<PAGE>   1
                                                                    Exhibit 10.3


                                                          Agreement No._________

* CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

                            DEVELOPMENT AGREEMENT


      THIS DEVELOPMENT AGREEMENT, dated as of October 6, 2000, (hereinafter
referred to as "Agreement"), is entered into between SRI International, a
California nonprofit public benefit corporation ("SRI"), having a place of
business located at 333 Ravenswood Avenue, Menlo Park, CA 94025, and Lipid
Sciences, Inc., a Delaware corporation ("LSI"), having a principal place of
business located at 7068 Koll Center Parkway, Suite 401, Pleasanton, California
94566.

                                  WITNESSETH


      WHEREAS, SRI owns or has rights in certain intellectual property relating
to hollow fiber membranes and other separation technologies, and product
development for medical devices.

      WHEREAS, SRI is willing to grant LSI certain license rights in such
intellectual property on the terms, and subject to, the conditions of this
Agreement.

      WHEREAS, LSI owns or has rights in certain intellectual property relating
to processes and apparatuses for lipid removal from biological fluids, including
blood, blood products and blood components.

      WHEREAS, LSI desires to financially support the development by SRI of a
medical device for use by LSI in modifying the lipid composition of biological
fluids on the terms, and subject to, the conditions of this Agreement.

      NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants herein contained, the parties hereby agree as follows:

                                    ARTICLES

1.    DEFINITIONS

      For purposes of this Agreement, the terms defined in this article shall
      have the respective meanings set forth below:

      1.1   "Field of Use" shall mean methods, devices and compositions of
            matter for use in the in vivo, in vitro and ex vivo sampling,
            removal, manipulation or treatment of blood, blood products, blood
            components, lipids, lipid-containing cells and molecules, products
            of lipid metabolism, and biological fluids including, without
            limitation,


                                                                    Page 1 of 54
<PAGE>   2
                                                             Agreement No. _____

            human, non-human and synthetic plasma, serum, cells, pathogens and
            lipoproteins.

      1.2   "Development Period" shall mean the period commencing on October 6,
            2000 and unless terminated earlier as provided in this Agreement or
            extended by the mutual written agreement of the parties, expiring on
            March 9, 2001.


      1.3   "Development Program" shall mean the development program described
            generally in the Development Proposal as consisting of a Phase I and
            a Phase II.

      1.4   "Development Proposal" shall mean the development plan attached
            hereto as Exhibit A, as revised from time-to-time by the written
            agreement of the parties.

      1.5   "Development Program Intellectual Property" shall mean and include
            any invention, patent, patent application, work of authorship, trade
            dress, trademark, trade secret, design, drawing, method, process,
            specification, and formulae, which is made, conceived, authored or
            reduced to practice, whether individually or jointly, by or on
            behalf of either or both of LSI and SRI, in connection with the
            performance of the Development Program. Such Intellectual Property
            includes, without limitation, all patents and patent applications of
            any effective filing date that claim an invention which has been
            conceived or reduced to practice by LSI, or jointly by LSI and SRI
            in connection with the performance of the Development Program.
            Development Program Intellectual Property also includes the know-how
            embodied in the disclosures listed in Exhibit B of this Agreement.

      1.6   "Internal Research Purposes" shall mean the furtherance of skills or
            knowledge of a person or persons employed by SRI, for confidential
            use of such skills and knowledge during the course of such persons
            employment with SRI and/or the provision of research and development
            services to a government agency. Disclosure to third parties or use
            thereby, other than in connection with providing services to a
            government agency, of Intellectual Property whose use by SRI is
            authorized only for Internal Research Purposes is strictly
            prohibited.

      1.7   "Person" shall mean an individual, corporation, partnership, trust,
            business trust, association, joint stock company, joint venture,
            pool, syndicate, sole proprietorship, unincorporated organization,
            governmental authority or any other form of entity not specifically
            listed herein.

      1.8   "SRI Intellectual Property" shall mean any invention, patent, patent
            application, work of authorship, trade secret, technical know-how,
            design, drawing, method, process, specification, and formulae which


                                                                    Page 2 of 54
<PAGE>   3
                                                             Agreement No. _____

            SRI owns and has the right to grant a non-exclusive license to in
            the Field of Use in the Territory as of October 6, 2000.

      1.9   "Territory" shall mean worldwide.

      1.10  "Warrant" shall have the meaning set forth in Article 4.

2.    DEVELOPMENT PROGRAM

      2.1   Conduct of Development Program. During the Development Period, SRI
            shall exercise commercially reasonable efforts to conduct Phase I of
            the Development Program ("Phase I") in accordance with the
            Development Proposal. SRI shall conduct Phase I in good scientific
            manner, and in compliance in all material respects with all
            requirements of applicable laws and regulations and all applicable
            good laboratory and clinical practices. Because the services to be
            performed are of an advisory or experimental nature, SRI does not
            represent or warrant that Phase I in whole or in part will be
            successful or achieve the objectives set forth in the Development
            Proposal.

      2.2   Funding for Development Program.

            2.2.1 In consideration for the services to be performed by SRI
                  during Phase I of the Development Program, LSI shall pay SRI
                  research fees not-to-exceed [ * ], inclusive of the deposit
                  required by Section 2.2.2. Such payments shall be made in
                  accord with Sections 2.2.3 through 2.2.8, below.

            2.2.2 The fees for Phase II of the Development Program ("Phase II")
                  shall be determined during Phase I and shall be funded,
                  subject to the terms and conditions of this Agreement, by
                  letter amendment to this Agreement.

            2.2.3 LSI shall have no obligation to pay SRI any amount in excess
                  of the total amount of the research fee agreed upon for each
                  Phase, unless a greater fee has been expressly agreed to in
                  writing by both parties. If it appears to SRI that a Phase
                  cannot be completed without incurring expenses in excess of
                  such total fee allowed for such Phase, then within five (5)
                  business days of making such determination, SRI shall provide
                  LSI with an estimate of the cost to complete the Phase. LSI
                  shall then promptly determine whether to (a) discontinue the
                  Development Program when such total amount has been spent; (b)
                  authorize SRI to spend additional amounts; or, (c) revise the
                  scope of the Development Program as appropriate. All research
                  fees paid by LSI under this Article 2.2 are non-refundable and
                  non-creditable against future royalties.


                                                                    Page 3 of 54
<PAGE>   4
                                                             Agreement No. _____

            2.2.4 Immediately upon execution of this Agreement, LSI shall pay to
                  SRI a non-refundable deposit of five hundred thousand dollars
                  ($500,000), against the project charges to be incurred during
                  Phase I. Immediately upon execution of the Phase II letter
                  amendment to this Agreement, LSI shall pay to SRI a
                  non-refundable deposit for Phase II of five hundred thousand
                  dollars ($500,000) against the project charges to be incurred
                  during Phase II. Upon receipt of each such deposit, SRI shall
                  initiate work on the phase of the Development Program for
                  which the deposit is to be applied, and shall deliver to LSI a
                  paid-memo invoice for receipt of the deposit paid.

            2.2.5 The deposit for each of Phase I and Phase II paid LSI under
                  Section 2.2.4 shall be held by SRI until such time that the
                  estimated cost to complete the phase to which the deposit
                  applies is equal to the amount defined by Section 2.2.7,
                  below. At such time, if neither party has terminated the
                  agreement under Article 6.3, draws by SRI against such deposit
                  shall be made in accord with Section 2.2.7, below. In the
                  event LSI terminates the Agreement under Article 6.2 during
                  Phase I or Phase II, SRI shall retain the balance of the
                  deposit for such Phase as additional consideration for the
                  rights granted to LSI under this Agreement.

            2.2.6 On execution of this Agreement, and thereafter at recurring
                  intervals of thirty (30) days, SRI shall provide LSI with an
                  invoice estimating the project charges to be incurred during
                  the following 30 day period. The amount of each invoiced
                  estimate shall not exceed $250,000 for any 30 day period,
                  unless a greater charge for a particular 30 day period has
                  been agreed upon in writing by the parties. LSI shall pay the
                  invoiced estimate, within five (5) business days of its
                  receipt from SRI.

            2.2.7 When the aggregate charges invoiced under Section 2.2.6 during
                  a phase of work equal the total research fee for such Phase
                  allowed under Section 2.2.1, less the amount of the deposit
                  for the Phase described in Section 2.2.4, all subsequent
                  invoices for project charges shall be of a memorandum type,
                  and shall be issued monthly. Each such memorandum invoice
                  shall credit the amount of project charges for the previous
                  month against the deposit.

            2.2.8 Upon completion or termination of the Development Program, SRI
                  shall render a final invoice to LSI. If and when SRI receives
                  late charges of a significant amount from a third party after
                  a final invoice has been rendered to LSI, SRI shall render a
                  special invoice to LSI. Subject to the limitations of


                                  Page 4 of 54
<PAGE>   5
                                                             Agreement No. _____

                  Section 2.2.3, and the payment requirements for the estimating
                  invoices set forth in Article 2.2.6, all invoices submitted by
                  SRI to LSI under this Section 2.2.8 are due and payable, net
                  30 days.

      2.3   Records. SRI shall maintain records, in sufficient detail and in
            good scientific manner, which shall reflect all work done and
            results achieved in the performance of the Development Program
            (including all data in the form required under all applicable laws
            and regulations). To enable its compliance with the rules and
            regulations of any governing legal authority including, without
            limitation, a patent authority of any country and the Food and Drug
            Administration, LSI shall be entitled to review, duplicate and
            distribute copies of such records, on request therefor following
            reasonable notice, subject to the confidentiality provisions of this
            Agreement. Following the expiration or earlier termination of this
            Agreement, LSI shall pay SRI, at its normal commercial rates, for
            any assistance SRI provides in connection with such records.

      2.4   Reports. During the term of the Development Program, SRI shall keep
            LSI generally informed of the progress under the Development
            Program. Within thirty (30) days following the expiration or
            termination of the Development Program for Phase I for any reason,
            SRI shall prepare and provide LSI with a written report which shall
            describe the work performed by SRI under the Development Program
            during Phase I. Towards the latter part of Phase I SRI will prepare
            and provide LSI with a detailed budget and plan for the Phase II
            development effort.

3.    INTELLECTUAL PROPERTY RIGHTS

      3.1   Ownership of Intellectual Property. All Development Program
            Intellectual Property shall be solely owned by LSI. SRI further
            agrees that all employees and other Persons acting on its behalf
            under the Development Agreement shall be required to assign any
            rights they would otherwise hold in such Development Program
            Intellectual Property to LSI. If any such Person is under an
            existing obligation to assign their rights in Development Program
            Intellectual Property to SRI, then SRI agrees to take all reasonable
            and necessary steps to ensure that such rights become assigned to
            LSI.

      3.2   Disclosure of Development Program Intellectual Property. Each party
            shall promptly disclose to the other party the conception,
            authorship or making of Development Program Intellectual Property,
            and shall promptly make all information concerning such Development
            Program Intellectual Property available to such other party. Such
            disclosure will be made in a mutually agreeable, and preferably
            written, format.


                                                                    Page 5 of 54
<PAGE>   6
                                                             Agreement No. _____

      3.3   Intellectual Property Rights. LSI shall be responsible for the costs
            and shall control the preparation, filing, prosecution, maintenance
            and enforcement of all applications for registration or protection
            of any aspect of the Development Program Intellectual Property
            including, without limitation, patent applications and patents.
            During the term of this Agreement, if LSI elects not to file a
            patent application in any country or to abandon any pending
            application or granted patent in any country with respect to
            patentable Development Program Intellectual Property, LSI shall
            provide adequate notice to SRI and give SRI the opportunity to file
            or maintain such application or patent at its own expense. If SRI so
            elects, it shall have the right to file, prosecute and maintain such
            patent in SRI's name, and SRI shall be the sole owner of such
            Development Program Intellectual Property and the related patent
            application and patent, if any. SRI and LSI shall cooperate with the
            other party and shall execute all lawful papers and instruments and
            make all rightful oaths and declarations as may be necessary in
            connection therewith.

      3.4   [ * ]

      3.5   [ * ]

      3.6   Waiver of Rights. To the extent any use of the Development Program
            Intellectual Property in the Field of Use in the Territory by LSI or
            any licensee, sublicensee or assignee of LSI infringes any SRI
            Intellectual Property which SRI owns or controls as of the date of
            such infringement, SRI waives in perpetuity the right to enforce
            such SRI Intellectual Property, by suit for infringement, or by any
            other method or process.

