<PAGE>   1

                            INDUSTRIAL BUILDING LEASE

                                     PARTIES


        1. THIS LEASE, dated for reference purposes only, November 20, 1998, is
made by and between West Bayshore Associates, a general partnership, Sigrid S.
Banks, Frank Lee Crist, Jr., Allen W. Koering and George O. McKee (herein
collectively "Landlord") and Connetics Corporation, a Delaware Corporation
(herein "Tenant").


                                    PREMISES

        2. Landlord leases to Tenant and Tenant hires from Landlord for the
term, at the rental and upon the conditions in this Industrial Building Lease
(herein "Lease") a portion of the real property commonly known as 3290 West
Bayshore Avenue, Palo Alto, Santa Clara County, California as shown on Exhibit
A, attached hereto, and incorporated herein by this reference. The Premises
consists of Thirteen Thousand Four Hundred Sixty Four (13,464) rentable square
feet in the building which contains approximately Forty Two Thousand Four
Hundred Thirty Two (42,432) rentable square feet. Landlord reserves the right of
access to and the use of the roof, exterior walls, stairways, utility closets
and other common areas above and beneath the Premises together with the right
from time to time to install, maintain, use, repair and repair pipes ducts
conduits and wires leading through the Premises in locations which will not
materially interfere with Tenant's use thereof or access thereto and which serve
other parts of the building and/or other tenants therein. It is further
understood and agreed that the area set forth in this Paragraph 2 is approximate
only and that neither party shall have a claim against the other for any
variance between the actual area and that set forth above.


                                      TERM

        3. (a) The term of the Lease shall be a period of thirty seven (37)
months, commencing on January 1, 1999, and expiring (unless sooner terminated as
provided herein) at midnight on the 31st day of January, 2002, herein called the
"lease term" or "term".

           (b) Notwithstanding said commencement date, if for any reason
Landlord cannot deliver possession of the Premises to Tenant on said date,
Landlord shall not be subject to any liability therefor, nor shall such failure
affect the validity of this Lease or the obligations of Tenant hereunder or
extend the term hereof, but in such case Tenant shall not be obligated to pay
rent until possession is tendered to Tenant; provided however, that if Landlord
shall not have delivered possession of the Premises by March 1, 1999, Tenant
may, at Tenant's option, by written notice to Landlord within ten (10) days
thereafter, cancel this Lease, in which event





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<PAGE>   2

the parties shall be discharged from all obligations hereunder.

           (c) If Landlord permits Tenant to occupy the Premises or a portion
thereof prior to the commencement date of the term for the purpose of installing
Tenant's improvements, fixtures, furniture and equipment, such occupancy shall
be subject to all the provisions of this Lease. Said early possession shall not
advance the commencement or termination dates set forth above. No Base Rent
shall be due from Tenant, however, commencing on the date of Tenant's
construction of its tenant improvements, Tenant shall pay to Landlord the
additional rents referred to in Paragraph 6(b), below.

           (d) Tenant shall give Landlord ten (10) days prior written notice of
Tenant's intention to take possession of the Premises and Tenant shall deliver
to Landlord the insurance certificates required by Paragraph 17 hereof prior to
taking possession of the Premises.


                                    RENEWAL

        4. (a) In the event Tenant shall not then be in material default
hereunder and shall have made or reasonably cured all previous rental payments
in a timely manner (no more than one payments in each calendar year being
delinquent), Tenant shall have the right, not earlier than twelve (12) months
prior to the date of expiration of the term of this Lease and not later than six
(6) months prior to the day of the expiration of the term of this Lease, to
renew the term of this Lease for a further term of one (1) year from the date of
expiration of the term of this Lease.

           (b) Such election shall be made by Tenant by serving upon Landlord a
notice in writing to the effect that Tenant elects to renew and extend the term
of this Lease for such extended term.

           (c) In the event Tenant shall elect to renew this Lease and shall
serve notice of such election, this Lease shall be extended for one (1)
additional year from the date of expiration of the term of this Lease.

           (d) Except for the redetermination of the base rental in accordance
with this Paragraph 4, all other terms and conditions of the original lease
agreement shall apply to the extended term.

           (e) During the extended term of this Lease, if any, Tenant shall pay
to Landlord as Base Rent for the Premises monthly rent in an amount equal to the
Base Rent for the Premises for the last twelve (12) months of the original term
increased by the cost of living in the same manner set forth in Paragraph 6(a)
below. In no event however, shall the monthly Base Rent for the extended term be
less than the monthly Base Rent for the prior period.


                                    HOLDOVER





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        5. (a) Holding over after the expiration of the term of this Lease, or
any oral extension thereof, with the consent of Landlord, shall be a tenancy
from month to month, and the rentals and additional rentals upon the covenants,
conditions, limitations, and agreements are subject to the exceptions and
reservations contained in this Lease. The rental rate is to be the same rate
last charged hereunder.

           (b) If Tenant remains in possession without Landlord's consent after
termination of the Lease, by lapse of time or otherwise, Tenant shall pay
Landlord for each day of such retention one-twentieth (1/20th) of the amount of
the monthly rental for the last month prior to such termination and Tenant shall
also pay all costs, expenses and damages sustained by Landlord by reason of such
retention, including, without limitation, claims made by a succeeding tenant
resulting from Tenant's failure to surrender the Premises.


                                      RENT

        6. (a) Tenant agrees to pay Landlord as Base Rent for the Premises
during the term of this Lease, the following sums per month:

<TABLE>
<CAPTION>
        Months                   Base Rent/Month
        ------                   ---------------
        <S>                      <C>         
        01                       $       0.00
        02-03                    $  16,605.60
        04-13                    $  24,908.40
        14-25                    $  26,254.80
        26-37                    $  26,254.80 + CPI increase as set forth below
</TABLE>

The Base Rent for the last twelve (12) calendar months of the term of this Lease
shall be Twenty Six Thousand Two Hundred Fifty Four and 80/100 Dollars
($26,254.80) per month adjusted upward as of the first day of February, 2001
(the adjustment date) according to the following computation:

        The base for computing this adjustment is the index figure for December,
        1999 as shown in the Consumer Price Index (CPI), All Urban Consumers,
        San Francisco-Oakland-San Jose, based on the period 1982-84 = 100 as
        published by the U.S. Dept. of Labor's Bureau of Labor Statistics. The
        Base Rent shall be increased by the percentage increase in the CPI over
        the one (1) year period between December, 1999 and December, 2000. For
        example, assuming the base figure for December, 1999 is 149.4 and the
        index figure for December, 2000 is 156.9, the increase in the CPI is:

                         156.9 - 149.4  =  0.05  =  5.0%
                         -------------
                             149.4





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        In this example, the Base Rent would be increased on the first day of
        February, 2001 by 5%.

        The Base Rent shall also be increased on the first day of the option
        period, if any, in a similar manner except the base for said adjustment
        shall be the index figure for December, 2000 and the index figure for
        December, 2001 shall be used to determine the increase in the CPI.

        The index for each adjustment date shall be the one reported in the U.S.
        Department of Labor's most comprehensive official index then in use and
        most nearly answering the foregoing description of the index to be used.
        If it is calculated from a base different from the base period 1982-84 =
        100 used for the base figure above, the base figure used for calculating
        the adjustment percentage shall first be converted under a formula
        supplied by the Bureau.

        The index figure for December of the year of each adjustment may not be
        available by the date the rent is to be adjusted. Therefore, Tenant
        shall continue to pay the Minimum Base Rent for the prior twelve month
        period on the adjustment date of the current year. As soon as the index
        figure is available, Landlord shall perform the above calculations and
        notify Tenant of the new rent and Tenant shall pay to Landlord within 20
        days of receipt of Landlord's notification together with Landlord's
        calculations, the increased rent.

The Base Rent in the amount of $24,908.40 for the first month of full rent (the
fourth month) shall be payable on execution of this lease. All other rents shall
be payable in advance and due on the first day of each and every month of the
term of this Lease.

           Rent for any period which is for less than one (1) month shall be a
prorated portion of the monthly installment stated herein, based upon a thirty
(30) day month. Said rental shall be paid, without prior notice or demand and
without deduction or offset, except as otherwise provided herein, in lawful
money of the United States of America to The Cortana Corporation, Trustee, at
800 El Camino Real, Suite 175, Menlo Park, California 94025 or at such other
place as Landlord may from time to time designate in writing.

