the Premises
subject to the reasonable standards for Landlord's consent as are contained in
this Lease.

        (b) Landlord shall be under no obligation to observe or perform any
covenant of this Lease on its part to be observed or performed which accrues
after the date of any Event of Default by Tenant unless and until the Event of
Default is cured by Tenant, it being understood and agreed that the performance
by Landlord of its obligations under this Lease are expressly conditioned upon
Tenant's full and timely performance of its obligations under this Lease. The
various rights and remedies reserved to Landlord in this Lease or otherwise
shall be cumulative and, except as otherwise provided by California law,
Landlord may pursue any or all of its rights and remedies at the same time.

        (c) No delay or omission of Landlord to exercise any right or remedy
shall be construed as a waiver of the right or remedy or of any breach or Event
of Default by Tenant. The acceptance by Landlord of rent shall not be a (i)
waiver of any preceding breach or Event of Default by Tenant of any provision of
this Lease, other than the failure of Tenant to pay the particular rent
accepted, regardless of Landlord's knowledge of the preceding breach or Event of
Default at the time of acceptance of rent, or (ii) a waiver of Landlord's right
to exercise any remedy available to Landlord by virtue of the breach or Event of
Default. The acceptance of any payment from a debtor in possession, a trustee, a
receiver or any other person acting on behalf of Tenant or Tenant's estate shall
not waive or cure a breach or Event of Default under Section 14.1. No payment by
Tenant or receipt by Landlord of a lesser amount than the rent required by this
Lease shall be deemed to be other than a partial payment on account of the
earliest due stipulated rent, nor shall any endorsement or statement on any
check or letter be deemed an accord and satisfaction and Landlord shall accept
the check or payment without prejudice to Landlord's right to recover the
balance of the rent or pursue any other remedy available to it. No act or thing
done by Landlord or Landlord's agents during the Term shall be deemed an
acceptance of a surrender of the Premises, and no agreement to accept a
surrender shall be valid unless in writing and signed by Landlord. No employee
of Landlord or of Landlord's agents shall have any power to accept the keys to
the Premises prior to the termination of this Lease, and the delivery of the
keys to any employee shall not operate as a termination of this Lease or a
surrender of the Premises.

        (d) Any agreement for free or abated rent or other charges, or for the
giving or paying by Landlord to or for Tenant of any cash or other bonus,
inducement or consideration for Tenant's entering into this Lease ("INDUCEMENT
PROVISIONS") shall be deemed conditioned upon Tenant's full and faithful
performance of the terms, covenants and conditions of this Lease. Upon an Event
of Default under this Lease by Tenant, any such Inducement Provisions shall
automatically be deemed deleted from this Lease and of no further force or
effect and the amount of any rent reduction or abatement or other bonus or
consideration already given by Landlord or received by Tenant as an Inducement
shall be immediately due and payable by Tenant to Landlord, notwithstanding any
subsequent cure of said Event of Default by Tenant. The acceptance by Landlord
of rent or the cure of the Event of Default which initiated the operation of
this Section 14.1 shall not be deemed a waiver by Landlord of the provisions of
this Section 14.2(d).



                                       24
<PAGE>   25

                SECTION 14.3. LATE PAYMENTS.


        (a) Any payment due to Landlord under this Lease, including without
limitation Basic Rent, Tenant's Share of Operating Expenses or any other payment
due to Landlord under this Lease, that is not received by Landlord within five
(5) days following written notice to Tenant shall bear interest at the rate of
ten percent (10%) per annum from the date due until fully paid. The payment of
interest shall not cure any breach or Event of Default by Tenant under this
Lease. In addition, Tenant acknowledges that the late payment by Tenant to
Landlord of Basic Rent and Tenant's Share of Operating Expenses will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of
which will be extremely difficult and impracticable to ascertain. Those costs
may include, but are not limited to, administrative, processing and accounting
charges, and late charges which may be imposed on Landlord by the terms of any
ground lease, mortgage or trust deed covering the Premises. Accordingly, if any
Basic Rent or Tenant's Share of Operating Expenses due from Tenant shall not be
received by Landlord or Landlord's designee within five (5) days following
written notice to Tenant, then Tenant shall pay to Landlord, in addition to the
interest provided above, a late charge, which the Tenant agrees is reasonable,
in a sum equal to the greater of three percent (3%) of the amount overdue or Two
Hundred Fifty Dollars ($250.00) for each delinquent payment. Acceptance of a
late charge by Landlord shall not constitute a waiver of Tenant's breach or
Event of Default with respect to the overdue amount, nor shall it prevent
Landlord from exercising any of its other rights and remedies.