      3.7   Technical Know-How. With reasonable advance notice, SRI agrees to
            cooperate with, and provide technical assistance to, LSI after the
            conclusion of the Development Program as needed to permit LSI to
            make, use, sell, test or commercialize the Development Program
            Intellectual Property. LSI shall compensate SRI at SRI's normal
            commercial rates for such assistance.

      3.8   DISCLAIMER OF WARRANTIES. NOTHING IN THIS AGREEMENT SHALL BE
            CONSTRUED AS A REPRESENTATION MADE OR WARRANTY GIVEN BY SRI OR LSI
            THAT THE USE OF ANY INVENTION OR DELIVERABLE UNDER THE DEVELOPMENT
            PROGRAM WILL NOT INFRINGE THE PATENT OR PROPRIETARY RIGHTS OF ANY
            OTHER PERSON. FURTHERMORE, NEITHER SRI NOR LSI MAKES ANY
            REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE
            INVENTIONS, DELIVERABLES, OR WORK PERFORMED, INCLUDING WITHOUT
            LIMITATION, ANY


                                  Page 6 of 54
<PAGE>   7
                                                             Agreement No. _____

            WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

4.    EQUITY INCENTIVE

      LSI will issue to SRI a warrant (the "Warrant"), the form of which is
      attached hereto as Exhibit C. The Warrant will be concurrently executed
      with this Agreement.

5.    CONFIDENTIALITY

      5.1   Confidential Information. During the term of this Agreement, and
            five (5) years thereafter, following the expiration or earlier
            termination hereof, each party shall exercise reasonable care to
            maintain in confidence all information of the other party (including
            samples) disclosed by the other party and identified at the time of
            disclosure, to be confidential ("Confidential Information"), and
            shall not use, disclose or grant the use of the Confidential
            Information except on a need-to-know basis to those directors,
            officers, employees, agents, permitted sublicensees and permitted
            assignees, to the extent such disclosure is reasonably necessary in
            connection with such party's activities as expressly authorized by
            this Agreement. To the extent that disclosure is authorized by this
            Agreement, prior to disclosure, each party hereto shall obtain the
            written agreement of any such Person, who is not otherwise bound by
            fiduciary obligations to such party, to hold in confidence and not
            make use of the Confidential Information for any purpose other than
            those permitted by this Agreement. Each party shall notify the other
            promptly upon discovery of any unauthorized use or disclosure of the
            other party's Confidential Information.

      5.2   Permitted Disclosures. The nonuse and nondisclosure obligations
            contained in this article shall not apply to the extent that (a) any
            receiving party ("Recipient") is required to (i) disclose
            information by law, order or regulation of a governmental agency or
            a court of competent jurisdiction; or (ii) disclose information to
            any governmental agency for purposes of obtaining approval to test
            or market a product, provided in either case that Recipient shall
            provide written notice thereof to the other party and sufficient
            opportunity to object, time permitting, to any such disclosure or to
            request confidential treatment thereof; or (b) Recipient can
            demonstrate that (i) the information was public knowledge at the
            time of such disclosure by Recipient, or thereafter became public
            knowledge, other than as a result of acts attributable to Recipient
            in violation hereof; (ii) the information was rightfully known by
            Recipient (as shown by its written records) prior to the date of
            disclosure to Recipient by the other party hereunder; (iii) the
            information was disclosed to Recipient on an unrestricted basis from
            a third party not


                                                                    Page 7 of 54
<PAGE>   8
                                                             Agreement No. _____

            under a duty of confidentiality to the other party; or, (iv) the
            information was independently developed by employees or agents of
            Recipient without access to the Confidential Information of the
            other party.

      5.3   Terms of this Agreement. Except as otherwise provided in this
            Article, SRI and LSI shall not disclose any terms or conditions of
            this Agreement to any third party without the prior consent of the
            other party.

      5.4   No Use of Name. Except as otherwise required by applicable law,
            regulation or order of a governmental agency or court of competent
            jurisdiction, neither party shall use the name of the other party or
            the other party's directors, officers or employees in any
            advertising, news release or other publication, without the prior
            express written consent of the other party.

6.    TERM AND TERMINATION

      6.1   Expiration. Subject to the provisions of this article, this
            Agreement shall expire on completion of the Development Program as
            described in Exhibit A.

      6.2   Termination by LSI. LSI may terminate this Agreement, in its sole
            discretion, upon thirty (30) days prior written notice to SRI. In
            the event of termination under this Article 6.2, SRI shall not be
            obligated to refund LSI any fees paid for project charges actually
            incurred then to date, any remaining balance of a deposit paid under
            Section 2.2.4, or any stock issued to SRI.

      6.3   Termination for Cause. Except as otherwise provided in Article 9,
            herein, regarding force majeure, either party may terminate this
            Agreement (a) upon or after the breach of any material provision of
            this Agreement by the other party if the other party has not cured
            such breach within thirty (30) days after written notice thereof by
            the non-breaching party; or, (b) if the other party voluntarily
            commences any action or seeks any relief regarding its liquidation,
            reorganization, dissolution or similar act or under any bankruptcy,
            insolvency or similar law; or, (c) if a proceeding is commenced or
            an order, judgment or decree is entered seeking the liquidation,
            reorganization, dissolution or similar act or any other relief under
            any bankruptcy, insolvency or similar law against the other party,
            without its consent, which continues undismissed or unstayed for a
            period of sixty (60) days.

      6.4   Effect of Expiration or Termination. Expiration or termination of
            this Agreement shall not relieve the parties of any obligation
            accruing prior to such expiration or termination, and the provisions
            of Articles 3, 4, 5, 6, and 7, herein, shall survive the expiration
            or termination of


                                                                    Page 8 of 54
<PAGE>   9
                                                             Agreement No. _____

            this Agreement. Upon termination or expiration of this Agreement, or
            upon written request, each party shall promptly return all copies of
            the other party's Confidential Information, except each party may
            retain one copy for its legal files.

7.    INDEMNIFICATION AND INSURANCE

      7.1   Indemnification.

            7.1.1 SRI shall indemnify, defend and hold harmless LSI, its
                  directors, officers, employees and agents from all losses,
                  liabilities, damages and expenses (including reasonable
                  attorneys' fees and costs) that they may suffer as a result of
                  any claims, demands, actions or other proceedings made or
                  instituted by any third party against any of them and arising
                  out of or relating to any gross negligence or intentional act
                  or omission by SRI in the performance of the Development
                  Program.

            7.1.2 LSI shall indemnify, defend and hold harmless SRI, its
                  directors, officers, employees and agents from all losses,
                  liabilities, damages and expenses (including reasonable
                  attorneys' fees and costs) that they may suffer as a result of
                  any claims, demands, actions or other proceedings made or
                  instituted by any third party against any of them and arising
                  out of or relating to the use by LSI of any Development
                  Program Intellectual Property, and any SRI Intellectual
                  Property to which the right to use is licensed to LSI under
                  this Agreement.

      7.2   Indemnification Procedure. A party ("Indemnitee") that intends to
            claim indemnification under this article shall promptly notify the
            other party ("Indemnitor") of any loss, liability, damage or
            expense, or any claim, demand, action or other proceeding with
            respect to which Indemnitee intends to claim such indemnification.
            Indemnitor's indemnity obligations under this article shall not
            apply to amounts paid in any settlement if effected without the
            consent of Indemnitor, which consent shall not be unreasonably
            withheld or delayed. Indemnitor shall not settle or consent to an
            adverse judgment in any such claim, demand, action or other
            proceeding that adversely affects the rights or interests of any
            Indemnitee or imposes additional obligations on such Indemnitee,
            without the prior express written consent of such Indemnitee.
            Indemnitee, its employees and agents, shall cooperate fully with
            Indemnitor and its legal representatives in the investigation of any
            action, claim or liability covered by this indemnification.


                                                                    Page 9 of 54
<PAGE>   10
                                                             Agreement No. _____

      7.3   Insurance.

            7.3.1 By SRI. SRI shall maintain comprehensive general liability
                  insurance, including contractual liability insurance, against
                  claims for bodily injury or property damage arising from its
                  activities contemplated by this Agreement, with such insurance
                  companies and in such amounts as SRI customarily maintains for
                  similar activities. SRI shall maintain such insurance during
                  the term of this Agreement and thereafter for so long as SRI
                  maintains insurance for itself covering such activities. Upon
                  request, SRI shall provide LSI with certificates of insurance
                  evidencing SRI's compliance with the insurance requirements of
                  this Article.

            7.3.2 By LSI. LSI shall maintain comprehensive general liability
                  insurance, including contractual and product liability
                  insurance, against claims for bodily injury or property damage
                  arising from its activities contemplated by this Agreement,
                  with insurance companies reasonably acceptable to SRI, and in
                  amounts not less than two-million dollars ($2,000,000) per
                  occurrence and five-million dollars ($5,000,000) in the
                  aggregate. LSI shall maintain such insurance for so long as it
                  continues to conduct its activities contemplated by this
                  Agreement and thereafter for so long as LSI maintains
                  insurance for itself covering such activities. Upon request,
                  LSI shall provide SRI with certificates of insurance
                  evidencing LSI's compliance with the insurance requirements of
                  this Article.

      7.4   Limited Liability. In no event shall SRI be liable to LSI or any
            third party for any special, consequential or incidental damages
            arising out of or related to this Agreement or with respect to any
            claim, demand, action or other proceeding relating to this
            Agreement, however caused, and on any theory of liability (including
            negligence) and whether or not SRI has been advised of the
            possibility of such damages. In no event shall SRI's liability owing
            to LSI or any third party with respect to any claim, demand, action
            or other proceeding relating to the Development Program under this
            Agreement or the results thereof exceed the total amount actually
            paid to SRI under this Agreement.

      7.5   Authority. Each party represents and warrants that it has all right
            and authority necessary to perform its obligations under the
            Agreement.

8.    LSI STAFF ON-SITE


                                                                   Page 10 of 54
<PAGE>   11
                                                             Agreement No. _____

      8.1   LSI Access. LSI representatives will have access to the SRI
            facilities during normal business hours to permit LSI to conduct
            those activities as described in the Exhibit A Development Program.
            LSI shall have reasonable access to all SRI personnel involved in
            the Development Program. While on SRI's site, LSI employees will
            abide by SRI safety rules and policy according to the terms of SRI's
            standard Lease Agreement (Exhibit E).

      8.2   LSI Release. LSI shall defend, indemnify, release, and hold harmless
            SRI, its officers, agents, subcontractors, and employees from any
            and all claims, demands, damages, injuries, actions, or causes of
            action and to pay all attorneys fees, expert witness fees, court
            costs, and other costs of the defense of such action, seeking
            recovery for damages to the property of any person or injury to any
            person (including death) arising out of or as the result of LSI
            employees, subcontractors, or representatives witnessing
            experiments, performing work, or otherwise participating in
            experiments on SRI premises or using SRI facilities pursuant to this
            Agreement. LSI agrees that this obligation to defend, indemnify,
            release and hold harmless shall not be diminished or eliminated even
            if the damages or injury is the result of SRI's negligence, or of
            the negligence of its officers, agents, employees, or
            subcontractors, and shall not be diminished or eliminated even if
            liability without fault is imposed or sought to be imposed. LSI
            employees, subcontractors, or representatives will be required to
            execute the attached Client Observer Agreement (Exhibit D), prior to
            being allowed access to SRI facilities.

9.    FORCE MAJEURE

      Neither party shall be held liable or responsible to the other party nor
      be deemed to have defaulted under or breached this Agreement for failure
      or delay in fulfilling or performing any term of this Agreement to the
      extent, and for so long as, such failure or delay is caused by or results
      from causes beyond the reasonable control of the affected party including
      but not limited to fires, earthquakes, floods, embargoes, wars, acts of
      war (whether war is declared or not), insurrections, riots, civil
      commotions, strikes, lockouts or other labor disturbances, acts of God or
      acts, omissions or delays in acting by any governmental authority or other
      party.