           (b) As additional rent, Tenant shall pay to Landlord its prorata
share of real property taxes and assessments (general and special), in lieu real
property taxes, rent taxes, gross receipt taxes (whether assessed against
Landlord or assessed against Tenant and collected by Landlord, or both)
attributable to the Premises. Such taxes shall be further pro-rated if the
commencement and termination dates of this Lease do not correspond to the tax
year.

               As additional rent, Tenant shall pay to Landlord its





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prorata share of the cost of the insurance policy or policies referred to in
Paragraph 17(b) attributable to the Premises, further pro-rated if the
commencement and termination dates of this Lease do not correspond to the
periods covered by such policy or policies.

               The above additional rents shall be due and payable fifteen (15)
business days after Landlord has furnished Tenant with a photocopy of the tax
bill or premium notice, as the case may be, but in no event earlier than fifteen
(15) calendar days prior to delinquency. Landlord will furnish Tenant such
photocopies promptly upon receipt of the tax bill or premium notice, as the case
may be. Any sums not paid on or before such due date shall bear interest as the
highest rate allowed by law or the penalties that are imposed by the taxing
authorities for delinquent payments, whichever is greater. Additionally, if
Tenant fails to pay such additional rent on or before the due dates described
above, Landlord reserves the right to require Tenant to pay the delinquent
payment and future payments of these additional rents by cashier's checks or
other certified funds.

               As further additional rent Tenant shall pay to Landlord a
management fee equal to two percent (2%) of the Base Rent on a monthly basis
with the monthly Base Rent and reimburse Landlord for its prorata share of the
cost of maintenance of the landscaping on a monthly basis. Other maintenance
provided for the Premises by Landlord, including, but not limited to, the
parking lot sweeping and maintenance shall be billed to Tenant on a monthly
basis as such expenses are incurred by Landlord and Tenant shall pay such
additional rent to Landlord with its Base Rent. Notwithstanding the above,
Tenant shall pay to Landlord as additional rent each month an estimated amount
necessary to pay for parking lot paving, sealing and striping which estimated
amount shall be based on such work being done every three (3) years. Such work
will be done at or near the commencement date of this Lease (at no cost to
Tenant), and every three (3) years thereafter. The actual cost of the paving,
sealing, and striping shall be reconciled with the estimated payments made by
Tenant and if the total of the estimated payments exceeds the actual cost,
Tenant shall receive a credit or be given a refund of the excess and if the
total of the estimated payments is less than the actual cost, Landlord shall
bill Tenant for the shortage which shall be due and payable as additional rent
within thirty (30) days. After the last paving, sealing, and striping, during
the term, or extended term, if any, of this Lease the estimated monthly payment
shall be based on the actual cost of such paving, sealing, and striping plus a
factor based on the estimated increase in the cost of living over the next three
(3) years. There will be no reconciliation of the actual cost of any paving,
sealing, and striping with the estimated payments made by Tenant completed after
the term, or extended term, if any, of this Lease. For purposes of this Lease,
it is agreed that Tenant's prorata share of taxes, insurance, and maintenance
expenses is 31.73%.





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<PAGE>   6

                                  LATE CHARGES

        7. Tenant agrees that all Minimum Base Rent not received by Landlord
within five (5) calendar days of the due date shall be considered delinquent and
agrees to pay a late charge equal to ten percent (10%) of the delinquent payment
within five (5) business days after receipt of written notice of non receipt of
payment. Rent mailed and bearing a U. S. Postal Service postmark of the third
(3rd) of a month shall not be considered delinquent no matter when received.
Additionally, any delinquent payments not paid within thirty (30) days of the
original due date shall bear interest at the lower of the maximum rate then
allowed by law or two points over the reference rate (prime rate) charged by the
San Francisco Main Branch of the Bank of America.


                                SECURITY DEPOSIT

        8. (a) Tenant shall deposit with Landlord the total sum of Twenty Five
Thousand and 00/100 Dollars ($25,000.00) on execution of this Lease. Said
security deposit shall be increased each year such that it equals one (1) month
of the then current Base Rent. Said sum shall be held by Landlord as security
for the faithful performance by Tenant of all of the terms, covenants, and
conditions of this Lease. If Tenant defaults with respect to any provision of
this Lease, including, but not limited to, the provisions relating to the
payment of rent, Landlord may (but shall not be required to) use, apply or
retain all or any part of this security deposit for the payment of any rent or
any other sum in default, or for the payment of any reasonable amount which
Landlord may spend or become obligated to spend by reason of Tenant's default,
or to compensate Landlord for any other loss or damage which Landlord may suffer
by reason of tenant's default. If any portion of said deposit is so used or
applied, Tenant shall, within five (5) days after written demand therefor,
deposit cash with Landlord in an amount sufficient to restore the security
deposit to its original amount and Tenant's failure to do so shall be a material
breach of this Lease. Landlord shall not be required to keep this security
deposit separate from its general funds, and Tenant shall not be entitled to any
interest on said deposit.

           (b) If Landlord's interest in this Lease is terminated, Landlord
shall transfer said deposit to Landlord's successor in interest and Landlord's
successor agrees to be bound by the terms of this Lease.


                                 USE OF PREMISES

        9. (a) Tenant shall use the Premises for general office, storage and
distribution, marketing and other legally and related uses and shall not use or
permit the Premises to be used for any other purpose without the prior written
consent of Landlord.





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           (b) Tenant shall not knowingly do or permit anything to be done in or
about the Premises nor bring or keep anything therein which will:

               (i) increase the existing rate of or affect any fire or other
insurance upon the building or any of its contents unless Tenant agrees to pay
such increased rate, or

               (ii) cause cancellation of any insurance policy covering said
building or any part thereof or any of its contents.

           Tenant shall not knowingly use or allow the Premises to be used for
any improper, immoral, unlawful or objectionable purpose, nor shall Tenant
cause, maintain or permit any nuisance in, on or about the Premises. Tenant
shall not knowingly commit or suffer to be committed any waste in or upon the
Premises. Tenant shall not place any loads upon the floors, walls, or roof which
endanger the structure or place any harmful liquids or other toxic waste in the
drainage system of the Premises or in any other place in on or about the
Premises. No materials, supplies, equipment, finished products or semi-finished
products, raw materials or articles of any nature shall be stored upon or
permitted to remain on any portion of the Premises outside of the building,
except as approved by the City of Palo Alto.


                               COMPLIANCE WITH LAW

        10. Tenant shall not use the Premises or permit anything to be done in
or about the Premises which will in any way conflict with any law, statute,
ordinance or governmental rule or regulation now in force or which may hereafter
be enacted or promulgated. Tenant shall, at its sole cost and expense, promptly
comply with all laws, statutes, ordinances, and governmental rules, regulations
or requirements, pertaining to the specific use of the Premises by Tenant,
including, but not limited to, those relating to the protection of the
environment and storage and disposal of toxic materials, now in force or which
may hereafter be in force except that Tenant shall not be required to make
structural changes unrelated to or affected by Tenant's improvements or acts. In
the event any alterations made by Tenant, when combined with alterations made by
others in the building in which the Premises are located, triggers a requirement
to upgrade the building to comply with new flood control ordinances and codes,
Tenant shall be responsible for the costs of such upgrades in the same
proportion as the value of Tenant's permits bears to the total value of all
permits issued by the City of Palo Alto for all the alterations which trigger
the requirement. Except as set forth herein, Landlord shall be responsible for
all costs and expenses necessary to comply with all laws, statutes, ordinances,
and governmental rules, regulations or requirements where the need for such
compliance was not caused by Tenant's use of the Premises or Tenant's acts in
connection with the Premises. Notwithstanding the above, Landlord shall not be





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responsible for any costs or expenses necessary to comply with the Americans
with Disabilities Act other than as the same relates to the restrooms, parking
lot, landscaping areas, walkways, driveways, sidewalks, and other areas outside
of the building in which the Premises are located. Except as set forth above,
Tenant shall be responsible for compliance with the Americans with Disabilities
Act. Tenant shall also comply with the requirements of any board of fire
insurance underwriters or other similar bodies now or hereafter constituted
relating to or affecting the condition, use or occupancy of the Premises,
excluding structural changes not required or affected by Tenant's improvements
or acts. The judgment of any court of competent jurisdiction or the admission of
Tenant in any action against Tenant, whether Landlord be a party thereto or not,
that Tenant has violated any law, statute, ordinance or governmental rule,
regulation or requirement, shall be conclusive of that fact as between the
Landlord and Tenant.