        (b) Following each second installment of Basic Rent and/or the payment
of Tenant's Share of Operating Expenses within any twelve (12) month period that
is not paid within five (5) days following written notice that payment is past
due, Landlord shall have the option to require that beginning with the first
payment of Basic Rent next due, Basic Rent and the Tenant's Share of Operating
Expenses shall no longer be paid in monthly installments but shall be payable
quarterly three (3) months in advance. Should Tenant deliver to Landlord, at any
time during the Term, two (2) or more insufficient checks, the Landlord may
require that all monies then and thereafter due from Tenant be paid to Landlord
by cashier's check. If any check for any payment to Landlord hereunder is
returned by the bank for any reason, such payment shall not be deemed to have
been received by Landlord and Tenant shall be responsible for any applicable
late charge, interest payment and the charge to Landlord by its bank for such
returned check. Nothing in this Section shall be construed to compel Landlord to
accept Basic Rent, Tenant's Share of Operating Expenses or any other payment
from Tenant if there exists an Event of Default unless such payment fully cures
any and all such Event of Default. Any acceptance of any such payment shall not
be deemed to waive any other right of Landlord under this Lease. Any payment by
Tenant to Landlord may be applied by Landlord, in its sole and absolute
discretion, in any order determined by Landlord to any amounts then due to
Landlord.

        SECTION 14.4. RIGHT OF LANDLORD TO PERFORM. All covenants and agreements
to be performed by Tenant under this Lease shall be performed at Tenant's sole
cost and expense and without any abatement of rent or right of set-off. If
Tenant fails to pay any sum of money, other than rent payable to Landlord, or
fails to perform any other act on its part to be performed under this Lease, and
the failure continues beyond any applicable grace period set forth in Section
14.1, then in addition to any other available remedies, Landlord may, at its
election make the payment or perform the other act on Tenant's part and Tenant
hereby grants Landlord the right to enter onto the Premises in order to carry
out such performance. Landlord's election to make the payment or perform the act
on Tenant's part shall not give rise to any responsibility of Landlord to
continue making the same or similar payments or performing the same or similar
acts nor shall Landlord be responsible to Tenant for any damage caused to Tenant
as the result of such performance by Landlord. Tenant shall, promptly upon
demand by Landlord, reimburse Landlord for all sums paid by Landlord and all
necessary incidental costs, together with interest at the maximum rate permitted
by law from the date of the payment by Landlord.

        SECTION 14.5. DEFAULT BY LANDLORD. Landlord shall not be deemed to be in
default in the performance of any obligation under this Lease, and Tenant shall
have no rights to take any action against Landlord, unless and until Landlord
has failed to perform the obligation within thirty (30) days after written
notice by Tenant to Landlord specifying in



                                       25
<PAGE>   26

reasonable detail the nature and extent of the failure; provided, however, that
if the nature of Landlord's obligation is such that more than thirty (30) days
are required for its performance, then Landlord shall not be deemed to be in
default if it commences performance within the thirty (30) day period and
thereafter diligently pursues the cure to completion. In the event of Landlord's
default under this Lease, Tenant's sole remedies shall be to seek damages or
specific performance from Landlord, provided that any damages shall be limited
to Tenant's actual out-of-pocket expenses and shall in no event include any
consequential damages, lost profits or opportunity costs, except to the extent
the damages result from Landlord's gross negligence or willful misconduct and
are not covered by the insurance carried or required to be carried by Tenant.

        SECTION 14.6. EXPENSES AND LEGAL FEES. All sums reasonably incurred by
Landlord in connection with any Event of Default by Tenant under this Lease or
holding over of possession by Tenant after the expiration or earlier termination
of this Lease, or any action related to a filing for bankruptcy or
reorganization by Tenant, including without limitation all costs, expenses and
actual accountants, appraisers, attorneys and other professional fees, and any
collection agency or other collection charges, shall be due and payable to
Landlord on demand, and shall bear interest at the rate of ten percent (10%) per
annum. Should either Landlord or Tenant bring any action in connection with this
Lease, the prevailing party shall be entitled to recover as a part of the action
its reasonable attorneys' fees, and all other costs. The prevailing party for
the purpose of this Section shall be determined by the trier of the facts.