10.   DISPUTE RESOLUTION

      10.1  The parties shall first use any and all reasonable efforts to
            amicably resolve any disputes arising out of or relating to this
            Agreement by direct discussions between persons authorized to enter
            into a binding agreement or through mediation. If the parties fail
            to resolve the dispute either by direct discussions or mediation,
            either party may submit the dispute to final and binding arbitration
            to be held in


                                                                   Page 11 of 54
<PAGE>   12
                                                             Agreement No. _____

            San Francisco, California, USA. The parties shall negotiate in good
            faith to select an arbitrator or a nationally recognized alternative
            dispute resolution service which shall administer the arbitration.

      10.2  The arbitration shall be conducted by three (3) impartial
            arbitrators. Each party shall select one arbitrator. The two
            arbitrators so selected shall together select a third arbitrator.
            The arbitrators shall apply California Arbitration Law to any
            proceeding conducted hereunder, except in the event a stay is sought
            pursuant to the California Code of Civil Procedure Section
            1281.2(c), in which event the parties agree that the issue shall be
            resolved under the United States Arbitration Act.

      10.3  The arbitrators' award shall be a final and binding determination of
            the dispute and shall be fully enforceable as an arbitration award
            by the California courts in accordance with California Arbitration
            Law. If awarded by the arbitrators, the prevailing party shall be
            entitled to recover its reasonable attorneys' fees and expenses,
            including arbitration administration fees incurred in connection
            with such proceeding. No participant in the arbitration whether a
            party, a witness, or an arbitrator, may disclose the existence,
            content, or results of any arbitration hereunder without the prior
            written consent of both parties.

      10.4  Notwithstanding the above, either party may seek from any court
            having jurisdiction hereof any interim, provisional or injunctive
            relief that may be necessary to protect the rights or property of
            any party or to maintain the status quo before, during or after the
            pendency of the arbitration proceeding. The institution and
            maintenance of any judicial action or proceeding for any such
            interim, provisional or injunctive relief shall not constitute a
            waiver of the right or obligation of either party to submit the
            dispute to arbitration, including any claims or disputes arising
            from the exercise of any such interim, provisional or injunctive
            relief.

11.   MISCELLANEOUS

      11.1  Notices. Any consent, notice or report required or permitted to be
            given or made under this Agreement by one party to the other party
            shall be in writing, delivered personally or by facsimile (and
            promptly confirmed by personal delivery, U.S. first class mail,
            courier or nationally-recognized delivery service), U.S. first class
            mail postage prepaid, courier or nationally-recognized delivery
            service, and addressed to the other party at its address indicated
            below, or to such other address as the addressee shall have last
            furnished in writing to the addressor. Except as otherwise provided
            in this Agreement, such consent, notice or report shall be effective
            upon receipt by the addressee.


                                                                   Page 12 of 54
<PAGE>   13
                                                             Agreement No. _____

            If to SRI, for technical        If to SRI, for all other
            matters:                        matters:

              SRI International               SRI International
              333 Ravenswood Avenue           333 Ravenswood Avenue
              Menlo Park, CA  94025           Menlo Park, CA  94025
              Attn: Dave Bomberger            Attn: Valerie Hooper
              Telephone:  (650) 859-4973      Telephone:  (650) 859-3038
              Facsimile:  (650) 859-4321      Facsimile:  (650) 859-2829

            If to LSI, for technical        If to LSI, for all other
            matters:                        matters:

              Lipid Sciences, Inc.            Lipid Sciences, Inc.
              7068 Koll Center Parkway,       7068 Koll Center Parkway,
              Suite 401                       Suite 401
              Pleasanton, CA  94566           Pleasanton, CA  94566
              Attn:  Phil Radlick             Attn:  Phil Radlick
              Telephone:  925-484-5345        Telephone:  925-484-5345
              Facsimile:  925-485-5401        Facsimile:  925-485-5401

      11.2  No Solicitation. LSI and SRI agree that during the term of this
            Agreement, LSI and SRI will have access to each other's business and
            employees, including certain valuable proprietary information. LSI
            and SRI recognize that misuse of such information, including
            interference with the employment relationship between a party and
            its employees, would cause substantial loss and irreparable harm to
            such party. Therefore, as part of the consideration for this
            Agreement, LSI and SRI hereby covenant and agree that they will not,
            either during the term of this Agreement or for a period of one (1)
            year after termination or expiration of this Agreement, either
            directly or indirectly, by any means or device whatsoever, solicit
            any of the other party's scientific, laboratory personnel or
            management involved with or working on any project for LSI or
            otherwise induce or attempt to induce such personnel to terminate
            their employment with such party.

      11.3  Governing Law. This Agreement, including the decision to arbitrate
            and any decision by an arbitrator pursuant to Article 9, herein,
            shall be governed by and construed in accordance with the laws of
            the State of California, without regard to the conflicts of law
            principles thereof, and shall not be governed by the United Nations
            Convention on Contracts for the International Sale of Goods.

      11.4  U.S. Export Laws and Regulations. Each party hereby acknowledges
            that the rights and obligations of this Agreement are subject to the
            laws and regulations of the United States relating to the export of
            products and technical information. Without limitation, each party
            shall comply with all such laws and regulations.


                                                                   Page 13 of 54
<PAGE>   14
                                                             Agreement No. _____

      11.5  Assignment. LSI shall not assign its rights or obligations under
            this Agreement, in whole or in part, by operation of law or
            otherwise, without the prior written consent of SRI. Any purported
            assignment in violation of this article shall be null and void.

      11.6  Severability. Any of the provisions of this Agreement which are
            determined to be invalid or unenforceable in any jurisdiction shall
            be ineffective to the extent of such invalidity or unenforceability
            in such jurisdiction, without rendering invalid or unenforceable the
            remaining provisions hereof and without affecting the validity or
            enforceability of any of the terms of this Agreement in any other
            jurisdiction.

      11.7  Waiver. The waiver by either party hereto of any right hereunder or
            the failure to perform or of a breach by the other party shall not
            be deemed a waiver of any other right hereunder or of any other
            breach or failure by said other party whether of a similar nature or
            otherwise.

      11.8  Entire Agreement. This Agreement embodies the entire understanding
            between the parties and supersedes any prior understanding and
            agreements between and among them respecting the subject matter
            hereof. There are no representations, agreements, arrangements or
            understandings, oral or written, between the parties hereto relating
            to the subject matter of this Agreement which are not fully
            expressed herein. No change, modification, extension, termination or
            waiver of this Agreement, or any of the provisions herein contained,
            shall be valid unless made in writing and signed by duly authorized
            representatives of the parties hereto.

      11.9  Counterparts. This Agreement may be executed in two or more
            counterparts, each of which shall be deemed an original, but all of
            which together shall constitute one and the same instrument.

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

SRI INTERNATIONAL                      LIPID SCIENCES, INC.


/s/ Curtis R. Carlson                  /s/ Phil Radlick
_____________________________          _____________________________

       Curtis R. Carlson                      Phil Radlick
Name: _______________________          Name: ______________________

        CEO                                   President/CEO
Title: ______________________          Title: ________________________


                                                                   Page 14 of 54
<PAGE>   15
                                                          Agreement No._________




                                    EXHIBIT A

                                DEVELOPMENT PLAN

      Development of Plasma Delipidation Device for Lipid Sciences, Inc.


[* ]





Phase II:   Scope not included in this Program Plan


                                                                   Page 15 of 54
<PAGE>   16
                                                          Agreement No._________



                                  EXHIBIT B

                                 DISCLOSURES



                                    [ * ]



                                                                   Page 16 of 54
<PAGE>   17
                                                             Agreement No. _____

                                    EXHIBIT C

                    WARRANT AND SHAREHOLDERS RIGHTS AGREEMENT

This security has been acquired for investment and has not been registered under
the Securities Act of 1933, as amended, or applicable state securities laws.
This security may not be sold, pledged or otherwise transferred in the absence
of this registration or pursuant to an exemption therefrom under the Act and
laws, supported by an opinion of counsel, reasonably satisfactory to the Company
and its counsel, that registration is not required.

                                                             For the Purchase of
                                                                  500,000 shares

                          COMMON STOCK PURCHASE WARRANT
                               FOR THE PURCHASE OF
                            SHARES OF COMMON STOCK OF
                              LIPID SCIENCES, INC.

Lipid Sciences, Inc., a Delaware corporation ("Company"), hereby certifies that
for value received, SRI International, or its registered assigns ("Holder"), is
entitled, subject to the terms set forth below, to purchase from the Company, at
any time or from time to time during the period commencing on October 6, 2000
("Grant Date") and ending on October 6, 2007, five hundred thousand (500,000)
shares of common stock, $.01 par value, of the Company "Common Stock"), at an
initial exercise price equal to $5.00 per share. The number of shares of Common
Stock purchasable upon exercise of this Warrant, and the exercise price per
share, each as adjusted from time to time pursuant to the provisions of this
Warrant, are hereinafter referred to as the "Warrant Shares" and the "Exercise
Price," respectively.

Exercise.

      (a)   The Warrant will be exercisable as follows:

            (i) Upon completion of Phase I of the Development Program, as
defined in that certain Development Agreement between the Company and SRI, the
Warrant will become exercisable with respect to one hundred thousand fifty
(150,000) shares of LSI common stock.

            (ii) Upon demonstration of the medical device at the end of Phase II
of the Development Program, the Warrant will become exercisable with respect to
three hundred fifty thousand (350,000) shares of LSI common stock.

      (b) This Warrant may be exercised by the Holder, in whole or in part, by
the surrender of this Warrant (with the Notice of Exercise Form attached hereto
as Attachment 1 duly executed by the Holder who is registered on the Company
books as the Holder (the "Registered Holder")) at the principal office of the
Company, or at any other office or agency the Company designates, accompanied by
payment in full, in lawful money of the United States, of an


                                                                   Page 17 of 54
<PAGE>   18
                                                             Agreement No. _____

amount equal to the then applicable Exercise Price multiplied by the number of
Warrant Shares then being purchased upon exercise.

      (c) Each exercise of this Warrant will be deemed to have been effected
immediately prior to the close of business on the day on which this Warrant is
surrendered to the Company as provided in subsection 1(b) above. At that time,
the person or persons in whose name or names any certificates for Warrant Shares
will be issuable upon exercise as provided in subsection 1(d) below will be
deemed to have become the holder or holders of record of the Warrant Shares
represented by these certificates.

      (d) Within three (3) business days after the exercise of the purchase
right represented by this Warrant, the Company at its expense will use its best
efforts to cause to be issued in the name of, and delivered to, the Holder, or,
subject to the terms and conditions hereof, to any other individual or entity as
Holder (upon payment by Holder of any applicable transfer taxes) may direct:

            (i) a certificate or certificates for the number of full shares of
Warrant Shares to which Holder is entitled upon exercise plus, in lieu of any
fractional share to which Holder would otherwise be entitled, cash in an amount
determined pursuant to Section 3 hereof, and

            (ii) in case the exercise is in part only, a new warrant or warrants
(dated the date hereof) of like tenor, stating on the face or faces thereof the
number of shares currently stated on the face of this Warrant minus the number
of shares purchased by the Registered Holder upon exercise as provided in
subsection 1(b) above.

      (e) Conversion Right. In lieu of the payment of the Exercise Price in the
manner required by Section 1(b), the Holder will have the right (but not the
obligation ) to convert any exercisable but unexercised portion of this Warrant
into Common Stock ("Conversion Right") as follows: upon exercise of the
Conversion Right, the Company will deliver to the Holder (without payment by the
Holder of any of the Exercise Price in cash) that number of shares of Common
Stock equal to the quotient obtained by dividing (x) the "Value" (as defined
below) of the portion of the Warrant being converted by (y) the Market Price (as
defined below). The "Value" of the portion of the Warrant being converted equals
the remainder derived from subtracting (a) the Exercise Price multiplied by the
number of shares of Common Stock underlying the portion of the Warrant being
converted from (b) the Market Price of the Common Stock multiplied by the number
of shares of Common Stock underlying the portion of the Warrant being converted.
As used herein, the term "Market Price" means the last reported sale price of
the Common Stock on the date prior to the date the Conversion Right is
exercised. If no reported sale takes place on that day, the term "Market Price"
means the average of the last reported sale prices for the immediately preceding
three trading days. In either case, the reported sale price is the one
officially reported by the principal securities exchange on which the Common
Stock is listed or admitted to trading, or, if the Common Stock is not listed or
admitted to trading on any national securities exchange or if any exchange on
which the Common Stock is listed is not its principal trading market, the last
reported sale price as furnished by the National Association of Securities
Dealers, Inc. ("NASD") through the Nasdaq Stock Market, or, if applicable, the
OTC Bulletin Board. If the Common Stock is not listed or admitted to trading on
any of the foregoing markets, or similar organization, the term "Market Price"
means the price determined in good faith by


                                                                   Page 18 of 54
<PAGE>   19
                                                             Agreement No. _____

resolution of the Board of Directors of the Company, based on the best
information available to it. The Conversion Right may be exercised by the Holder
on any business day on or after the Grant Date and not later than the Expiration
Date by delivering this Warrant to the Company with a duly executed exercise
form attached hereto with the conversion section completed.