                            ALTERATIONS AND ADDITIONS

        11. (a) Tenant shall not make or allow any alterations, additions or
improvements of or to the Premises without Landlord's prior written consent,
which consent shall not unreasonably be withheld. Landlord's consent shall not
be required for any non structural tenant improvements costing less than Ten
Thousand Dollars ($10,000.00). Any such alterations, additions or improvements,
including, but not limited to, wall covering, paneling and built-in cabinet
work, but excepting movable furniture, and trade fixtures, shall become a part
of the realty, shall belong to Landlord and shall be surrendered with the
Premises at expiration or termination of the Lease. If Landlord consents to any
such alterations, additions or improvements by Tenant, they shall be made by
Tenant at Tenant's sole cost and expense, and any contractor or person selected
by Tenant to perform the work shall first be approved of, in writing, by
Landlord, which approval shall not be unreasonably withheld. Landlord further
reserves the right to require all plans for structural improvements and
alterations to be reasonably approved by its structural engineer. No such work
shall be allowed to commence until three (3) days have elapsed from the date of
Landlord's consent. One Hundred Eighty (180) days prior to the termination of
this Lease, Tenant shall provide to Landlord a complete and accurate set of "As
Built" tenant improvement drawings showing any alterations and additions made by
Tenant, including, but not limited to floor plan drawings, HVAC drawings,
electrical drawings, sprinkler system drawings, and plumbing system drawings.
Upon expiration, or sooner termination, of the term hereof, Tenant shall, upon
written demand by Landlord given at least one hundred twenty (120) days prior to
the end of the term, promptly remove any alterations, additions or improvements
made by Tenant and designated by Landlord to be removed at the time Landlord
gave its written consent to the installation of such alterations, additions or
improvements. If no such consent was required, Landlord shall have the right to
direct Tenant to remove same provided Landlord gives





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written notice to Tenant within the above the above time period. Such removal
and repair of any damage to the Premises caused by such removal shall be at
Tenant's sole cost and expense.

            (b) Tenant shall not place, or permit to be placed, upon the
Premises, any signs, advertisements or notices without the written consent of
Landlord first had and obtained unless such signs, advertisements or notices are
required by law. Tenant shall also not place or permit to be placed in, upon, or
about the Premises any signs not approved by the City of Palo Alto or other
governing authority where such approval is required.


                                      LIENS

        12. Tenant shall keep the Premises and the property in which the
Premises are situated free from any liens arising out of any work performed,
materials furnished or obligations incurred by Tenant. In the event a mechanic's
lien is recorded against the Premises and is not removed within ten (10)
business days after Landlord gives written notice to Tenant to cause the removal
of same, Landlord may require Tenant to provide Landlord, at Tenant's sole cost
and expense, a lien and completion bond in an amount equal to one and one-half
(1-1/2) times the estimated cost of any improvements, additions, or alterations
by Tenant, to insure Landlord against liability for mechanic's and materialmen's
liens and to insure completion of the work if the estimated cost exceeds Twenty
Five Thousand Dollars ($25,000.00). Landlord shall also have the right to post
and maintain on the Premises such notices of nonresponsibility as may be
required by law to protect Landlord's rights herein.


                             REPAIRS AND MAINTENANCE

        13. (a) Except as set forth herein, Tenant agrees to accept the Premises
in an "As Is" condition. During the Term of this Lease Tenant shall at Tenant's
sole cost and expense, keep the Premises and every part thereof in good
condition and repair, unless caused by a casualty required to be insured
pursuant to Paragraph 17 hereof or by any inherent defects. Notwithstanding the
above, after Landlord replaces the existing roof pursuant to Paragraph 13 (b),
Landlord shall repair and maintain the new roof covering and bill Tenant its
prorata share of such maintenance costs. Further notwithstanding the above,
Tenant's obligation to repair the HVAC system shall be limited to Twenty Five
Hundred Dollars ($2,500) per year per unit. Landlord shall be responsible for
any excess costs of repairs or maintenance of an HVAC unit or may elect to
replace it. Tenant further agrees to maintain the Premises and make minor
repairs thereto in conformance with any reasonable requirements of any
institutional lender of Landlord. Should Tenant at any time during the term of
this Lease or any renewal or extension of the term fail to maintain the Premises
or make any repairs or replacements as required herein after reasonable written
notice to





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Tenant, Landlord may, at its option, enter the Premises and perform such
maintenance or make such repairs or replacements for the account of Tenant. Any
sums expended by Landlord in so doing, together with interest thereon at the
highest rate allowed by law from the date expended by Landlord until the date
repaid by Tenant, shall be due and payable by Tenant to Landlord within fifteen
(15) business days after demand of Landlord. Tenant shall upon the expiration or
sooner termination of this Lease surrender the Premises to the Landlord in good
condition, damage from causes beyond the reasonable control of the Tenant and
normal wear and tear excepted. Unless specifically provided in an addendum to
this Lease, Landlord shall have no obligation to alter, remodel, improve,
repair, decorate or paint the Premises or any part thereof and the parties
hereto affirm that Landlord has made no representations to Tenant respecting the
condition of the Premises or the building in which the Premises are located
except as specifically herein set forth. Landlord shall construct a demising
wall separating the Premises from the remainder of the building in which the
Premises are located at Landlord's sole cost and expense.

            (b) As set forth in Paragraph 6(b), Landlord shall cause the
landscaping to be maintained and Tenant shall reimburse Landlord for its prorata
share as provided therein. Additionally, notwithstanding the above provisions of
Paragraph 13(a), Landlord shall maintain the structural integrity of the
building, including, without limitation, the foundation, exterior walls, and
roof (except as provided in Paragraph 13(a)) in which the Premises are located,
unless such maintenance and repairs are caused in part or in whole by the act,
neglect, fault or omission of any duty by the Tenant, its agents, servants,
employees or invitees, in which case Tenant shall pay to Landlord the reasonable
cost of such maintenance and repairs. Landlord will replace the roof covering as
soon as reasonably practical in the Spring of 1999 at Landlord's sole cost and
expense and shall maintain and repair the existing roof at Landlord's sole cost
and expense until the roof is replaced. Tenant shall give Landlord written
notice of any required repairs or maintenance. Landlord shall not be liable for
any failure to repair or to perform any maintenance unless such failure shall
persist for an unreasonable time after written notice. Except as provided in
Paragraph 22 hereof, there shall be no abatement of rent and no liability of
Landlord 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 or the Premises or to fixtures, appurtenances and
equipment therein. Tenant waives the right to make repairs at Landlord's expense
or terminate this Lease under any law, statute or ordinance now or hereafter in
effect for Landlord's failure to maintain the Premises, provided Landlord
commences or arranges for commencement of the required repairs or maintenance
within five (5) business days of receipt of Tenant's written notice; provided,
however, that Tenant may make emergency repairs if necessary to prevent a
disruption in Tenant's business or imminent danger to its employees and
property.





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In no event shall Tenant's costs of such repairs or maintenance be deducted or
offset from any amounts due from Tenant to Landlord unless Landlord fails to
make such repairs for an unreasonable period of time following written notice.
Landlord shall reimburse Tenant for the reasonable costs of such repairs or
maintenance within fifteen (15) days after receipt of copies of invoices for
same.


                            ASSIGNMENT AND SUBLETTING

        14. (a) Tenant shall not, voluntarily or by operation of law, assign, or
transfer Tenant's interest under this Lease or in the Premises nor sublease all
or any part of the Premises or allow any other person or entity (except Tenant's
employees, agents and invitees) to occupy or use all or any part of the Premises
without the prior written consent of Landlord. Landlord's consent shall not be
unreasonably withheld or delayed. Without in any way limiting Landlord's right
to refuse to give consent under this Paragraph 14, Landlord's refusal to give
consent shall not be deemed unreasonably withheld if:

                (i) The character, reputation and financial responsibility of
        the proposed new Tenant is not reasonably satisfactory in Landlord's
        judgment. In connection with any such assignment Tenant shall deliver to
        Landlord certified financial statements of Tenant and the new proposed
        tenant showing their then financial condition as required hereunder.