        SECTION 14.7. WAIVER OF JURY TRIAL. LANDLORD AND TENANT EACH
ACKNOWLEDGES THAT IT IS AWARE OF AND HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE
WITH RESPECT TO ITS RIGHTS TO TRIAL BY JURY, AND EACH PARTY DOES HEREBY
EXPRESSLY AND KNOWINGLY WAIVE AND RELEASE ALL SUCH RIGHTS TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY HERETO AGAINST
THE OTHER (AND/OR AGAINST ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, OR
SUBSIDIARY OR AFFILIATED ENTITIES) ON ANY MATTERS WHATSOEVER ARISING OUT OF OR
IN ANY WAY CONNECTED WITH THIS LEASE, TENANT'S USE OR OCCUPANCY OF THE PREMISES,
AND/OR ANY CLAIM OF INJURY OR DAMAGE. FURTHERMORE, THIS WAIVER AND RELEASE OF
ALL RIGHTS TO A JURY TRIAL IS DEEMED TO BE INDEPENDENT OF EACH AND EVERY OTHER
PROVISION, COVENANT, AND/OR CONDITION SET FORTH IN THIS LEASE.

        SECTION 14.8. SATISFACTION OF JUDGMENT. The obligations of Landlord do
not constitute the personal obligations of the individual partners, trustees,
directors, officers or shareholders of Landlord or its constituent partners.
Should Tenant recover a money judgment against Landlord, such judgment shall be
satisfied only from the interest of Landlord in the Site and out of the rent or
other income from such property receivable by Landlord or out of consideration
received by Landlord from the sale or other disposition of all or any part of
Landlord's right, title or interest in the Site and no action for any deficiency
may be sought or obtained by Tenant.


                             ARTICLE XV. END OF TERM


        SECTION 15.1. HOLDING OVER. This Lease shall terminate without further
notice upon the expiration of the Term, and any holding over by Tenant after the
expiration shall not constitute a renewal or extension of this Lease, or give
Tenant any rights under this Lease, except when in writing signed by both
parties. Any period of time following the Expiration Date or earlier termination
of this Lease required for Tenant to remove its property or to place the
Premises in the condition required pursuant to Section 15.3 (or for Landlord to
do so if Tenant fails to do so) shall be deemed a holding over by Tenant. If
Tenant holds over for any period after the Expiration Date (or earlier
termination) of the Term without the prior written consent of Landlord, such
possession shall constitute a tenancy at sufferance only and an Event of Default
under this Lease; such holding over with the prior written consent of Landlord
shall constitute a month-to-month tenancy commencing on the first (1st) day
following the termination of this Lease and terminating thirty (30) days
following delivery of written notice of termination by either Landlord or Tenant
to the other . In either of such events, possession shall be subject to all



                                       26
<PAGE>   27

of the terms of this Lease, except that the monthly Basic Rent shall be one
hundred fifty percent (150%) of the greater of (a) the Basic Rent for the month
immediately preceding the date of termination or (b) the fair market rental for
the Premises. If Tenant fails to surrender the Premises upon the expiration of
this Lease despite demand to do so by Landlord, Tenant shall indemnify and hold
Landlord harmless from all loss or liability, including without limitation, any
claims made by any succeeding tenant relating to such failure to surrender.
Acceptance by Landlord of rent after the termination shall not constitute a
consent to a holdover or result in a renewal of this Lease. The foregoing
provisions of this Section are in addition to and do not affect Landlord's right
of re-entry or any other rights of Landlord under this Lease or at law.

        SECTION 15.2. MERGER ON TERMINATION. The voluntary or other surrender of
this Lease by Tenant, or a mutual termination of this Lease, shall terminate any
or all existing subleases unless Landlord, at its option, elects in writing to
treat the surrender or termination as an assignment to it of any or all
subleases affecting the Premises.