Adjustments.

      (a) Split, Subdivision or Combination of Shares. While this Warrant
remains outstanding and unexpired, if the outstanding shares of the Company's
Common Stock at any time is subdivided or split into a greater number of shares
or a dividend in Common Stock will be paid in respect of Common Stock, or if the
outstanding shares of Common Stock are combined or reverse-split into a smaller
number of shares the Exercise Price and the number and kind of Warrant Shares
issuable upon exercise of this Warrant as in effect immediately prior to such
action shall be proportionately adjusted so that the Holder may receive the
aggregate number and kind of shares of capital stock of the Company which such
Holder would have owned immediately following such action if this Warrant had
been exercised immediately prior to such action.

      (b) Reclassification Reorganization, Consolidation or Merger. In the case
of any reclassification of the Common Stock (other than a change in par value or
a subdivision or combination as provided for in subsection 2(a) above), or any
reorganization, consolidation or merger of the Company with or into another
corporation, or a transfer of all or substantially all of the assets of the
Company, or the payment of a liquidating distribution then, as part of any such
reorganization, reclassification, consolidation, merger, sale or liquidating
distribution, lawful provision will be made so that the Holder of this Warrant
will have the right thereafter to receive upon the exercise hereof (to the
extent, if any, still exercisable) the kind and amount of shares of stock or
other securities or property that Holder would have been entitled to receive if,
immediately prior to any reorganization, reclassification, consolidation,
merger, sale or liquidating distribution, as the case may be, Holder had held
the number of shares of Common Stock that were then purchasable upon the
exercise of this Warrant. In any case, appropriate adjustment (as reasonably
determined by the Board of Directors of the Company) will be made in the
application of the provisions set forth herein with respect to the rights and
interests thereafter of the Holder of this Warrant so that the provisions set
forth in this Section 2 (including provisions with respect to the Exercise
Price) will thereafter be applicable, as nearly as is reasonably practicable, in
relation to any shares of stock or other securities or property thereafter
deliverable upon the exercise of this Warrant.

      (c) Price Adjustment. No adjustment in the Exercise Price will be required
unless the adjustment requires an increase or decrease in the Exercise Price of
at least $0.01. But, any adjustments that by reason of this subsection are not
required to be made will be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 2 will be made to the
nearest cent or to the nearest 1/100th of a share.

      (d) Price Reduction. Notwithstanding any other provision set forth in this
Warrant, while this Warrant is exercisable, the Company in its sole discretion
may reduce the Exercise Price or extend the period that this Warrant is
exercisable.


                                                                   Page 19 of 54
<PAGE>   20
                                                             Agreement No. _____

      (e) No Impairment. The Company may not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company. The Company will at all times in
good faith assist in the carrying out of all the provisions of this Section 2
and will take all actions as may be necessary or appropriate in order to protect
against impairment of the rights of the Holder of this Warrant to adjustments in
the Exercise Price.

      (f) Notice of Adjustment. If any event requires an adjustment of the
Exercise Price hereunder, the Company will promptly give written notice thereof
to the Holder of this Warrant stating the adjusted Exercise Price and the
adjusted number of Warrant Shares resulting from the event and setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.

Fractional Shares. The Company is not required upon this Warrant's exercise to
issue any fractional shares, but will make an adjustment in cash on the basis of
the Market Price of the Company's Common Stock.

Limitation on Sales. Each holder of this Warrant acknowledges that this Warrant
and the Warrant Shares have not been registered under the Securities Act of
1933, as amended ("Act"), as of the date of issuance hereof and agrees not to
sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this
Warrant, or any Warrant Shares issued upon its exercise except under
circumstances which will not result in a violation of applicable federal and
state securities laws and the terms and conditions of this Warrant.

      Without limiting the generality of the foregoing, unless the offer and
sale of the Warrant Shares to be issued on the particular exercise of the
Warrant have been effectively registered under the Act, the Company is under no
obligation to issue the shares covered by the exercise unless the Holder has
executed an investment letter, the form attached hereto as Attachment 2; it
being understood that the box referenced in item (f) of such investment letter
need be checked. Any stock certificate representing Warrant Shares will be
imprinted with a legend in substantially the following form:

   This security has been acquired for investment and has not been registered
   under the Securities Act of 1933, as amended, or applicable state securities
   laws. This security may not be sold, pledged or otherwise transferred in the
   absence of such registration or pursuant to an exemption therefrom under said
   Act and such laws.

Market Stand-off.

Holder may not, without the prior written consent of the Company's Board of
Directors, during the period commencing on the effective date of the first
public offering of the Common Stock of the Company to the general public which
is effected pursuant to a registration statement filed with the Securities and
Exchange Commission under the Act ("IPO") and ending on the second anniversary
of this date (i) lend, offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,


                                                                   Page 20 of 54
<PAGE>   21
                                                             Agreement No. _____

right or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of the Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock (whether such shares or any such
securities are then owned by Holder or are thereafter acquired), or (ii) enter
into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of the Common Stock, whether
any such transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise. In
order to enforce the covenant in this Section, the Company may impose
stop-transfer instructions with respect to the shares of Holder until the end of
the relevant period. The agreed upon "lock-up" has been established with the
understanding that LSI employees are presently restricted from selling the stock
they receive from LSI until two (2) years following LSI's IPO. Should the
"lock-up" period for LSI's employees be reduced such that they can sell their
stock prior to two (2) years following LSI's IPO, then the "lock-up" period
applicable to SRI's shares shall be reduced to the same extent. SRI may transfer
all or a portion of the Warrant under the terms of its Intellectual Property and
Equity Sharing Policy. All persons who receive any portion of the Warrant will
be subject to the market stand-off described in this section.

Registration Rights.

      (a) Grant of Right. The Holders will have the right until October 6, 2007,
to include the Warrant Shares as part of any registration of securities filed by
the Company (other than in connection with a transaction contemplated by Rule
145(a) promulgated under the Securities Act or under Form S-8 or any equivalent
form). The Company is not required to include Warrant Shares in a registration
statement relating to an offering of securities if the managing underwriter has
advised the Company that marketing factors require a limitation of the number of
shares to be included (in which case the amount of securities to be offered for
the accounts of Holders will be reduced pro rata (according to the shares
proposed for registration) to the extent necessary to reduce the total amount of
securities to be included in the offering to the amount recommended by the
managing underwriter. Any such limitation may reduce the number of Warrant
Shares registered for the Holder to not less than thirty percent (30%) of the
total number of Warrant Shares requested to be included).

      (b) Terms. The Company will bear all fees and expenses attendant to
registering the Warrant Shares, but Holders will pay any and all underwriting
commissions and the expenses of any legal counsel selected by Holders to
represent them in connection with the sale of the Warrant Shares. In the event
of a proposed registration, the Company will furnish the then Holders with not
less than 30 days' written notice prior to the proposed date of filing of such
registration statement. This notice will continue to be given for each
registration statement filed by the Company until the earlier of (i) such time
as all of the Warrant Shares have been sold by the Holders thereof or (ii) the
expiration of the "piggy-back" rights provided for herein. The Holders will
exercise the "piggy-back" rights provided for herein by giving written notice
within 20 days of the receipt of the Company's notice of its intention to file
a registration statement. The Company will cause any registration statement
filed pursuant to the above "piggy-back" rights to remain effective for a period
of at least nine consecutive months from the date that the Holders of the
Warrant Shares covered by the registration statement are first given the
opportunity to sell all of the securities. Notwithstanding the


                                                                   Page 21 of 54
<PAGE>   22
                                                             Agreement No. _____

provisions of this Section, the Company will have the right at any time after it
will have given written notice of its intention to file a registration statement
(irrespective of whether a written request for inclusion of any Warrant Shares
will have been made) to elect not to file any proposed registration statement,
or to withdraw the same after the filing but prior to the effective date
thereof.

      (c) Indemnification. The Company will indemnify the Holder(s) of the
Warrant Shares to be sold pursuant to any registration statement hereunder and
each person, if any, who controls such Holders within the meaning of Section 15
of the Securities Act or Section 20(a) of the Securities Exchange Act of 1934,
as amended ("Exchange Act"), against all loss, claim, damage, expense or
liability (including all reasonable attorneys' fees and other expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Securities Act,
the Exchange Act or otherwise, arising out of or based upon any untrue statement
or alleged untrue statement of a material fact contained in (i) such
registration statement; or (ii) any application or other document or written
communication (in this paragraph (c) collectively called "application") executed
by the Company or based upon written information furnished by the Company in any
jurisdiction in order to qualify the Warrant Shares under the securities laws
thereof or filed with the Commission, any state securities commission or agency,
Nasdaq or any securities exchange; or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, unless such statement or omission was made in reliance
upon, and in strict conformity with, written information furnished to the
Company with respect to the Holder(s) by or on behalf of the Holder(s) expressly
for use in such registration statement or in any application, as the case may
be. The Company agrees promptly to notify the Holder(s) of the commencement of
any litigation or proceedings against the Company or any of its officers,
directors or controlling persons in connection with the issue and sale of the
Warrant Shares or in connection with the registration statement or any
application. The Holder(s) and their successors and assigns will severally, and
not jointly, indemnify the Company, against all loss, claim, damage, expense or
liability (including all reasonable attorneys' fees and other expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which they may become subject under the Securities Act, the
Exchange Act or otherwise, arising from information furnished by or on behalf of
such Holders, with respect to such Holders, in writing, for specific inclusion
in such registration statement or any application.

      (d) Elimination of Registration Rights. Notwithstanding anything to the
contrary in paragraphs (a) and (b) of this Section 6, no Holders are entitled to
have their Warrant Shares registered under the Securities Act if, in the opinion
of counsel to the Company, they may be sold without restriction under Rule
144(k) promulgated under the Securities Act and any restrictive legends under
the Securities Act are removed from the certificates representing such
securities and any stop transfer order for the certificates is removed.

      (e) Successors and Assigns. The registration rights granted to the Holders
inure to the benefit of all the Holders' successors, heirs, pledgees, assignees,
transferees and purchasers of the Warrant Shares.


                                                                   Page 22 of 54
<PAGE>   23
                                                             Agreement No. _____

      (f) Exercise of Warrants. Nothing contained in this Agreement will be
construed as requiring the Holder(s) to exercise their Warrants prior to or
after the initial filing of any registration statement or the effectiveness
thereof.

      (g) Documents Delivered to Holders. The Company will furnish to each
Holder participating in any of the foregoing offerings and to each underwriter
of any such offering, if any, a signed counterpart, addressed to such Holder or
underwriter, of (i) an opinion of counsel to the Company, dated the effective
date of the registration statement (and, if the registration includes an
underwritten public offering, an opinion dated the date of the closing under any
underwriting agreement related thereto), and (ii) a "cold comfort" letter dated
the effective date of the registration statement (and, if the registration
includes an underwritten public offering, a letter dated the date of the closing
under the underwriting agreement) signed by the independent public accountants
who have issued a report on the Company's financial statements included in the
registration statement, in each case covering substantially the same matters
with respect to the registration statement (and the prospectus included therein)
and, in the case of the accountants' letter, with respect to events subsequent
to the date of the financial statements, as are customarily covered in opinions
of issuer's counsel and in accountants' letters delivered to underwriters in
underwritten public offerings of securities. The Company will also deliver
promptly to each Holder participating in the offering requesting the
correspondence and memoranda described below and to the managing underwriter
copies of all correspondence between the Commission and the Company, its counsel
or auditors and all memoranda relating to discussions with the Commission or its
staff with respect to the registration statement and permit each Holder and
underwriter to do such investigation, upon reasonable advance notice, with
respect to information contained in or omitted from the registration statement
as it deems reasonably necessary to comply with applicable securities laws or
rules of the National Association of Securities Dealers, Inc.