                (ii) The character and reputation of the proposed sub-tenant is
        not reasonably satisfactory in Landlord's judgment.

                (iii) The proposed new tenant or sub-tenant fails to agree in
        writing to assume and be bound by all the terms and provisions of this
        Lease.

            (b) Additionally, as a condition to Landlord's consent to an
assignment or subletting it is hereby agreed that there shall be paid to
Landlord the following: To the extent any rental or other payments under such
sublease or assignment exceed the base rental payments payable under the terms
of this Lease, after Tenant has recovered any assignment or subleasing
commissions, and other costs of assigning or subleasing, and tenant improvement
costs related to such assignment or subletting, 100% of such excess shall be
paid to Landlord as such rental or other rental payments under such sublease or
assignment become due and payable under the terms of the assignment or
subletting.

            (c) If Tenant hereunder is a corporation or at any time becomes a
corporation which, under the then current laws of the State of California, is
not deemed a public corporation, or is an unincorporated association or
partnership, the transfer, or





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assignment directly or indirectly of any stock or interest in such corporation,
association or partnership in the aggregate in excess of forty-nine percent
(49%) during the term hereof shall be deemed an assignment within the meaning
and provisions of Paragraph 14. Tenant shall immediately report in writing any
such transfer or assignment of any stock or interest to Landlord.

            (d) In the event Tenant proposes to transfer, assign, or sublet any
of Tenant's interests herein or enter into any license or concession agreement
or effectuate any change of ownership, Tenant shall thirty (30) days prior to
the proposed transaction supply to Landlord the following in writing:

                (i) The name and address of the proposed assignee, transferee,
        or sub-lessee.

                (ii) All details as to the proposed assignment, subletting or
        change of ownership including without limitation all of the terms and
        conditions thereof including all sums or considerations to be paid.

                (iii) A financial statement certified by an officer dated within
        thirty (30) days of the date of notification of the proposed transferee,
        assignee, sub-lessee, or the person or persons or entities which will be
        involved in the proposed or change of ownership.

                (iv) Within ten (10) days of any assignment or sub-lease Tenant
        shall deliver to Landlord true, correct and complete copies of all
        agreements, assignments, subleases and material documents pertaining
        thereto, including any sales agreements.

            Anything contained in this Paragraph 14 to the contrary
notwithstanding, no transfer, assignment, sub-letting of any of Tenant's
interests herein shall be effective unless all of the above provisions are
complied with within the time limits provided.

            (e) Notwithstanding any other provision contained in this Lease, in
the event Tenant desires to assign this Lease or sublet the Premises, Landlord
shall have the right, exercisable in Landlord's sole discretion by written
notice to Tenant within fifteen (15) after receipt of Tenant's written notice
and the information described in subparagraph 14(d) above, to terminate this
Lease as of the date Tenant proposes to have its assignment or subletting be
effective and enter into a new lease with a third party, including, but not
limited to, Tenant's proposed assignee or sub-lessee, without any liability to
Tenant. On such termination, this Lease shall be null and void as of the
termination date set forth in Landlord's notice or as of the date Tenant
actually surrenders possession of the Premises to Landlord, whichever is later;
provided however, each party shall be liable to the other for





                                       12
<PAGE>   13

any liabilities accrued up to the later of the above dates. Landlord
acknowledges that Tenant may not occupy the entire Premises at the inception of
this Lease and therefore agrees that the provisions of this subparagraph 14.(e)
shall not apply to any initial subletting of space within the Premises that
Tenant has not previously occupied itself.

            (f) Any additional documentation reasonably required by Landlord
shall be prepared and executed by Tenant and its assignee or sub-lessee or
transferee as part of the assignment or sub-letting or transfer before it shall
be effected.

            (g) Anything contained herein to the contrary notwithstanding,
regardless of whether or not Landlord's consent is required, no sub-letting or
assignment or transfer of any of Tenant's interests hereunder shall be deemed to
release Tenant or any guarantor from any liability under the terms of this
Lease, nor, after any such consent shall Landlord's failure to give Tenant or
guarantor notice of default under any of the terms and conditions of this Lease
release Tenant or guarantor from any liability hereunder. A consent to one
assignment, subletting, occupation or use shall not be deemed a consent to any
subsequent assignment, subletting, occupation or use. Any such purported
assignment, subletting, or permission to occupy or use without such consent from
Landlord shall be void and shall, at the option of Landlord, constitute a
default under this Lease.

            (h) Notwithstanding any other provision of this Paragraph 14, it is
expressly agreed that Landlord's consent shall not be required for the
assignment of this Lease or the subletting of all or any portion of the Premises
to (a) any entity resulting from the merger or consolidation with Tenant or (b)
any subsidiary or affiliate of Tenant.


                                  HOLD HARMLESS

        15. (a) Tenant shall indemnify Landlord against and hold Landlord and
Landlord's property harmless from any and all liability, claims, loss, damages,
or expense, including reasonable counsel fees and costs, arising by reason of
the death or injury of any person, including Tenant or any person who is an
employee, agent, or customer of Tenant, or by reason of damage to or destruction
of any property, including property owned by Tenant or any person who is an
employee, agent, or customer of Tenant, caused or allegedly caused by:

                (i) Any cause whatsoever while such person or property is in or
        on said Premises;

                (ii) Some condition of said Premises for which Tenant is
        responsible or for which Landlord is responsible and Landlord has not
        been given notice thereof and reasonable time





                                       13
<PAGE>   14

        to correct;

                (iii) Some act or omission on said Premises of Tenant or any
        person in or on said Premises with the permission of Tenant; or

                (iv) Tenant's use, storage, or disposal of hazardous wastes,
        toxic substances, or related materials ("hazardous materials").
        Hazardous materials shall include, but not be limited to, substances
        defined as "hazardous substances", "hazardous materials", or "toxic
        substances" in the Comprehensive Environmental Response, Compensation
        and Liability Act of 1980, as amended; the Hazardous Materials
        Transportation Act; the Resource Conservation and Recovery Act; and
        those substances defined as "hazardous wastes" in Section 25117 of the
        California Health and Safety Code; in the regulations adopted and
        publications promulgated pursuant to such laws; and in the Hazardous
        Material Storage Ordinance of the City of Palo Alto, if any, as amended.

            Tenant's indemnity with respect to hazardous materials shall
include, without limitation: (i) any damage, liability, fine, penalty, punitive
damages, cost or expenses arising from or out of any claim, action, suit or
proceeding for personal injury (including, without limitation, sickness, disease
or death), tangible property damage, nuisance, pollution, contamination, leak,
spill, release or other effect on the environment; and (ii) the cost of any
required or necessary investigation, repair clean-up, or treatment of the
Premises and/or the Property, and the preparation and implementation of any
closure, disposal, remedial or other required action in connection with the
Premises and/or the Property.

            The indemnity of Tenant provided above shall survive the expiration
or earlier termination of this Lease but shall not apply to any damage: (1)
covered by insurance; (2) caused by a defect in the Premises; (3) caused by the
willful misconduct, negligence or omission of Landlord, its agents or employees;
or (4) caused by a breach of this Lease by Landlord.

            (b) Tenant hereby assumes all risk of damage to property or injury
to persons in or upon the Premises, and Tenant hereby waives all claims in
respect thereof against Landlord, from any cause other than the following: (1)
the willful misconduct, negligence or omission of Landlord, its agents or
employees; (2) defects in the Premises; and (3) a breach of this Lease by
Landlord. Landlord and its agents shall not be liable for any damage to property
entrusted to employees of the building, nor for loss or damage to any property
by theft or otherwise, nor from any injury to or damage to persons or property
resulting from any cause whatsoever, unless caused by or due to the following:
(1) the willful misconduct, negligence or omission of Landlord, its agents





                                       14
<PAGE>   15

or employees; (2) defects in the Premises; and (3) a breach of this Lease by
Landlord.