        SECTION 15.3. SURRENDER OF PREMISES; REMOVAL OF PROPERTY. Subject to the
provisions of 7.3 of this Lease, upon the Expiration Date or upon any earlier
termination of this Lease, Tenant shall quit and surrender possession of the
Premises to Landlord in as good order, condition and repair as when received or
as hereafter may be improved by Landlord or Tenant, reasonable wear and tear and
repairs which are Landlord's obligation excepted, and shall, without expense to
Landlord, remove or cause to be removed from the Premises all personal property
and debris, except for any items that Landlord may by written authorization
allow to remain. Tenant shall repair all damage to the Premises resulting from
the removal, which repair shall include the patching and filling of holes and
repair of structural damage, provided that Landlord may instead elect to repair
any structural damage at Tenant's expense. If Tenant shall fail to comply with
the provisions of this Section, Landlord may effect the removal and/or make any
repairs, and the cost to Landlord shall be additional rent payable by Tenant
upon demand. If Tenant fails to remove Tenant's personal property from the
Premises upon the expiration of the Term, Landlord may remove, store, dispose of
and/or retain such personal property, at Landlord's option, in accordance with
then applicable laws, all at the expense of Tenant. If requested by Landlord,
Tenant shall execute, acknowledge and deliver to Landlord an instrument in
writing releasing and quitclaiming to Landlord all right, title and interest of
Tenant in the Premises.


                        ARTICLE XVI. PAYMENTS AND NOTICES


        All sums payable by Tenant to Landlord shall be deemed to be rent under
this Lease and shall be paid, without deduction or offset, in lawful money of
the United States to Landlord at its address set forth in Item 12 of the Basic
Lease Provisions, or at any other place as Landlord may designate in writing.
Unless this Lease expressly provides otherwise, as for example in the payment of
Basic Rent and the Tenant's Share of Operating Costs pursuant to Sections 4.1
and 4.2, all payments shall be due and payable within five (5) days after
demand. All payments requiring proration shall be prorated on the basis of a
thirty (30) day month and a three hundred sixty (360) day year. Any notice,
election, demand, consent, approval or other communication to be given or other
document to be delivered by either party to the other may be delivered in person
or by courier or overnight delivery service to the other party, or may be
deposited in the United States mail, duly registered or certified, postage
prepaid, return receipt requested, and addressed to the other party at the
address set forth in Item 12 of the Basic Lease Provisions, or if to Tenant, at
that address or, from and after the Commencement Date, at the Premises (whether
or not Tenant has departed from, abandoned or vacated the Premises). Either
party may, by written notice to the other, served in the manner provided in this
Article, designate a different address. If any notice or other document is sent
by mail, it shall be deemed served or delivered seventy-two (72) hours after
mailing. If more than one person or entity is named as Tenant under this Lease,
service of any notice upon any one of them shall be deemed as service upon all
of them.



                                       27
<PAGE>   28

                       ARTICLE XVII. RULES AND REGULATIONS


        Tenant agrees to observe faithfully and comply strictly with the Rules
and Regulations, attached as Exhibit E, and any reasonable and nondiscriminatory
amendments, modifications and/or additions as may be adopted and published by
written notice to tenants by Landlord for the safety, care, security, good
order, or cleanliness of the Premises, Building, Site and Common Areas. Landlord
shall not be liable to Tenant for any violation of the Rules and Regulations or
the breach of any covenant or condition in any lease by any other tenant or such
tenant's agents, employees, contractors, guests or invitees. One or more waivers
by Landlord of any breach of the Rules and Regulations by Tenant or by any other
tenant(s) shall not be a waiver of any subsequent breach of that rule or any
other. Tenant's failure to keep and observe the Rules and Regulations shall
constitute a breach of this Lease. In the case of any conflict between the Rules
and Regulations and this Lease, this Lease shall be controlling.