Notices of Record Date. If:

      (a) the Company takes a record of the holders of its Common Stock (or
other stock or securities at the time deliverable upon the exercise of this
Warrant) for the purpose of entitling or enabling them to receive any dividend
or other distribution, or to receive any right to subscribe for or purchase any
shares of any class or any other securities, or to receive any other right, or

      (b) the Company enters into any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the surviving entity), or any
transfer of all or substantially all of the assets of the Company, or

      (c) the Company is the subject of the voluntary or involuntary
dissolution, liquidation or winding-up of the Company, then, and in each case,
the Company will mail or cause to be mailed to the Registered Holder of this
Warrant a notice specifying, as the case may be, (i) the date on which a record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, or
(ii) the effective date on which such reorganization, reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or such other


                                                                   Page 23 of 54
<PAGE>   24
                                                             Agreement No. _____

stock or securities at the time deliverable upon the exercise of this Warrant)
will be entitled to exchange their shares of Common Stock (or such other stock
or securities) for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, transfer, dissolution,
liquidation or winding-up. Such notice will be mailed at least fifteen (15) days
prior to the record date or effective date for the event specified in such
notice, provided that the failure to mail such notice will not affect the
legality or validity of any such action.

Reservation of Stock. The Company will at all times reserve and keep available,
solely for issuance and delivery upon the exercise of this Warrant, Warrant
Shares and other stock, securities and property, as from time to time will be
issuable upon the exercise of this Warrant.

Replacement of Warrants. Upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant and (in
the case of loss, theft or destruction) upon delivery of an indemnity agreement
(with surety if reasonably required) in an amount reasonably satisfactory to the
Company, or (in the case of mutilation) upon surrender and cancellation of this
Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor.

Transfers, etc.

      (a) The Company will maintain a register containing the names and
addresses of the Holders of this Warrant. Any Holder may change its, his or her
address as shown on the warrant register by written notice to the Company
requesting such change.

      (b) Until any transfer of this Warrant is made in the warrant register,
the Company may treat the registered Holder of this Warrant as the absolute
owner hereof for all purposes; provided, however, that if and when this Warrant
is properly assigned in blank, the Company may (but will not be obligated to)
treat the bearer hereof as the absolute owner hereof for all purposes,
notwithstanding any notice to the contrary.

No Rights as Stockholder. Until the exercise of this Warrant, the Holder of this
Warrant does not have or exercise any rights by virtue hereof as a stockholder
of the Company.

Successors. The rights and obligations of the parties to this Warrant inure to
the benefit of and are binding on the parties and their respective heirs,
successors, assigns, pledgees, transferees and purchasers. Without limiting the
foregoing, the registration rights set forth in this Warrant inure to the
benefit of the Registered Holder and all the Registered Holder's successors,
heirs, pledgees, assignees, transferees and purchasers of this Warrant and the
Warrant Shares.

Change or Waiver. Any term of this Warrant may be changed or waived only by an
instrument in writing signed by the party against whom enforcement of the change
or waiver is sought.

Headings.  The headings in this Warrant are for purposes of reference only
and will not limit or otherwise affect the meaning of any provision of this
Warrant.


                                                                   Page 24 of 54
<PAGE>   25
                                                             Agreement No. _____

Governing Law. This Warrant is governed by and construed in accordance with the
laws of the State of California as these laws are applied to contracts made and
to be fully performed entirely within that state between residents of that
state.

Jurisdiction and Venue. The Company (i) agrees that any legal suit, action or
proceeding arising out of or relating to this Warrant will be instituted
exclusively in California, (ii) waives any objection to the venue of any such
suit, action or proceeding and the right to assert that such forum is not a
convenient forum.

Mailing of Notices, etc. All notices and other communications under this Warrant
(except payment) will be in writing and will be sufficiently given if delivered
to the addressees in person, by Federal Express or similar receipt delivery, or
if mailed, postage prepaid, by certified mail, return receipt requested, as
follows:

Holder:                             To his, her or its address on page 1
                                      of this Warrant.

The Company:                        Lipid Sciences, Inc.
                                    7068 Koll Center Parkway, Suite 401
                                    Pleasanton, CA 94566

In either case, with a copy to:     Joseph Lesko
                                    Foley & Lardner
                                    402 W. Broadway 23rd Floor
                                    San Diego, CA
                                    (619)234-3510 FAX

or to any other address as any of them, by notice to the others may designate
from time to time. Time will be counted to, or from, as the case may be, the
delivery in person or by mailing.

LIPID SCIENCES, INC.



By: ___________________________
    Phillip C. Radlick, Ph.D
    President & CEO


                                                                   Page 25 of 54
<PAGE>   26
                                                             Agreement No. _____

                                  ATTACHMENT 1

                               NOTICE OF EXERCISE


TO:    Lipid Sciences, Inc.

The undersigned hereby elects irrevocably to purchase _____ shares of Common
Stock of Lipid Sciences, Inc., pursuant to terms of the attached Warrant, and
tenders herewith payment of the exercise price of such shares in full, together
with all applicable transfer taxes, if any. Please issue a certificate or
certificates representing said shares of the Common Stock in the name of the
undersigned or in such other name as is specified below.

                                       or

The undersigned hereby elects irrevocably to exercise the within Warrant and to
purchase ____________ shares of Common Stock of Lipid Sciences, Inc. by
surrender of the unexercised portion of the within (with a "Value" of $________
based on a "Market Price" of $__________). Please issue a certificate or
certificates representing said shares of Common Stock in the name of the
undersigned or in such other name as is specified below.



                              _____________________________________
                              (Name)

                              _____________________________________
                              (Address)

                              _____________________________________

                              _____________________________________
                              (Taxpayer Identification Number)



_________________________________________
[print name of Holder]
By: _____________________________________

Title:___________________________________

Date:____________________________________

      NOTICE: The signature to this form must correspond with the name as
written upon the face of the within Warrant in every particular without
alteration or enlargement or any change whatsoever.


                                                                   Page 26 of 54
<PAGE>   27
                                                             Agreement No. _____

                                  ATTACHMENT 2

                      INVESTMENT REPRESENTATION CERTIFICATE


Purchaser:

Company:    [COMPANY]

Security:   Common Stock

Amount:

Date:

(a) In connection with the purchase of the above-listed securities (the
"Securities"), the undersigned (the "Purchaser") represents to the Company as
follows:

(b) The Purchaser is aware of the Company's business affairs and financial
condition, and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. The Purchaser is
purchasing the Securities for its own account for investment purposes only and
not with a view to, or for the resale in connection with, any "distribution"
thereof for purposes of the Securities Act of 1933, as amended (the "Securities
Act");

(c) The Purchaser understands that the Securities have not been registered under
the Securities Act in reliance upon a specific exemption therefor, which
exemption depends upon, among other things, the bona fide nature of the
Purchaser's investment intent as expressed herein;

(d) The Purchaser further understands that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from registration is otherwise available. In addition, the
Purchaser understands that the certificate evidencing the Securities will be
imprinted with the legend referred to in the Warrant under which the Securities
are being purchased; and

(e) The Purchaser is aware of the provisions of Rule 144, promulgated under the
Securities Act, which, in substance, permit limited public resale of "restricted
securities" acquired, directly or indirectly, from the issuer thereof (or from
an affiliate of such issuer), in a non-public offering subject to the
satisfaction of certain conditions, if applicable, including, among other
things: (i) the availability of certain public information about the Company;
(ii) the resale occurring not less than one (1) year after the party has
purchased and paid for the securities to be sold; (iii) the sale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934) and the amount of securities being sold during any
three-month period not exceeding the specified limitations stated therein.

(f) Please check the box if you are an accredited investor as that term is
defined under Regulation D promulgated under the Securities Act. [ ]


PURCHASER: ____________________________     Date: ______________________


                                                                   Page 27 of 54
<PAGE>   28
                                                             Agreement No. _____

                                    EXHIBIT D

                            CLIENT OBSERVER AGREEMENT

In consideration of SRI International permitting me to enter onto the premises
of SRI, or into a site or an area under the control of SRI, for the purposes of
witnessing or participating in a research program(s) or experiment(s) being
conducted by SRI International, its staff, agents or subcontractors, I agree as
follows:

      1. I understand that the nature of the research program, or the experiment
I am witnessing or participating in, may in itself, contain elements which are
inherently or potentially dangerous and could cause damage or injury to persons
or property, including death. I accept the risk of any injury to my person or
property which may arise out of or during the research program or the experiment
I am witnessing or participating in. I agree that no legal duty of any kind for
the safety of my person or property shall be imposed upon SRI, its staff,
agents, or subcontractors in connection with the research program or the
experiment I am witnessing or participating in.

      2. I agree to follow all safety rules and requirements established for the
premises, or required by the overriding contract, if any, of which the
experiment or program is a part, and to follow safety instructions or directions
of SRI representatives.

      3. I agree to defend, indemnify and hold harmless SRI, its officers,
agents and employees from any and all claims, demands, actions or causes of
action and to pay all attorneys fees, expert witness fees and costs of the
defense of such action, seeking recovery for damages to the property of any
person or injury to any person (including myself) arising out of my
participation (active or passive) in the research project or experiment or
arising out of my presence as a witness at the research project or experiment. I
agree that this obligation to defend, indemnify and hold harmless shall not be
diminished or eliminated even if the damages or injury is the result of SRI's
negligence, or of the negligence of its officers, agents, employees or
subcontractors, and shall not be diminished or eliminated even if liability
without fault is imposed or sought to be imposed.

      4. I agree that during this association with SRI I will not be considered
an employee nor shall I be entitled to any compensation, since the benefit to
SRI, if any, by reason of my activities under this Agreement, is expected to be
merely incidental.

      5. I agree not to publish or make known to any one outside of SRI any data
or results of a confidential nature which I learn of while at SRI, without
written authorization from the President of SRI except as specified in a duly
executed written contract.


                                                                   Page 28 of 54
<PAGE>   29
                                                          Agreement No._________


Client Observer Agreement                                                 Page 2

      6. I agree to disclose to SRI, or its designee, any invention or discovery
which I make while engaged in a research assignment at SRI. If the terms of the
research contract, if any, for such assignment require that any such invention
or discovery be assigned to the research client, I agree to make such an
assignment. Otherwise, I will assign all rights to SRI. I agree to cooperate
with the patent attorney of SRI or the research client in the preparation of a
patent application if so requested.

      7. I agree that upon leaving SRI I will not take with me without the
consent of the President of SRI any drawings, blueprints, research or other data
of any description or other reproduction of any information except as specified
in a duly executed contract.

      8. All of the terms of this Agreement are subject to the terms of the
Development Agreement of October 6, 2000 between Lipid Sciences, Inc. and SRI.
To the extent that the terms of this Agreement may be inconsistent with those of
the Development Agreement, the terms of the latter shall govern.

      9.  This Agreement shall be governed by, and interpreted in accord
with, the laws of the State of California.

      My stay at SRI shall begin on ________________________ and end on
__________________.

IN WITNESS WHEREOF, I have affixed my signature hereto in the presence of a
witness the day and year first above written.



___________________________               ___________________________________
(WITNESS)                                 Participant/Client Observer



______________________________
(FOR SRI INTERNATIONAL)


                                                                   Page 29 of 54
<PAGE>   30
                                                          Agreement No._________


                                    EXHIBIT E

                      FORM OF SRI STANDARD LEASE AGREEMENT

                                      LEASE

This lease ("Lease") is entered into as of ___________, ____, by and between SRI
International, a California nonprofit corporation ("Landlord") and
________________, a ___________ corporation ("Tenant").

Subject to the terms and conditions set forth in this Lease, Landlord hereby
leases to Tenant, and Tenant hereby leases from Landlord, for the Term as
defined below and subject to the covenants hereinafter set forth, to all of
which Landlord and Tenant hereby agree, approximately ________________________
(____) square feet of office space (the "Leased Space") in Building __ (the
"Building"), at 333 Ravenswood Avenue, Menlo Park, California, as shown in
Exhibit A, and incorporated herein by this reference. Landlord reserves the
right to renumber and redesignate at any time during this Lease the number of
any space in the Building, including the Leased Space.

1.    TERM

      This Lease shall run month-to-month but shall not exceed ________ (__)
      month(s) commencing at 12:01 a.m. on ___________, ____, ("Commencement
      Date") and ending at 11:59 p.m. on _____________, ____, ("Termination
      Date") unless terminated earlier as provided in this Lease ("Term").