            (c) If any action or proceeding is brought against Landlord by
reason of any claim for which Tenant has an obligation to indemnify Landlord as
set forth above, Tenant shall defend Landlord therein at Tenant's expense by
counsel reasonably satisfactory to Landlord; provided however, Tenant shall
control such defense.

            (d) Landlord and its agents and employees shall not be liable for
interference with the light or other incorporeal hereditaments, or loss of
business by Tenant unless the same is caused by the gross negligence or willful
misconduct of Landlord, its agents, or employees. Tenant shall give prompt
notice to Landlord in case of fire or accidents in the Premises or in the
buildings or of alleged defects in the building, fixtures or equipment, provided
that Tenant has actual knowledge of such matters.

            (e) To the best knowledge of Landlord, except as set forth herein,
as of the date of this Lease there are no hazardous materials on, in, under or
about the Premises or the property on which the Premises are located (the
"Property"). Landlord hereby discloses to Tenant and Tenant acknowledges receipt
of said disclosure that the Premises contain non-friable asbestos. In the event
such asbestos must be removed or encapsulated, Landlord shall pay the costs
thereof, including, but not limited to, any disposal costs. Except with respect
to hazardous materials released on or under the Premises or Property by Tenant
or adjacent or nearby landowners, tenants, or occupants, Landlord shall
indemnify, defend with counsel reasonably satisfactory to Tenant, protect and
hold Tenant harmless from and against any and all liabilities, claims, losses,
damages, or expense, including reasonable counsel fees and costs, arising out
of, or based upon: (i) the presence of any hazardous materials or asbestos on,
under, in or about the Premises or the Property, unless such hazardous materials
are released onto the Premises or Property by Tenant or, after the date of this
Lease, by adjacent or nearby landowners, tenants, or occupants; or (ii) the
violation or alleged violation by Landlord of any laws, regulations, orders, or
permits relating to the use, generation, manufacture, installation, release,
discharge, storage or disposal of hazardous materials on, under, in or about the
Premises or the Property. This indemnity shall include, without limitation: (i)
any damage, liability, fine, penalty, punitive damages, cost or expenses arising
from or out of any claim, action, suit or proceeding for personal injury
(including, without limitation, sickness, disease or death), tangible property
damage, nuisance, pollution, contamination, leak, spill, release or other effect
on the environment; and (ii) the cost of any required or necessary
investigation, repair clean-up, or treatment of the Premises and/or the
Property, and the preparation and implementation of any closure, disposal,
remedial or other





                                       15
<PAGE>   16

required action in connection with the Premises and/or the Property, except for
hazardous materials released on the Premises or the Property by Tenant. Landlord
shall also indemnify Tenant and hold Tenant harmless from any and all liability,
claims, loss, damages, or expense, including reasonable counsel fees and costs,
arising by reason of the gross negligence of Landlord, its agents, or employees,
a material breach of Landlord's obligations under this Lease, and Landlord's
breach of any representation and/or warranty contained herein. Landlord's
indemnity obligations hereunder shall survive the expiration or earlier
termination of this Lease.


                  RELEASE FROM LIABILITY/WAIVER OF SUBROGATION

        16. Landlord and Tenant hereby mutually waive their respective rights of
recovery against each other for any loss of the type required by this Lease to
be insured against. Landlord and Tenant hereby agree to obtain any special
endorsements (including waivers of subrogation) required by their insurance
carriers in order to effectuate the foregoing mutual release.


                                    INSURANCE

        17. (a) Tenant shall, at Tenant's expense, obtain and keep in force
during the term of this Lease a policy of comprehensive public liability
insurance insuring Landlord and Tenant against claims occurring in, on or about
the Premises and all areas appurtenant thereto. The limit of said insurance
shall not, however, limit the liability of Tenant hereunder. Tenant may carry
said insurance under a blanket policy, providing however, said insurance by
Tenant shall name Landlord as an additional insured. If Tenant fails to procure
and maintain said insurance, Landlord may, but shall not be required to, procure
and maintain same, but at the expense of Tenant. Tenant shall deliver to
Landlord prior to occupancy of the Premises copies of policies of liability
insurance required herein or certificates evidencing the existence and amount of
such insurance with loss payable clauses satisfactory to Landlord. No policy
shall be cancelable or subject to reduction of coverage except after fifteen
(15) days prior written notice to Landlord. The minimum acceptable amount of
comprehensive liability insurance is $3,000,000 per accident, and property
damage in an amount of not less than $1,000,000.00 per occurrence. The above
stated minimum levels of coverage are subject to amendment by Landlord upon
ninety (90) days written notice should the economic conditions, in the
discretion of Landlord, warrant adjustment thereof. Tenant may, at its own
expense, also insure or self insure its inventory, fixtures, equipment,
furniture, and its own Tenant improvements. Tenant acknowledges that Landlord
shall have no responsibility for insuring such items.

            (b) Landlord shall carry and maintain, during the entire term,
including extensions hereof, fire and all risk insurance insuring the Premises
and the initial tenant improvements for their





                                       16
<PAGE>   17

full replacement cost. Said insurance policy or policies shall cover at least
the following risks: fire, smoke damage, windstorm, hail, explosion, riot, riot
attending a strike, civil commotion, malicious mischief, vandalism, aircraft,
earthquake (if available at commercially reasonable rates) and sprinkler
leakage. Except for earthquake coverage, the maximum deductible shall be Five
Thousand Dollars ($5,000.00). The deductible on any earthquake coverage shall
not exceed 10% of the face amount of the earthquake coverage. Additionally, such
policy or policies shall have a loss of rents (12 months) endorsement; provided
however, if any institutional lender of Landlord allows a lower amount, said
coverage may be reduced to such lower amount. Tenant shall pay to Landlord as
additional rent, the cost of such policy or policies pursuant to Paragraph 6(b).
Any loss payable under such insurance shall be payable to Landlord and any
Lender holding an encumbrance on the Premises. The proceeds from any such policy
or policies for damages to the Premises shall be used for the repair of the
Premises except as set forth in Paragraph 22.

            (c) Insurance required under this Paragraph 17 shall be in companies
rated A+, Class X or better in "Best's Insurance Guide".


                             SERVICES AND UTILITIES

        18. (a) Tenant shall provide and pay for its own utilities, janitorial
services, trash removal and all other material and services it desires in
connection with its occupation and use of the Premises. Tenant acknowledges that
it understands that Landlord is not obligated to provide services, materials or
supplies, including but not limited to janitorial services or maintenance
services, except as otherwise provided herein, to Tenant.

            (b) Tenant shall not connect with electric current except through
approved electrical outlets in the Premises or such additional electrical
outlets as may be installed by a licensed electrical contractor in conformance
with the then applicable building codes, any apparatus or device, for the
purpose of using electric current.


                             PERSONAL PROPERTY TAXES

        19. Tenant shall pay before delinquency, all taxes levied or assessed
and which become payable during the term hereof upon all Tenant's leasehold
improvements, equipment, furniture, fixtures and personal property located in
the Premises, except that which has been paid for by Landlord and is the
standard of the building. If any of the Tenant's leasehold improvements,
equipment, furniture, fixtures and personal property are assessed and taxed with
the building, Tenant shall pay to Landlord its share of such taxes within ten
(10) days after delivery to Tenant by Landlord of a statement in writing setting
forth the amount of such taxes





                                       17
<PAGE>   18

applicable to Tenant's property.


                              RULES AND REGULATIONS

        20. Intentionally omitted.


                                ENTRY BY LANDLORD

        21. (a) Landlord reserves the right to enter the Premises at any time to
inspect the Premises, to submit the Premises to prospective purchasers or
tenants, to post notice of non-responsibility, and to alter, improve, maintain
or repair the Premises that Landlord deems necessary or desirable, all without
abatement of rent. Except in the cases of emergencies and to post notices of
nonresponsibility, Landlord shall give telephone notice twenty four (24) hours
in advance, unless Tenant waives such notice, prior to entering the Premises.
Landlord may erect scaffolding and other necessary structures where reasonably
required by the character of the work to be performed, but shall not block the
entrance to the Premises nor interfere with Tenant's business or parking, except
as reasonably required for the particular activity by Landlord. Landlord shall
not be liable in any manner for any inconvenience, disturbance, loss of
business, nuisance, interference with quiet enjoyment, or other damage arising
out of Landlord's entry on the Premises as provided in this paragraph, except
damage, if any, resulting from the willful misconduct or negligence of Landlord
or its authorized representatives.