                       ARTICLE XVIII. BROKER'S COMMISSION


        The parties recognize as the broker(s) who negotiated this Lease the
firm(s), if any, whose name(s) is (are) stated in Item 10 of the Basic Lease
Provisions, and agree that Landlord shall be responsible for the payment of
brokerage commissions to those broker(s) unless otherwise provided in this
Lease. The commission payable by Landlord to CRESA Partners shall equal Six
Hundred Ninety-Three Thousand Four Hundred Ninety Dollars ($693,490.00), based
on $5.00 per Building square foot, which commission shall be payable (i)
one-half upon mutual execution and delivery of this Lease and the satisfaction
or waiver by Tenant of any condition to the effectiveness of this Lease as set
forth in Section 3.2 or otherwise, and (ii) the remaining one-half upon Tenant's
occupancy of the Premises and the commencement of normal rent payments. Tenant
warrants that it has had no dealings with any other real estate broker or agent
in connection with the negotiation of this Lease, and Tenant agrees to indemnify
and hold Landlord harmless from any cost, expense or liability (including
reasonable attorneys' fees) for any compensation, commissions or charges claimed
by any other real estate broker or agent employed or claiming to represent or to
have been employed by Tenant in connection with the negotiation of this Lease.
The foregoing agreement shall survive the termination of this Lease.


                  ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST


        In the event of any transfer of Landlord's interest in the Premises, the
transferor shall be automatically relieved of all further obligations on the
part of Landlord, and the transferor shall be relieved of any obligation to pay
any funds in which Tenant has an interest to the extent that such funds have
been turned over, subject to that interest, to the transferee and Tenant is
notified of the transfer as required by law . No beneficiary of a deed of trust
to which this Lease is or may be subordinate, and no landlord under a so-called
sale-leaseback, shall be responsible in connection with the Security Deposit,
unless the mortgagee or beneficiary under the deed of trust or the landlord
actually receives the Security Deposit. It is intended that the covenants and
obligations contained in this Lease on the part of Landlord shall, subject to
the foregoing, be binding on Landlord, its successors and assigns, only during
and in respect to their respective successive periods of ownership.


                           ARTICLE XX. INTERPRETATION


        SECTION 20.1. GENDER AND NUMBER. Whenever the context of this Lease
requires, the words "LANDLORD" and "TENANT" shall include the plural as well as
the singular, and words used in neuter, masculine or feminine genders shall
include the others.

        SECTION 20.2. HEADINGS. The captions and headings of the articles and
sections of this Lease are for convenience only, are not a part of this Lease
and shall have no effect upon its construction or interpretation.



                                       28
<PAGE>   29

        SECTION 20.3. JOINT AND SEVERAL LIABILITY. If more than one person or
entity is named as Tenant, the obligations imposed upon each shall be joint and
several and the act of or notice from, or notice or refund to, or the signature
of, any one or more of them shall be binding on all of them with respect to the
tenancy of this Lease, including, but not limited to, any renewal, extension,
termination or modification of this Lease.

        SECTION 20.4. SUCCESSORS. Subject to Articles IX and XIX, all rights and
liabilities given to or imposed upon Landlord and Tenant shall extend to and
bind their respective heirs, executors, administrators, successors and assigns.
Nothing contained in this Section is intended, or shall be construed, to grant
to any person other than Landlord and Tenant and their successors and assigns
any rights or remedies under this Lease.

        SECTION 20.5. TIME OF ESSENCE. Time is of the essence with respect to
the performance of every provision of this Lease.

        SECTION 20.6. CONTROLLING LAW/VENUE. This Lease shall be governed by and
interpreted in accordance with the laws of the State of California. Any
litigation commenced concerning any matters whatsoever arising out of or in any
way connected to this Lease shall be initiated in the Superior Court of the
county in which the Site is located.

        SECTION 20.7. SEVERABILITY. If any term or provision of this Lease, the
deletion of which would not adversely affect the receipt of any material benefit
by either party or the deletion of which is consented to by the party adversely
affected, shall be held invalid or unenforceable to any extent, the remainder of
this Lease shall not be affected and each term and provision of this Lease shall
be valid and enforceable to the fullest extent permitted by law.

        SECTION 20.8. WAIVER AND CUMULATIVE REMEDIES. One or more waivers by
Landlord or Tenant of any breach of any term, covenant or condition contained in
this Lease shall not be a waiver of any subsequent breach of the same or any
other term, covenant or condition. Consent to any act by one of the parties
shall not be deemed to render unnecessary the obtaining of that party's consent
to any subsequent act. No breach by Tenant of this Lease shall be deemed to have
been waived by Landlord unless the waiver is in a writing signed by Landlord.
The rights and remedies of Landlord under this Lease shall be cumulative and in
addition to any and all other rights and remedies which Landlord may have.