2.    BASIC RENT

      2.1   During the Term of this Lease, Tenant agrees to pay to Landlord, as
            basic monthly rent, for the use and occupancy of the Leased Space, a
            rate of __________________ dollars ($_______) per square foot for a
            total monthly rent of __________________ dollars ($_______) (the
            "Rent").

      2.2   Tenant shall pay the Rent to Landlord, without notice, demand,
            deduction or offset, in lawful money of the United States of
            America, at the following address of Landlord: 333 Ravenswood
            Avenue, Room AG039, Building A, Menlo Park, California, 94025, or
            any other place or places that Landlord may from time to time
            designate in writing.

      2.3   Should the Commencement Date occur on a day other than the first day
            of a calendar month, or if the Termination Date should occur on a
            day other than the last day of a calendar month, then the Rent for
            such fractional month shall be prorated upon a daily basis based
            upon a thirty (30) day calendar month.

      2.4   In the event any installment of Rent or Additional Rent (as defined
            in paragraph 5.3, below) due hereunder is not paid within ten (10)
            calendar days after it is due, then Tenant shall also pay to
            Landlord as Additional


                                                                   Page 30 of 54
<PAGE>   31
                                                          Agreement No._________

            Rent a late payment equal to four percent (4%) of such delinquent
            Rent for each and every month or part thereof that such Rent remains
            unpaid.

      2.5   All amounts of money payable by Tenant to Landlord hereunder, if not
            paid when due, shall bear interest from the due date until paid at
            the maximum annual interest rate of prime plus three percent (3%)
            with such rate not to exceed eighteen percent (18%).

      2.6   The obligation of Tenant with respect to the payment of Rent, or
            Additional Rent as defined herein, accrued and unpaid during the
            Term of this Lease, shall survive the expiration or earlier
            termination of this Lease.

3.    USE OF PREMISES AND COMPLIANCE WITH LAWS

      3.1   The Leased Space shall be used for general office purposes by Tenant
            and for no other use or uses without the prior express written
            consent of Landlord.

      3.2   Tenant covenants and agrees that Tenant shall at all times be
            responsible and liable for, and be in complete and strict compliance
            with, all federal, state, local and regional laws, ordinances,
            rules, codes and regulations, as amended from time to time.

4.    PROHIBITED USES AND ACTS

      Tenant shall not commit or permit the commission of any acts on the Leased
      Space nor use or permit the use of the Leased Space for any of the
      following purposes:

      4.1   Increases the existing rates for or causes cancellation of any fire,
            casualty, liability, or other insurance policy insuring the Building
            or its contents;

      4.2   Violates or conflicts with any law, statute, ordinance, or
            governmental rule or regulation, whether now in force or hereinafter
            enacted, governing the Leased Space or the Building;

      4.3   Obstructs or interferes with the rights of other tenants or
            occupants of the Building or injures or annoys them;

      4.4   Constitutes the commission of waste on the Leased Space or the
            commission or maintenance of a nuisance as defined by the laws of
            California;

      4.5   No discharge of chemicals or hazardous materials shall be made to
            the sewer or regular trash.

      4.6   Tenant agrees that during the Term of this Lease, Tenant will have
            contact with and access to Landlord's employees. Tenant recognizes
            that interference with the employment relationship between Landlord
            and its employees would cause substantial and irreparable harm to
            Landlord. Therefore, as part of the consideration for this Lease,
            Tenant hereby covenants and agrees that it will not, either during
            the Term of this Lease or for a period of one (1) year after


                                                                   Page 31 of 54
<PAGE>   32
                                                          Agreement No._________


            termination or expiration of this Lease, either directly or
            indirectly, by any means or device whatsoever, solicit or otherwise
            induce or attempt to induce any of Landlord's employees to terminate
            their employment with Landlord.

5.    ALTERATIONS BY TENANT

      5.1   No alteration, addition, or improvement to the Leased Space shall be
            made by Tenant without the prior written consent of Landlord.
            Concurrently with requesting Landlord's consent to the proposed
            alteration, addition, or improvement, Tenant shall submit to
            Landlord preliminary plans for the alteration, addition, or
            improvement. Landlord shall, in its reasonable discretion, approve
            or disapprove the proposed alteration, addition, or improvement,
            within thirty (30) days after its receipt of Tenant's written
            request for approval. If Landlord fails to affirmatively approve or
            disapprove the proposed alteration, addition, or improvement within
            the thirty (30) day period, the proposed alteration, addition, or
            improvement shall be deemed disapproved. If Landlord gives such
            written consent to any alteration, addition, or improvement to the
            Leased Space, Landlord and Tenant shall agree in writing at that
            time to the date when that undertaking shall be completed.

      5.2   All alterations, additions, or improvements shall be performed by
            Landlord's staff or its designee. Tenant shall obtain all necessary
            governmental permits required for any alteration, addition, or
            improvement approved by Landlord and shall comply with all
            applicable governmental law, regulations, ordinances, and codes. Any
            alteration, addition, or improvement not including removable
            equipment made by Tenant after consent has been given, and any
            fixtures installed as part of the construction, shall at Landlord's
            option become the property of Landlord on the expiration or other
            earlier termination of this Lease; provided, however, that Landlord
            shall have the right to require Tenant to remove the fixtures at
            Tenant's cost on termination of this Lease. If Tenant is required by
            Landlord to remove the fixtures on termination of this Lease, Tenant
            shall repair and restore any damages to the Leased Space caused by
            such removal.

      5.3   Except for the alterations which Landlord may make at its sole
            option in order to prepare the Leased Space for Tenant's occupancy,
            the costs of any alterations ("Alteration Costs") required by or
            requested by Tenant shall be paid for by Tenant within thirty (30)
            days of receipt of Landlord's invoice. In Landlord's sole
            discretion, the Alteration Costs may become additional rent
            ("Additional Rent") and shall be paid by Tenant according to such
            terms as the parties may agree. Landlord reserves the right to
            require that Tenant execute a non-terminable extension to this Lease
            as a condition of Landlord's accepting payment for the Alteration
            Costs as Additional Rent. Should Tenant vacate or abandon the Leased
            Space prior to payment of all of the Additional Rent, all
            outstanding Additional Rent shall immediately become due upon
            Tenant's notice of termination to Landlord or upon


                                                                   Page 32 of 54
<PAGE>   33
                                                          Agreement No._________


            termination of this Lease if Tenant fails to give notice of
            termination to Landlord. The outstanding sum must be paid whether or
            not Tenant has properly terminated this Lease. Landlord may treat
            Tenant's failure to pay Additional Rent as it would any other
            material breach of this Lease.

6.    SERVICES PROVIDED BY LANDLORD

      6.1   Landlord shall provide heat, HVAC, electricity, water, and
            janitorial service, all of which shall be included in the Rent.
            Landlord shall also provide health and safety response, which shall
            include emergency response, fire code and health and safety
            inspections, liaison services in dealing with fire code matters
            only, pest control, and investigation and abatement of air quality
            issues.

      6.2   Landlord may, in its sole discretion, provide Tenant with telephone
            and other communication equipment and lines which shall be installed
            and maintained by Landlord's PRB Telecommunication Services pursuant
            to a Services Agreement to be executed contemporaneously with this
            Lease. Landlord reserves the right to modify its telecommunications
            system if, in the reasonable opinion of Landlord, it is advisable or
            desirable. Tenant shall be responsible for the costs of all of
            Tenant's incoming or outgoing calls. If Landlord provides telephone
            service, Tenant agrees to execute such other agreements as Landlord
            may reasonably require including but not limited to a hold harmless
            agreement.

      6.3   Cleaning and maintenance of the office space in the Leased Space
            shall be regularly performed according to a schedule established by
            Landlord, in Landlord's sole discretion.

7.    SERVICES NOT PROVIDED BY LANDLORD

      Space is provided on an "AS IS" basis. Any improvements, alterations, or
      modifications of the Leased Space will be at Tenant's sole expense. Tenant
      shall obtain SRI's approval prior to altering the Leased Space. SRI
      reserves the right to refuse any improvement requests. All work done must
      be performed by SRI Facility staff.

8.    MAINTENANCE AND REPAIRS OF LEASED SPACE

      8.1   Subject to the duty of the Landlord under this Lease to provide
            regular cleaning service for the Leased Space and to perform routine
            maintenance and repairs for the Leased Space as needed, Tenant shall
            during the Term of this Lease maintain the Leased Space, in a good,
            clean, and safe condition, and shall upon expiration or earlier
            termination of this Lease surrender the Leased Space to Landlord in
            as good condition and repair as existed on the date of this Lease,
            reasonable wear and tear and damage by the elements excepted.
            Tenant, at Tenant's own expense, shall pay the reasonable costs


                                                                   Page 33 of 54
<PAGE>   34
                                                          Agreement No._________


            to repair all deterioration or damages to the Leased Space or to the
            Building occasioned by Tenant's negligence or willful misconduct.

      8.2   Except as otherwise provided in this Lease, Landlord shall perform,
            at Landlord's sole expense, all repairs and maintenance for the
            Leased Space and the Building. Any repairs by Landlord shall be made
            promptly with first-class materials, in a good and workmanlike
            manner, in compliance with all applicable laws of all governmental
            authorities, and in a style, character, and quality conforming to
            the existing construction. Except in the case of any emergency,
            Landlord shall not enter the Leased Space for the purpose of
            effecting the repairs, alterations, or improvements other than
            during normal business hours, and shall give Tenant twenty-four (24)
            hours notice of the intention to enter for those purposes.

      8.3   Except for cases of emergency, Landlord shall make all repairs
            required hereunder as soon as is reasonably practical.

9.    INSPECTION BY LANDLORD

      Upon twenty-four (24) hours prior written notice from Landlord, Tenant
      shall permit Landlord or Landlord's agents, representatives, or employees
      to enter the Leased Space at all reasonable times for the purpose of
      inspecting the Leased Space to determine whether Tenant is complying with
      the terms of this Lease and for the purpose of doing other lawful acts
      that may be necessary to protect Landlord's interests. In the event Tenant
      fails to timely perform its obligations under this Lease, Landlord shall
      have the right (but shall not be obligated) to perform Tenant's
      obligations under this paragraph, in which event, Tenant shall pay to
      Landlord, as Additional Rent, in ten (10) days, the costs and expenses
      thereof.

10.   COMMON AREAS OF BUILDING

      10.1  Landlord shall make available at all reasonable times during the
            Term of this Lease in any portion of the Building that Landlord from
            time to time designates or relocates, automobile parking and common
            areas (jointly referred to as "common areas," as that term is
            defined below) as Landlord shall from time to time deem appropriate.
            Tenant shall have the non-exclusive right during the Term of this
            Lease to use the common areas for itself, its employees, agents,
            customers, clients, invitees, and licensees.

      10.2  The term "common areas" means the portions of the Building that, at
            the time in question, have been designated and improved for common
            use by or for the benefit of more than one tenant of the Building,
            including the parking areas; access and perimeter roads; landscaped
            areas; exterior walks, roofs, stairways, elevators, escalators
            and/or ramps; interior corridors, elevators, stairs, and balconies;
            directory equipment; the main entry lobby; restrooms; and drinking
            fountains. Landlord reserves the right to redesignate a common area
            for a non-common use or to designate as a


                                                                   Page 34 of 54
<PAGE>   35
                                                          Agreement No._________


            common area a portion of the Building not previously designated a
            common area.

      10.3  All common areas shall be subject to the exclusive control and
            management of Landlord or any other persons or nominees that
            Landlord may have delegated or assigned to exercise management or
            control, in whole or in part, in Landlord's place and stead.
            Landlord shall have the right to close, if necessary, all or any
            portion of the common areas as is deemed reasonably necessary by
            Landlord in order to effect necessary repairs, maintenance, or
            construction, or to maintain the safety of tenants or the general
            public. Landlord will maintain the common areas in a clean, orderly,
            and sanitary manner. Landlord is responsible for all repairs of the
            common areas, except those required due to the negligent or
            intentional conduct of Tenant.