            (b) In an emergency, Landlord shall have the right to use any means
which Landlord deems reasonably necessary to obtain entry to the Premises
without liability to Tenant, except for any failure to exercise due care for
Tenant's property. Any such entry to the Premises by Landlord shall not be
construed or deemed to be forcible or unlawful entry into or a detainer of the
Premises or an eviction of Tenant from the Premises or any portion thereof.


                           DESTRUCTION/RECONSTRUCTION

        22. (a) If ten percent (10%) or less of the Premises is damaged by a
peril not required to be insured pursuant to Paragraph 17 (b), Landlord shall
promptly and diligently proceed to repair and restore the same to substantially
the same condition as existed prior to such damage or destruction; provided,
however, that should such damage be caused by the willful act, negligent act or
omission of any duty with respect to the same by Tenant, its agents, servants,
employees or invitees, Tenant, and not Landlord, shall be so obligated to repair
and restore. If the Premises are damaged by a peril not required to be insured
pursuant to the provisions of Paragraph 17 (b) rendering more than ten percent
(10%) of the Premises unusable for the conduct of Tenant's business, Landlord
may, upon written notice, given to Tenant within thirty (30) days after the
occurrence of such damage, elect to terminate this Lease





                                       18
<PAGE>   19

(the effective date of such termination shall be as mutually agreed upon and if
the parties fail to agree on such a date, the effective termination date shall
be the date of the casualty); provided, however, Tenant may, within thirty (30)
days after receipt of such notice, elect to make any required repairs and/or
restoration, in which event this Lease shall remain in full force and effect,
and Tenant shall thereafter diligently proceed with such repairs and/or
restoration.

            (b) If the Premises are damaged or destroyed by fire or other peril
required to be insured pursuant to Paragraph 17 (b), Landlord shall promptly and
diligently proceed to repair and restore the same to substantially the same
condition as existed prior to such damage or destruction; provided, however,
that Landlord shall not be obligated to repair and restore until either the
insurer acknowledges that the loss is covered by insurance and sufficient
proceeds of such insurance (plus the applicable deductible which Landlord shall
contribute) are available to Landlord to pay the costs (including a reasonable
allowance for contractor's profit and overhead not to exceed ten percent (10%)
of the repairs and/or restoration) or the Tenant agrees to pay such costs to
Landlord. If the existing laws do not permit the restoration, either party can
terminate this Lease immediately by giving notice to the other party.

                If the cost of restoration exceeds the amount of insurance
proceeds (plus the applicable deductible), and Tenant has not agreed to pay the
cost of repairs and/or restoration to Landlord, either party can elect to
terminate this Lease by giving notice to the other within fifteen (15) days
after determining that the restoration cost will exceed the insurance proceeds
(plus the applicable deductible). In the case of destruction to the Premises, if
Landlord elects to terminate this Lease, Tenant, within fifteen (15) days after
receiving Landlord's notice to terminate, may agree to pay to Landlord the
difference between the amount of insurance proceeds (plus the applicable
deductible which Landlord shall pay) and the cost of restoration in which case
Landlord shall restore the Premises. Landlord shall give Tenant satisfactory
evidence that all sums contributed by Tenant as provided in this paragraph 22
have been expended by Landlord in paying the cost of restoration.

                If Landlord elects to terminate this Lease and Tenant does not
elect to contribute toward the cost of restoration as provided herein, this
Lease shall terminate, and all of the proceeds of the insurance shall be paid to
Landlord; provided, however, that in the event such proceeds shall include any
amounts paid for damage to or destruction of property belonging to Tenant,
Landlord shall within ten (10) days of receipt, pay over such amounts to Tenant
in the following manner: Out of the gross proceeds paid by insurance to
Landlord, Landlord shall retain an amount equivalent to the current replacement
value of the building and improvements owned by Landlord; after Landlord has
been so paid from the insurance





                                       19
<PAGE>   20

proceeds, if there remains a balance of such insurance proceeds which represent
payment for damages to or destruction of improvements added by Tenant after the
date of Tenant's occupancy of the Premises, then, to the extent of any remaining
balance of the insurance proceeds and to the extent of Tenant's direct costs of
making such added improvements, Landlord shall be obligated to pay over to
Tenant such remaining insurance proceeds. During any such repairs or restoration
described in this Paragraph 22, rent and all other costs and charges, shall
abate from the date of the casualty in proportion to the area of the Premises
rendered unusable by such damage or destruction; provided, however, that
Landlord shall have no liability by reason of injury to or interference with
Tenant's business or property arising from the making of any repairs,
alterations, or improvements in or to any portion of the Premises or in or to
fixtures, appurtenances and equipment therein; and further provided, that if the
damage was caused by the willful act or gross negligence of Tenant, its agents
or employees, there shall be no such abatement of rent unless covered by the
loss of rents provisions of the insurance policy Landlord is required to carry
and maintain pursuant to the provisions of Paragraph 17 (b). If the Premises are
destroyed or substantially damaged within one year of the end of this Lease term
or extensions thereof, or if Landlord cannot restore the Premises within One
Hundred Twenty (120) days from the date of the damage or destruction, Landlord
or Tenant shall each have the option to cancel the Lease effective as of the
date of the damage or destruction or such later date as the electing party sets
forth in its written notice of cancellation, and all insurance proceeds on the
real property shall be paid to Landlord.

                In the event Tenant shall have paid all or a portion of the
costs of any repairs or restorations for which Landlord subsequently receives
insurance proceeds, then to the extent that such insurance proceeds and Tenant's
payments exceed Landlord's cost of repair and/or restoration, Landlord shall
reimburse Tenant to the extent of Tenant's payments.

            (c) Landlord shall not be required to repair any damage by fire or
other cause, or to make any repairs or replacements of any panels, decoration,
office fixtures, railings, floor coverings, partitions, or any other property
installed in the Premises by Tenant.


                                     DEFAULT

        23. Occurrence of any of the following events shall constitute a default
and breach of this Lease by Tenant.

            (a) The abandonment of the Premises by Tenant.

            (b) The failure by Tenant to make any payment of rent or any other
payment required of Tenant hereunder, as and when due, if such failure continues
for three (3) calendar days after written





                                       20
<PAGE>   21

notice thereof by Landlord to Tenant.

            (c) The failure by Tenant to observe or perform any of the
covenants, conditions or provisions of this Lease other than described in
Paragraph 23(b) above, where such failure continues for thirty (30) days after
written notice thereof by Landlord to Tenant; provided however, that if Tenant's
default is such that more than thirty (30) days are reasonably required for its
cure, then Tenant shall not be deemed to be in default if Tenant commences such
cure within said thirty (30) day period and thereafter diligently prosecutes
such cure to completion.

            (d) The making by Tenant of any general assignment or general
arrangement for the benefit of creditors or the filing by or against Tenant of a
petition to have Tenant adjudged bankrupt, or a petition, or reorganization or
arrangement under any law relating to bankruptcy (unless in the case of a
petition filed against Tenant, the same is dismissed within sixty (60) days); or
the appointment of a trustee or a receiver to take possession of substantially
all of Tenant's assets located at the Premises or of Tenant's interest in this
Lease, where possession is not restored to Tenant within thirty (30) days; or
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 such seizure is not discharged in thirty (30) days.

            (e) The failure of Tenant or any employee or agent of Tenant to
occupy the Premises for ten (10) consecutive business days unless Tenant gives
prior written notice to Landlord, provides a security service for the Premises
and keeps all utility systems for the Premises functioning and in good
operation.


                                    REMEDIES

        24. Landlord shall have the following remedies if Tenant commits a
default. These remedies are not exclusive; they are cumulative and in addition
to any remedies now or later allowed by law.