        SECTION 20.9. INABILITY TO PERFORM. In the event that either party shall
be delayed or hindered in or prevented from the performance of any work or in
performing any act required under this Lease by reason of any cause beyond the
reasonable control of that party, other than financial inability, then the
performance of the work or the doing of the act shall be excused for the period
of the delay and the time for performance shall be extended for a period
equivalent to the period of the delay. The provisions of this Section shall not
operate to excuse Tenant from the prompt payment of rent or from the timely
performance of any other obligation under this Lease within Tenant's reasonable
control.

        SECTION 20.10. ENTIRE AGREEMENT. This Lease and its exhibits and other
attachments cover in full each and every agreement of every kind between the
parties concerning the Premises, the Building and the Site, and all preliminary
negotiations, oral agreements, understandings and/or practices, except those
contained in this Lease, are superseded and of no further effect. Tenant waives
its rights to rely on any representations or promises made by Landlord or others
which are not contained in this Lease. No verbal agreement or implied covenant
shall be held to modify the provisions of this Lease, any statute, law, or
custom to the contrary notwithstanding.

        SECTION 20.11. QUIET ENJOYMENT. Upon the observance and performance of
all the covenants, terms and conditions on Tenant's part to be observed and
performed, and subject to the other provisions of this Lease, Tenant shall have
the right of quiet enjoyment and use of the Premises for the Term without
hindrance or interruption by Landlord or any other person claiming by or through
Landlord.

        SECTION 20.12. SURVIVAL. All covenants of Landlord or Tenant which
reasonably would be intended to survive the expiration or sooner termination of
this Lease, including without limitation any warranty or indemnity hereunder,
shall so survive and continue to be binding upon and inure to the benefit of the
respective parties and their successors and assigns.



                                       29
<PAGE>   30

        SECTION 20.13. INTERPRETATION. This Lease shall not be construed in
favor of or against either party, but shall be construed as if both parties
prepared this Lease.


                      ARTICLE XXI. EXECUTION AND RECORDING


        SECTION 21.1. COUNTERPARTS. This Lease may be executed in one or more
counterparts, each of which shall constitute an original and all of which shall
be one and the same agreement.

        SECTION 21.2. CORPORATE, LIMITED LIABILITY COMPANY AND PARTNERSHIP
AUTHORITY. If Tenant is a corporation, limited liability company or partnership,
each individual executing this Lease on behalf of the corporation, limited
liability company or partnership represents and warrants that he or she is duly
authorized to execute and deliver this Lease on behalf of the corporation,
limited liability company or partnership, and that this Lease is binding upon
the corporation, limited liability company or partnership in accordance with its
terms. Tenant shall, at Landlord's request, deliver a certified copy of its
board of directors' resolution, operating agreement or partnership agreement or
certificate authorizing or evidencing the execution of this Lease.

        SECTION 21.3. EXECUTION OF LEASE; NO OPTION OR OFFER. The submission of
this Lease to Tenant shall be for examination purposes only, and shall not
constitute an offer to or option for Tenant to lease the Premises. Execution of
this Lease by Tenant and its return to Landlord shall not be binding upon
Landlord, notwithstanding any time interval, until Landlord has in fact executed
and delivered this Lease to Tenant, it being intended that this Lease shall only
become effective upon execution by Landlord and delivery of a fully executed
counterpart to Tenant.

        SECTION 21.4. RECORDING. Tenant shall not record this Lease without the
prior written consent of Landlord. Tenant, upon the request of Landlord, shall
execute and acknowledge a "SHORT FORM" memorandum of this Lease for recording
purposes.

        SECTION 21.5. AMENDMENTS. No amendment or termination of this Lease
shall be effective unless in writing signed by authorized signatories of Tenant
and Landlord, or by their respective successors in interest. No actions,
policies, oral or informal arrangements, business dealings or other course of
conduct by or between the parties shall be deemed to modify this Lease in any
respect.

        SECTION 21.6. EXECUTED COPY. Any fully executed photocopy or similar
reproduction of this Lease shall be deemed an original for all purposes.

        SECTION 21.7. ATTACHMENTS. All exhibits, amendments, riders and addenda
attached to this Lease are hereby incorporated into and made a part of this
Lease.