      10.4  Landlord and Landlord's nominees and assignees shall have the right
            to establish, modify, amend, and enforce reasonable rules and
            regulations with respect to the common areas and the Building.
            Tenant shall fully and faithfully comply with and observe the rules
            and regulations for the common areas and the Building ("the Building
            Rules and Regulations"), of which the Leased Space is a part,
            including any additions or amendments to the Building rules and
            Regulations that may be hereafter enacted by Landlord in Landlord's
            sole discretion. Tenant acknowledges receipt of a copy of the
            Building Rules and Regulations, which are attached hereto and
            incorporated into this Lease as Exhibit B. Landlord shall not be
            liable in any way for failure of any other occupant of the Building,
            other than the Landlord, of which the Leased Space is a part to
            comply with and observe these rules and regulations.

11.   PARKING RIGHTS AND OBLIGATIONS

      Included in the Rent payable by Tenant under this Lease for the Leased
      Space, Tenant shall have the non-exclusive right to ___________ (__)
      parking spaces in the parking area, for use by it and its employees.
      Subject to availability, Tenant may lease additional spaces at an
      additional cost of fifty dollars ($50.00) per space, per month. Landlord
      may in its sole discretion reconfigure the parking area and renumber the
      parking spaces or reassign Tenant or other tenants different parking
      spaces, provided that Tenant at all times is entitled to _______ (__)
      parking spaces.

12.   TENANT'S LIABILITY INSURANCE

      12.1  For the mutual benefit of Landlord and Tenant, Tenant, at Tenant's
            sole expense, shall during the Term of this Lease cause to be issued
            and maintained public liability and automobile insurance in the sum
            of at least five hundred thousand dollars ($500,000.00) for injury
            to or death of one person, and one million dollars ($1,000,000.00)
            for injury to or death of more than one person in any one accident,
            insuring that Tenant against liability for injury and/or death
            occurring in or on the Leased Space or the common areas. Landlord
            shall be named as an additional insured and the


                                 Page 35 of 54
<PAGE>   36
                                                          Agreement No._________


            policy shall contain cross-liability endorsements. Tenant shall
            maintain all such insurance in full force and effect during the
            entire Term of this Lease and shall pay all premiums for the
            insurance. Evidence of insurance and of the payment of premiums
            shall be delivered to Landlord upon request.

      12.2  All insurance required under this Lease shall be issued by insurance
            companies authorized to do business in California and having a
            policyholder rating of at least "A". Each policy shall contain an
            endorsement requiring thirty (30) days written notice from the
            insurance company to Landlord before cancellation or any change in
            coverage, scope, or amount of any policy. Each policy, or a
            certificate showing it is in effect, together with evidence of
            payment of premiums, shall be deposited with Landlord at the
            commencement of the Term, and renewal certificates or copies of
            renewal policies shall be delivered to Landlord at least thirty (30)
            days prior to the expiration date of any policy.

      12.3  Tenant shall provide and maintain at its own expense during the Term
            of this Lease, or any renewals thereof, workers compensation
            insurance in amounts required by applicable state laws.

      12.4  If, at any time during the Term, Tenant should fail to secure or
            maintain the foregoing insurance, Landlord shall be permitted but
            not required to obtain such insurance in Tenant's name or as the
            agent of Tenant and shall be compensated by Tenant for the cost of
            the insurance premiums. Provided that, prior to purchasing the
            insurance, Landlord shall provide Tenant with notice of its default
            and ten (10) days in which to correct the default. Tenant shall pay
            Landlord interest on paid insurance premiums at the rate of prime
            plus three percent (3%) per annum with such rate not to exceed
            eighteen percent (18%) per annum computed from the date written
            notices are received that the premiums have been paid.

      12.5  The parties hereto release each other and their respective agents,
            employees, successors, assignees and subtenants from all liability
            for injury to any person or damage to any property that is caused by
            or results from a risk which is actually insured against, which is
            required to be insured against under this Lease, or which would
            normally be covered by the standard form of "all risk-extended
            coverage" casualty insurance, without regard to the negligence or
            willful misconduct of the entity so released. Each party shall use
            its best efforts to cause each insurance policy it obtains to
            provide that the insurer thereunder waives all right of recovery by
            way of subrogation as required herein in connection with any injury
            or damage covered by the policy. If such insurance policy cannot be
            obtained with such waiver of subrogation, or if such waiver of
            subrogation is only available at additional cost and the party for
            whose benefit the waiver is not obtained does not pay such
            additional cost, then the party obtaining such insurance shall
            immediately notify the other party of that fact.


                                                                   Page 36 of 54
<PAGE>   37
                                                          Agreement No._________


      12.6  Proceeds from any such policy or policies shall be payable to
            Landlord, Tenant, and mortgagee, if any, as their interests may
            appear, who shall use such proceeds to make repairs as provided
            below.

      12.7  Notwithstanding the fact that any liability of Tenant to Landlord
            may be covered by Tenant's insurance, Tenant's liability shall in no
            way be limited by the amount of insurance recovery.

13.   INSURANCE FOR TENANT'S PERSONAL PROPERTY

      Tenant agrees at all times during the Term of this Lease to keep, at
      Tenant's sole expense, all of Tenant's personal property, including trade
      fixtures and equipment that may be on or in the Leased Space from time to
      time, insured against loss or damage by fire and/or theft in an amount
      that will ensure the ability of Tenant to fully replace the personal
      property, trade fixtures, and equipment.

14.   LIABILITY INSURANCE

      14.1  Landlord's Liability Insurance. Landlord shall obtain and keep in
            force during the Term of this Lease a policy of Combined Single
            Limit Bodily Injury and Broad Form Property Damage Insurance, plus
            coverage against such other risks Landlord deems advisable from
            time-to-time, insuring Landlord, but not Tenant, against liability
            arising out of the ownership, use, occupancy or maintenance of the
            Building.

      14.2  Tenant's Liability Insurance. For the mutual benefit of Landlord and
            Tenant, Tenant shall, during the Term of this Lease, cause to be
            issued and maintained, public liability insurance in the sum of at
            least five hundred thousand dollars ($500,000.00) for injury to or
            death of one person, and one million dollars ($1,000,000.00) for
            injury to or death of more than one person in any one accident,
            insuring Tenant against liability for injury and/or death occurring
            in or on the Leased Space or the common areas. Landlord shall be
            named as an additional insured and the policy shall contain
            cross-liability endorsements. Tenant shall maintain all such
            insurance in full force and effect during the entire Term of this
            Lease and shall pay all premiums for the insurance. Proof of
            insurance and of the payment of premiums shall be delivered to
            Landlord upon request.

15.   LANDLORD'S PROPERTY INSURANCE

      15.1  Landlord shall obtain and keep in force during the Term of this
            Lease a policy or policies of insurance covering loss or damage to
            the Building, but not Tenant's personal property, fixtures,
            equipment or tenant improvements, in the amount of the full
            replacement cost thereof, as the same may exist from time to time,
            utilizing Insurance Services Office standard form, or equivalent,
            providing protection against all perils included within the
            classification of fire, extended coverage, vandalism, malicious
            mischief, plate glass, and such other perils as Landlord deems
            advisable or may be


                                                                   Page 37 of 54
<PAGE>   38
                                                          Agreement No._________


            required by a lender having a lien on the Building. In addition,
            Landlord shall obtain and keep in force, during the Term of this
            Lease, a policy of rental value insurance covering a period of one
            (1) year, with loss payable to Landlord. Tenant will not be named in
            any such policies by Landlord and shall have no right to any
            proceeds therefrom. The policies required by these Paragraphs 14 and
            15 shall contain such deductibles as Landlord or the aforesaid
            lender may determine. Tenant shall not do or permit to be done
            anything which shall invalidate the insurance policies carried by
            Landlord. Tenant shall pay the entirety of any increase in the
            property insurance premium for the Building over what it was
            immediately prior to the commencement of the Term of this Lease if
            the increase is specified by Landlord's insurance carrier as being
            caused by the nature of Tenant's occupancy or any act or omission of
            Tenant.

      15.2  The obligation to pay for increase in the property insurance premium
            for the Building shall not apply to the extent such increase is
            caused by a shift of the Building to a rental property occupied by
            tenants unaffiliated with Landlord.

16.   NO REPRESENTATION OF ADEQUATE COVERAGE

      Landlord makes no representation that the limits or forms of coverage of
      insurance specified in Paragraph 12, above, are adequate to cover Tenant's
      property or obligations under this Lease.

17.   INDEMNIFICATION

      17.1  Landlord shall not be liable to Tenant, and Tenant hereby waives any
            and all claims against Landlord, for any injury or damage to any
            person or property in or about the Leased Space or any part of the
            Leased Space by or from any cause whatsoever, except injury or
            damage to Tenant resulting from the negligence or willful misconduct
            of Landlord or Landlord's authorized agents.

      17.2  Tenant shall hold Landlord harmless from and indemnify Landlord
            against any and all claims or liability for any injury or damage to
            any person or property whatsoever (1) occurring in, on, or about the
            Leased Space or any part of it; and (2) occurring in, on, or about
            the common areas of the Building when that injury or damage was
            caused in part or in whole by the act or omission of Tenant, its
            agents, servants, employees, or invitees.

      17.3  The indemnity obligations of Tenant under this paragraph shall
            survive the expiration or earlier termination of the Term of this
            Lease.

      17.4  Tenant hereby agrees that Landlord shall not be liable for injury to
            Tenant's business or any loss of income therefrom or for loss of or
            damage to the goods, wares, merchandise or other property of Tenant,
            Tenant's employees, invitees, customers, or any other person in or
            about the Premises or the


                                                                   Page 38 of 54
<PAGE>   39
                                                          Agreement No._________


            Building, nor shall Landlord be liable for injury to the person of
            Tenant, Tenant's employees, agents or contractors, whether such
            damage or injury is caused by or results from theft, fire, steam,
            electricity, gas, water or rain, or from any other cause, whether
            said damage or injury results from conditions arising upon the
            Premises or upon other portions of the Building, or from other
            sources or places, or from new construction or the repair,
            alteration or improvement of any part of the Building, or of the
            equipment, fixtures or appurtenances applicable thereto, and
            regardless of whether the cause of such damage or injury or the
            means of repairing the same is inaccessible, Landlord shall not be
            liable for any damages arising from any act or neglect of any other
            tenant, occupant or user of the Building, nor from the failure of
            Landlord to enforce the provisions of any other lease of any other
            tenant of the Building.

      17.5  Notwithstanding the foregoing terms of this paragraph, Landlord
            shall not be exempt from liability for damage or injury to the
            extent such damage or injury is caused by Landlord's negligence or a
            breach by it of its obligations under this Lease.

18.   DAMAGE OF LEASED SPACE OR BUILDING

      18.1  Definitions

            (a)   "Premises Damage" shall mean if the Premises are damaged or
                  destroyed to any extent.

            (b)   "Premises Building Partial Damage" shall mean if the Building
                  of which the Premises are a part is damaged or destroyed to
                  the extent that the cost to repair is less than fifty percent
                  (50%) of the then Replacement Cost of the building.

            (c)   "Premises Building Total Destruction" shall mean if the
                  Building of which the Premises are a part is damaged or
                  destroyed to the extent that the cost to repair is fifty
                  percent (50%) or more of the then Replacement Cost of the
                  Building.

            (d)   "Insured Loss" shall mean damage or destruction which was
                  caused by an event required to be covered by the insurance
                  described in Paragraphs 12 through 15, above. The fact that an
                  Insured Loss has a deductible amount shall not make the loss
                  an uninsured loss.

            (e)   "Replacement Cost" shall mean the amount of money necessary to
                  be spent in order to repair or rebuild the damaged area to the
                  condition that existed immediately prior to the damage
                  occurring, excluding all improvements made by Tenant.

      18.2  Premises Damage; Premises Building Partial Damage


                                                                   Page 39 of 54
<PAGE>   40
                                                          Agreement No._________


            (a)   Insured Loss: Subject to the provisions of Paragraphs 18.4
                  and 18.5, below, if at any time during the Term of this
                  Lease there is damage which is an Insured Loss and which
                  falls into the classification of either Premises Damage or
                  Premises Building Partial Damage, then Landlord shall, as
                  soon as reasonably possible and to the extent the required
                  materials and labor are readily available through usual
                  commercial channels, at Landlord's expense, repair such
                  damage (but not Tenant's fixtures, equipment or tenant
                  improvements originally paid for by Tenant) to its condition
                  existing at the time of the damage and this Lease shall
                  continue in full force and effect.