            (a) Landlord may continue this Lease in full force and effect, as
long as Landlord does not terminate Tenant's right to possession, and Landlord
shall have the right to collect rent when due. During the period Tenant is in
default, Landlord may enter the Premises and relet them, or any part of them, to
third parties for Tenant's account. Tenant shall be liable to Landlord for all
costs Landlord incurs in reletting the Premises, including, without limitation,
reasonable broker's commissions and expenses of remodelling the Premises
required by the reletting. Reletting may be for a period shorter or longer than
the remaining term of the Lease. Tenant shall pay to Landlord the rent due under
this Lease as and when due, less the rent Landlord receives from any reletting.
No act by Landlord allowed by this Paragraph shall





                                       21
<PAGE>   22

terminate this Lease unless Landlord notifies Tenant in writing that Landlord
elects to terminate Tenant's right to possession of the Premises. If Tenant
obtains Landlord's consent, Tenant shall have the right to assign or sublet its
interest in this Lease, but Tenant shall not be released from liability.
Landlord's consent to a proposed assignment or subletting shall not be
unreasonably withheld.

            (b) Landlord may terminate Tenant's right to possession of the
Premises at any time. No act by Landlord other than giving written notice to
Tenant shall terminate this Lease. Acts of maintenance, efforts to relet the
Premises, or the appointment of a receiver on Landlord's initiative to protect
Landlord's interest under this Lease shall not constitute a termination of
Tenant's right to possession. On termination, Landlord has the right to recover
from Tenant:

                (i) The worth, at the time of the award of the unpaid rent that
        had been earned at the time of termination of this Lease;

                (ii) The worth, at the time of the award of the amount by which
        the unpaid rent that would have been earned after the date of
        termination of this Lease until the time of award exceeds the amount of
        the loss of rent that Tenant proves could have been reasonably avoided;

                (iii) The worth, at the time of the award of the amount by which
        the unpaid rent for the balance of the term after the time of award
        exceeds the amount of the loss of rent that Tenant proves could have
        been reasonably avoided; and

                (iv) Any other amount necessary to compensate Landlord for all
        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 therefrom.

        "The worth, at the time of the award", as used in (i) and (ii) of this
        subparagraph, is to be computed by allowing interest at the maximum rate
        allowed by law. "The worth, at the time of the award", as referred to in
        (iii) of this subparagraph, is to be computed by discounting the amount
        at the discount rate of the Federal Reserve Bank of San Francisco at the
        time of the award, plus one percent (1%).


                                 EMINENT DOMAIN

        25. If more than twenty-five percent (25%) of the building which is part
the Premises, or twenty-five percent (25%) of the parking spaces and Landlord
does not provide suitable replacement parking spaces within a reasonable
distance from the building, is





                                       22
<PAGE>   23

taken or appropriated by any public or quasi-public authority under powers of
eminent domain, either party hereto shall have the right at its option, to
terminate this Lease effective as of the date of taking. If less than
twenty-five percent (25%) building or twenty-five percent (25%) of the parking
spaces, is taken (or neither party elects to terminate as above provided if more
than twenty-five percent (25%) of the building a twenty five percent (25%) of
the parking spaces is taken), the Lease shall continue, and the rental
thereafter to be paid shall continue, but the rental thereafter to be paid shall
be equitably reduced. Whether or not the Lease is terminated by reason of any
such taking or appropriation, Landlord shall be entitled to the entire award and
compensation for the taking which is paid or made by the public or quasi-public
agency, and Tenant shall have no claim against said award; except for amounts
paid directly to Tenant for its moving expenses, interruption to its business or
damage to personal property or trade fixtures. A voluntary sale by Landlord to
any public body or agency having the power of eminent domain, either under
threat of condemnation or while the condemnation proceedings are pending shall
be deemed to be a taking under the power of eminent domain for the purposes of
this Paragraph.


                              ESTOPPEL CERTIFICATE

        26. Either party shall at any time and from time to time, upon not less
than ten (10) business days prior written notice from the other, execute,
acknowledge, and deliver to the other party a statement in writing, (a)
certifying that this Lease is unmodified and in full force and effect (or, if
modified, stating the nature of such modifications and certifying that this
Lease as so modified, is in full force and effect), and the date to which the
rental and other charges are paid in advance, if any, and (b) acknowledging that
there are not, to the party's knowledge, any uncured defaults on the part of the
other party hereunder, or specifying such defaults if any are claimed. Any such
statement may be relied upon by any prospective purchaser, encumbrancer,
assignee, or subtenant of all or any portion of the Premises or any purchaser of
Tenant's assets.


                          SUBORDINATION/NONDISTURBANCE

        27. Tenant agrees upon request of Landlord and the holder of any deed of
trust affecting the Premises to subordinate this Lease and its rights hereunder
to the lien of any mortgage, deed of trust or other encumbrance, together with
any conditions, renewals, extensions, or replacements thereof, now or hereafter
placed, charged or enforced against the Landlord's interest in this Lease and
the leasehold estate thereby created, the Premises or the land, building or
improvements included therein, and deliver (but without cost to Tenant) at any
time and from time to time upon demand by Landlord such documents as may be
required to effectuate such subordination; provided, however, that Tenant shall
not be required






                                       23
<PAGE>   24

to effectuate such subordination, nor shall Landlord be authorized to effect
such subordination on behalf of Tenant, unless the mortgagee or trustee named in
such mortgage, deed of trust or other encumbrance shall first agree in writing,
for the benefit of Tenant, that so long as Tenant is not in default under any of
the provisions, covenants or conditions of this Lease on the part of Tenant to
be kept and performed, that neither this Lease nor any of the rights of Tenant
hereunder shall be terminated or modified or be subject to termination or
modification, nor shall Tenant's possession of the Premises be disturbed or
interfered with, by any trustee's sale or by an action or proceeding to
foreclose said mortgage, deed of trust or other encumbrance.

        In the event any proceedings are brought for foreclosure, or in the
event of the exercise of the power of sale under any mortgage or deed of trust
made by the Landlord covering the Premises, the Tenant shall attorn to the
purchaser upon any such foreclosure or sale and recognize such purchaser as the
Landlord under this Lease.

        In the event that the mortgagee or beneficiary of any such mortgage or
deed of trust elects to have this Lease prior to its mortgage or deed of trust,
then and in such event upon such mortgagee or beneficiary giving written notice
to Tenant to that effect, this Lease shall be deemed prior to such mortgage or
deed of trust whether this Lease is dated or recorded prior to or subsequent to
the date of recordation of such mortgage or deed of trust.

        Landlord agrees to obtain for Tenant within 30 days after full execution
of this Lease with a non-disturbance agreement from any and all lenders holding
a mortgage, Deed of Trust, or other encumbrance on the Premises. Said
non-disturbance agreement shall be reasonably acceptable to Tenant and contain
the same provisions described above.


                                     PARKING

        28. Tenant shall have the right to use the parking facilities provided
by Landlord in common with other tenants of the building in which the Premises
are located subject to any recorded easements. Landlord shall have no obligation
to police the use of the parking facilities, however. Landlord reserves the
right to allocate and/or reserve parking spaces for all tenants.


                                    AUTHORITY

        29. Corporate Authority. If Tenant is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants that
he is duly authorized to execute and deliver this Lease on behalf of said
corporation, in accordance





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<PAGE>   25

with a duly adopted resolution of the Board of Directors of said corporation or
in accordance with the bylaws of said corporation, and that this Lease is
binding upon said corporation in accordance with its terms except as it may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
similar laws or by other laws affecting creditors' or lessors' rights generally
and except as to the availability of equitable relief.

        Partnership Authority. If Tenant is a partnership, each individual
executing this Lease on behalf of said partnership represents and warrants that
he is duly authorized to execute and deliver this Lease on behalf of said
partnership and that this Lease is binding upon said partnership and its
partners in accordance with its terms.

































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<PAGE>   26

                               GENERAL PROVISIONS

        30. General Provisions.

            (a) Clauses, plats and riders, if any, signed by the Landlord and
the Tenant and endorsed on or affixed to this Lease are a part hereof.