                           ARTICLE XXII. MISCELLANEOUS


        SECTION 22.1. [Intentionally omitted]

        SECTION 22.2. GUARANTY. As a condition to the execution of this Lease by
Landlord, the obligations, covenants and performance of the Tenant as herein
provided shall be guaranteed in writing by the Guarantor(s) listed in Item 7 of
the Basic Lease Provisions ("GUARANTOR"), if any, on a form of guaranty provided
by Landlord ("GUARANTY"). Any default by a Guarantor under the Guaranty shall be
deemed to be an Event of Default under the terms of this Lease. In addition, any
filing by or against a Guarantor of a petition to have such Guarantor adjudged a
Chapter 7 debtor under the Bankruptcy Code or to have debts discharged or a
petition for reorganization or arrangement under any law relating to bankruptcy
(unless, in the case of a petition filed against such Guarantor, the same is
dismissed within thirty (30) days), a Guarantor's convening of a meeting of its
creditors for the purpose of effecting a moratorium upon or composition of its
debts or the failure of a Guarantor to pay its material obligations to creditors
as and when they become due and payable, other than as a result of a good faith
dispute by such Guarantor, shall be deemed to be an Event of Default by Tenant.



                                       30
<PAGE>   31

        SECTION 22.3. CHANGES REQUESTED BY LENDER. If, in connection with
obtaining financing for the Site, the lender shall request reasonable
modifications in this Lease as a condition to the financing, Tenant will not
unreasonably withhold or delay its consent, provided that the modifications do
not materially increase the obligations of Tenant or materially and adversely
affect the leasehold interest created by this Lease.

        SECTION 22.4. MORTGAGEE PROTECTION. No act or failure to act on the part
of Landlord which would otherwise entitle Tenant to be relieved of its
obligations hereunder shall result in such a release or termination unless (a)
Tenant has given notice by registered or certified mail to any beneficiary of a
deed of trust or mortgage covering the Building whose address has been furnished
to Tenant and (b) such beneficiary is afforded a reasonable opportunity to cure
the default by Landlord (which in no event shall be less than sixty (60) days),
including, if necessary to effect the cure, time to obtain possession of the
Building by power of sale or judicial foreclosure provided that such foreclosure
remedy is diligently pursued. Tenant agrees that each beneficiary of a deed of
trust or mortgage covering the Building is an express third party beneficiary
hereof, Tenant shall have no right or claim for the collection of any deposit
from such beneficiary or from any purchaser at a foreclosure sale unless such
beneficiary or purchaser shall have actually received and not refunded the
deposit, and Tenant shall comply with any written directions by any beneficiary
to pay rent due hereunder directly to such beneficiary without determining
whether a default exists under such beneficiary's deed of trust.

        SECTION 22.5. COVENANTS AND CONDITIONS. All of the provisions of this
Lease shall be construed to be conditions as well as covenants as though the
words specifically expressing or imparting covenants and conditions were used in
each separate provision.

        SECTION 22.6. SECURITY MEASURES. Tenant hereby acknowledges that
Landlord shall have no obligation whatsoever to provide guard service or other
security measures for the benefit of the Premises or the Site. Tenant assumes
all responsibility for the protection of Tenant, its employees, agents, invitees
and property from acts of third parties. Nothing herein contained shall prevent
Landlord, at its sole option, from providing security protection for the Site or
any part thereof, in which event the cost thereof shall be included within the
definition of Site Costs.



        SECTION 22.7. EXISTING PROPERTY IN BUILDING. Landlord agrees that Tenant
shall have the full use of all property (i.e., machinery, equipment) presently
located in the Building during the Term of this Lease. Alternatively, Landlord
shall remove all such property, excluding Building fixtures, at its expense upon
Tenant's request at any time prior to lease execution.



                                       31
<PAGE>   32

LANDLORD:                              TENANT:

THE IRVINE COMPANY                     HYSEQ, INC.



 /s/ Clarence W. Barker                /s/ Ted W. Love
-----------------------------------    -----------------------------------------
Name: Clarence W. Barker               Name: Ted W. Love
Title: Executive Vice President        Title: President and
                                       Chief Executive Officer


/s/ William R. Halford                 /s/ George B. Rathmann
-----------------------------------    -----------------------------------------
Name: William R. Halford               Name: George B. Rathmann
Title: President, Office Properties    Title: Chairman



                                       32