            (b) The waiver by Landlord of any term, covenant or condition herein
contained shall not be deemed to be a waiver of such term, covenant or condition
on any subsequent breach of the same or any other terms, covenant or condition
herein contained. The subsequent acceptance of rent hereunder by Landlord shall
not be deemed to be a waiver of any preceding breach by Tenant of any term,
covenant or condition of this Lease, other than the failure of the Tenant to pay
the particular rental so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of the acceptance of such rent.

            (c) All notices and demands which may or are required to be given by
either party to the other hereunder shall be in writing. All notices and demands
by the Landlord to the Tenant shall be sufficient if delivered in person or sent
by United States Mail, certified or registered, postage prepaid, addressed to
the Tenant at the Premises or to such other place as Tenant may from time to
time designate in a written notice to the Landlord. All notices and demands by
the Tenant to the Landlord shall be sufficient if delivered in person, by
receipted courier service, or sent by United States Mail, postage prepaid,
addressed to the Landlord at 800 El Camino Real, Suite 175, Menlo Park,
California 94025 or to such other person or place as the Landlord may from time
to time designate in a notice to the Tenant. Any such notice is effective at the
time of delivery or if mailed, two (2) business days after mailing.

            (d) If there be more than one Tenant, the obligations hereunder
imposed upon Tenants shall be joint and several.

            (e) The paragraph titles to the paragraphs of this Lease are not a
part of this Lease and shall have no effect upon the construction or
interpretation of any part hereof.

            (f) Time is of the essence of this Lease and each of its provisions
in which performance is a factor.

            (g) The time in which any act provided by this Lease is to be done
is computed by excluding the first day and including the last, unless the last
day is a Saturday, Sunday, or holiday, and then it is also excluded. The term
"holiday" shall mean all holidays specified in Sections 6700 and 6701 of the
Government Code.

            (h) The covenants and conditions herein contained,





                                       26
<PAGE>   27

subject to the provisions as to assignment, apply to and bind the heirs,
successors, executors, administrators and assigns of the parties hereto.

            (i) Neither Landlord nor Tenant shall record this Lease or a short
form memorandum hereof without the prior written consent of the other party.

            (j) Upon Tenant paying the rent reserved hereunder and observing and
performing all of the covenants, conditions and provisions on Tenant's part to
be observed and performed hereunder, Tenant shall have quiet possession of the
Premises for the entire term hereof, subject to all the provisions of this
Lease.

            (k) This Lease contains all of the agreements of the parties hereto
with respect to any matter covered or mentioned in this Lease. No prior
agreements or understandings pertaining to any such matters shall be effective
for any purpose. No provision of this Lease shall be amended or added except by
an agreement in writing signed by the parties hereto or their respective
successors in interest. This Lease shall not be effective or binding on any
party until fully executed by both parties hereto.

            (l) If either party shall be delayed or prevented from the
performance of any act required by this Lease by reason of acts of God, strikes,
lockouts, labor troubles, inability to procure materials, restrictive
governmental laws, or regulations or other cause, without fault and beyond the
reasonable control of the party obligated (financial inability excepted),
performance of such act shall be excused for the period of the delay; and the
period for the performance of any such act shall be extended for a period
equivalent for the period of such delay, provided, however, nothing in this
section shall excuse Tenant from the prompt payment of any rental or other
charge required of Tenant except as may be expressly provided elsewhere in this
Lease.

            (m) In the event of any action or proceeding brought by either party
against the other under this Lease, the prevailing party shall be entitled to
recover all costs and expenses including the fees of its attorneys in such
action or proceeding in such amount as the court may adjudge reasonable as
attorney's fees.

            (n) In the event of any sale of the building, Landlord shall be and
is hereby entirely freed and relieved of all liability under any and all of its
covenants and obligations contained in or derived from this Lease arising out of
any act, occurrence or omission occurring after the consummation of such sale
and the purchaser, at such sale or any subsequent sale of the Premises shall be
deemed, without any further agreement between the parties or their successors in
interest or between the parties and any such purchaser, to have assumed and
agreed to carry out all of the covenants and obligations of the Landlord under
this Lease.





                                       27
<PAGE>   28

            (o) Tenant shall not use the name of the building or of the
development in which the building is situated for any purpose other than as an
address of the business to be conducted by the Tenant in the Premises.

            (p) Any provision of this Lease which shall prove to be invalid,
void or illegal shall in no way affect, impair or invalidate any other provision
hereof and such other provision shall remain in full force and effect.

            (q) No remedy or election hereunder shall be deemed exclusive but
shall, wherever possible, be cumulative with all other remedies at law or in
equity.

            (r) This Lease shall be governed by the laws of the State of
California.

            (s) Tenant shall not conduct any auction, on or at the Premises or
building without Landlord's prior written consent.

            (t) Nothing contained in this Lease shall be deemed or construed by
the parties or by any third person to create the relationship of principal and
agent or of partnership or of joint venture or of any association between
Landlord and Tenant, and neither the method of computation of rent nor any other
provisions contained in this Lease nor any acts of the parties shall be deemed
to create any relationship between Landlord and Tenant other than the
relationship of Landlord and Tenant.

            (u) (i) The language in all parts of this Lease shall in all cases
be simply construed according to its fair meaning and not strictly for or
against Landlord or Tenant. Unless otherwise provided in this Lease, or unless
the context otherwise requires, the following definitions and rules of
construction shall apply to this Lease. (ii) In this Lease the neuter gender
includes the feminine and masculine, and the singular number includes the
plural, and the word "person" includes corporation, partnership, firm, or
association wherever the context so requires.

                (iii) "Shall", "will", and "agrees" are mandatory, "may" is
        permissive.

                (iv) All references to the Term of this Lease or the Lease Term
        shall include any extensions of such Term.

                (v) Parties shall include the Landlord and Tenant named in this
        Lease.

                (vi) As used herein, the word "sublessee" shall mean





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<PAGE>   29

        and include, in addition to a sublessee and subtenant, a licensee,
        concessionaire, or other occupant or user of any portion of the leased
        Premises or buildings or improvements thereon.

                (vii) Whenever the written consent of a party is required under
        any provision of this Lease, such consent shall not be unreasonably
        withheld or unduly delayed.


                                     BROKERS

        31. Each party warrants to the other that it has had no dealings with
any real estate broker or agent in connection with the negotiation of this Lease
other than Cornish & Carey Commercial and Renault & Handley and it knows of no
other real estate broker or agent who is entitled to a commission in connection
with this Lease. Each party agrees to indemnify and hold the other harmless from
any cost, expense, or liability for any compensation, commissions, or charges
claimed by any other broker or agent who alleges he is owed a compensation
through it. Landlord agrees to pay any commissions owed to the above named
brokers and shall hold Tenant harmless from any cost, expense, or liability
therefor.


                             NONRECOURSE OBLIGATIONS

        32. It is expressly agreed by Tenant that all obligations of Landlord
accruing under this Lease shall not constitute personal obligations of Landlord
or of any other persons or entities constituting Landlord and Tenant shall not
seek recourse against any such entities, persons, or any of their assets for
satisfaction of any liabilities with respect to this Lease. In the event Tenant
obtains a judgment against Landlord resulting from any default or claim arising
under this Lease, such judgment may only be satisfied from Landlord's interest
in this Lease and the Premises, and no other real, personal, or mixed property
of Landlord or of any other persons or entities comprising Landlord, wherever
situated, shall be subject to levy to satisfy such judgment.


                                LIST OF EXHIBITS

        33. The following is a complete list of the documents attached hereto
and made a part of this Lease:

               EXHIBIT              DESCRIPTION

                  A                 Floor Plan

The parties hereto have executed this Lease and on the dates specified
immediately adjacent to their respective signatures.





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<PAGE>   30

LANDLORD:

West Bayshore Associates, a general partnership



By /s/ David A. Wollenberg                                  Date 11-20-98
  ______________________________

/s/ Sigrid S. Banks
_________________________________
Sigrid S. Banks

/s/ F. L. Crist, Jr.
_________________________________
Frank Lee Crist, Jr.

/s/ Allen W. Koering
_________________________________
Allen W. Koering

George O. McKee
_________________________________
George O. McKee




TENANT:

CONNETICS CORPORATION



By  /s/ John L. Higgins  CFO                                Date  Nov. 20, 1998
   ______________________________                              
              Title

By                                                          Date 
   ______________________________                                _______________
              Title









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