            (b)   Uninsured Loss: Subject to the provisions of Paragraphs 18.4
                  and 18.5, below, if at any time during the Term of this
                  Lease there is damage which is not an Insured Loss and which
                  falls within the classification of Premises Damage or
                  Premises Building Partial Damage, unless caused by a
                  negligent or willful act of Tenant (in which event Tenant
                  shall make the repairs at Tenant's expense) provided,
                  however, that Tenant shall only be obligated to pay for the
                  cost of repairs to the extent such cost exceeds insurance
                  proceeds actually received by the Landlord and Landlord has
                  used reasonable efforts to collect such proceeds which
                  damage prevents Tenant from making any substantial use of
                  the Premises, Landlord may at Landlord's option either (i)
                  repair such damage as soon as reasonably possible at
                  Landlord's expense, in which event this Lease shall continue
                  in full force and effect; or (ii) give written notice to
                  Tenant within thirty (30) days after the date of the
                  occurrence of such damage of Landlord's intention to cancel
                  and terminate this Lease as of the date of the occurrence of
                  such damage, in which event this Lease shall terminate as of
                  the date of the occurrence of such damage.  However, if
                  Tenant at its option is willing to pay the cost of repairs
                  in excess of the insurance proceeds actually received by
                  Landlord, Landlord shall not be permitted to terminate the
                  Lease, provided Tenant pays such excess amount or provides
                  such other reasonable security therefor to Landlord prior to
                  the commencement of the repairs or restoration

      18.3  Premises Building Total Destruction; Office Building Project Total
            Destruction

            Subject to the provisions of Paragraphs 18.4 and 18.5, below, if at
            any time during the Term of this Lease there is damage, whether or
            not it is an Insured Loss, which results in the Premises Building
            Total Destruction, then Landlord may at Landlord's option either (i)
            repair such damage or destruction as soon as reasonably possible at
            Landlord's expense (to the extent the required materials are readily
            available through usual commercial channels) to its condition
            existing at the time of the damage, but not Tenant's fixtures,
            equipment or tenant improvements, and this Lease shall continue in
            full force


                                                                   Page 40 of 54
<PAGE>   41
                                                          Agreement No._________


            and effect; or (ii) give written notice to Tenant within thirty (30)
            days after the date of occurrence of such damage of Landlord's
            intention to cancel and terminate this Lease, in which case this
            Lease shall terminate as of the date of the occurrence of such
            damage. In the event the repair by Landlord would require more than
            one hundred eighty (180) days, Tenant at its option may terminate
            the Lease by giving written notice to the Landlord within thirty
            (30) days after the date of the occurrence of the Premises Building
            Total Destruction.

      18.4  Damage Near End of Term

            (a)   Subject to Paragraph 18.4(b), below, if at any time during the
                  last nine (9) months of the Term of this Lease there is
                  substantial damage to the Premises, Landlord may at Landlord's
                  option cancel and terminate this Lease as of the date of such
                  damage by giving written notice to Tenant of Landlord's
                  election to do so within thirty (30) days after the date of
                  occurrence of such damage.

            (b)   Notwithstanding Paragraph 18.4(a), above, in the event that
                  Tenant has an option to extend or renew this Lease, and the
                  time within which said option may be exercised has not yet
                  expired, Tenant shall exercise such option, if it is to be
                  exercised at all, no later than twenty (20) days after the
                  occurrence of an Insured Loss falling within the
                  classification of Premises Damage during the last nine (9)
                  months of the Term of this Lease.  If Tenant duly exercises
                  such option during said twenty (20) day period, Landlord
                  shall, at Landlord's expense, repair such damage, but not
                  Tenant's fixtures, equipment or tenant improvements, as soon
                  as reasonably possible and this Lease shall continue in full
                  force and effect.  If Tenant fails to exercise such option
                  during said twenty (20) day period, then Landlord may at
                  Landlord's option terminate and cancel this Lease as of the
                  expiration of said twenty (20) day period by giving written
                  notice to Tenant of Landlord's election to do so within ten
                  (10) days after the expiration of said twenty (20) day
                  period, notwithstanding any term or provision in the grant
                  of option to the contrary.  Notwithstanding anything to the
                  contrary in this Lease:  Tenant shall have the right to
                  exercise its option to extend the Term of this Lease, if
                  there is a Premises Building Total Destruction within the
                  last twelve (12) months of the Term or any extended term.

      18.5  Abatement of Rent; Tenant's Remedies

            (a)   In the event Landlord repairs or restores the Building or
                  Premises, pursuant to the provisions of this Paragraph 18,
                  and any part of the Premises are not usable (including loss
                  of use due to loss of access or essential services), the
                  Rent payable hereunder for the period during which such
                  damage, repair or restoration continues shall be abated,
                  provided (1) the damage was not the result of the negligence
                  of


                                                                   Page 41 of 54
<PAGE>   42
                                                          Agreement No._________


                  Tenant; and (2) such abatement shall only be to the extent of
                  the actual proceeds received by Landlord under any rental
                  value insurance required to be maintained by Landlord under
                  this Lease and only to the extent such proceeds are allocable
                  in Landlord's reasonable judgment to the Premises. Except for
                  said abatement of Rent, if any, Tenant shall have no claim
                  against Landlord for any damage suffered by reason of any such
                  damage, destruction, repair or restoration.

            (b)   If Landlord shall be obligated to repair or restore the
                  Premises or the Building, under the provisions of this
                  Paragraph 18, and shall not commence such repair or
                  restoration within ninety (90) days after such occurrence,
                  or if Landlord shall not complete the restoration and repair
                  within six (6) months after such occurrence, Tenant may at
                  Tenant's option cancel and terminate this Lease by giving
                  Landlord written notice of Tenant's election to do so at any
                  time prior to the commencement or completion, respectively,
                  of such repair or restoration.  In such event this Lease
                  shall terminate as of the date of such notice.

            (c)   Tenant agrees to cooperate with Landlord in connection with
                  any such restoration and repair, including but not limited to
                  the approval and/or execution of plans and specifications
                  required.

      18.6  Termination -- Advance Payments

            Upon termination of this Lease, pursuant to this Paragraph 18, an
            equitable adjustment shall be made concerning advance Rent and any
            advance payments made by Tenant to Landlord. Landlord shall, in
            addition, return to Tenant so much of Tenant's security deposit as
            has not theretofore been applied by Landlord.

      18.7  Waiver

            Landlord and Tenant waive the provisions of any statute which relate
            to termination of leases when leased property is destroyed and agree
            that such event shall be governed by the terms of this Lease.

19.   CONDEMNATION

      19.1  If all or any part of the Leased Space is taken by any public or
            quasi-public agency or entity under the power of eminent domain
            during the Term of this Lease;

            (a)   Either Landlord or Tenant may terminate this Lease by giving
                  the other ten (10) days written notice of termination;
                  provided, however, that Tenant cannot terminate this Lease
                  unless the portion of the Leased Space taken by eminent domain
                  is so extensive as to render the


                                                                   Page 42 of 54
<PAGE>   43
                                                             Agreement No. _____

                  remainder of the Leased Space useless for the uses permitted
                  by this Lease.

            (b)   If only a portion of the Leased Space is taken by eminent
                  domain and neither Landlord nor Tenant terminates this Lease,
                  the Rent thereafter payable under this Lease shall be
                  equitably reduced by the same percentage that the floor area
                  of the portion taken by eminent domain bears to the floor area
                  of the entire Leased Space.

      19.2  If any portion of the Building other than the Leased Space is taken
            by eminent domain, Landlord may, at its option, terminate this Lease
            by written notice to Tenant.

      19.3  Any and all damages and compensation awarded or paid because of a
            taking of the Leased Space or the Building shall belong to Landlord,
            and Tenant shall have no claim against Landlord or the entity
            exercising eminent domain power for the value of the unexpired Term
            of this Lease or any other right arising from this Lease.

      19.4  Nothing in this paragraph shall preclude Tenant from filing a
            separate claim against the condemning authority for the
            undepreciated value of its leasehold improvements and relocation
            expenses provided that any award to Tenant will not result in a
            diminution of any award to Landlord.

20.   ASSIGNMENT AND SUBLETTING

      Tenant shall not encumber, assign, or otherwise transfer this Lease, any
      right or interest in this Lease, or any right or interest in the Leased
      Space without first obtaining the express prior written consent of
      Landlord. Furthermore, Tenant shall not sublet the Leased Space or any
      part of it or allow any other persons, other than Tenant's employees and
      agents, to occupy or use the Leased Space or any part of it without the
      prior, written consent of Landlord. A consent by Landlord to one
      assignment subletting or occupation and use by another person shall not be
      deemed to be a consent to any subsequent assignment, subletting, or
      occupation and use by another person. Any encumbrance, assignment,
      transfer, or subletting without the prior written consent of Landlord,
      whether voluntary or involuntary, by operation of law or otherwise, is
      void and shall, at the option of Landlord, terminate this Lease. The
      consent of Landlord to any assignment of Tenant's interest in this Lease
      or the subletting by Tenant of the Leased Space shall not be unreasonably
      withheld.

21.   FACILITY SECURITY

      Tenant has been informed that Landlord's facility is a secure facility
      which conducts classified work for the United States Government. Tenant
      agrees to abide by Landlord's security policies and procedures, including
      the wearing of Landlord issued identification badges by all employees and
      visitors and to adhere to the provisions of the Landlord's Technology
      Control Plan ("TCP"). Copies of these policies, procedures, and plans are
      available in Landlord's security office.


                                                                   Page 43 of 54
<PAGE>   44
                                                          Agreement No._________


22.   ACTS CONSTITUTING BREACH BY TENANT

      At a minimum, the acts or omissions listed in this paragraph constitute a
      default under and a breach of this Lease by Tenant.

      22.1  The nonpayment of Rent or Additional Rent when due, when the
            nonpayment continues for ten (10) days after written notice to pay
            or surrender possession of the Leased Space has been given by
            Landlord to Tenant;

      22.2  A failure to perform any provision, covenant, or condition of this
            Lease other than one for the payment of Rent, when that failure is
            not cured within thirty (30) days after written notice of the
            specific failure is given by Landlord to Tenant, or such longer time
            as may reasonably be required to cure the default provided, however,
            that Tenant has notified Landlord that it will require additional
            time to cure the default and has taken substantial steps towards
            curing the default in order not to be considered in breach of this
            Lease.

      22.3  The breach of this Lease and abandonment of the Leased Space
            before expiration of the Term of this Lease;

      22.4  A receiver is appointed to take possession of all or substantially
            all of Tenant's assets, when the seizure is not discharged within
            ten (10) days;

      22.5  Tenant makes a general assignment for the benefit of creditors;

      22.6  The execution, attachment, or other judicial seizure of
            substantially all of Tenant's assets, when the seizure is not
            discharged within ten (10) days; or

      22.7  The filing by or against Tenant of a petition to have Tenant
            adjudged or a petition for reorganization or arrangement under the
            federal bankruptcy law unless, in the case of a petition filed
            against Tenant, it is dismissed within ten (10) days.

23.   LANDLORD'S REMEDIES

      23.1  If Tenant breaches or is in default under this Lease, Landlord,
            shall have the right at any time to give a written termination
            notice to Tenant and, on the date specified in such notice, Tenant's
            right to possession shall terminate and this Lease shall terminate.
            Upon such termination, Landlord shall have the right to recover from
            Tenant:

            (a)   The worth at the time of award of all unpaid Rent which had
                  been earned at the time of termination;

            (b)   The worth at the time of award of the amount by which all
                  unpaid Rent which would have been earned after termination
                  until the time of award exceeds the amount of such rental loss
                  that Tenant proves could have been reasonably avoided;


                                                                   Page 44 of 54
<PAGE>   45
                                                          Agreement No._________


            (c)   The worth at the time of award of the amount by which all
                  unpaid Rent for the balance of the Term of this Lease after
                  the time of award exceeds the amount of such rental loss that
                  Tenant proves could be reasonably avoided; and

            (d)   All other amounts necessary to compensate Landlord for all the
                  detriment proximately caused by Tenant's failure to perform
                  all of Tenant's obligations under this Lease or which in the
                  ordinary course of things would be likely to result therefrom.
                  The "worth at the time of award" of the amounts referred to in
                  clauses (a) and (b), above, shall be computed by allowing
                  interest at the maximum annual interest rate of prime plus
                  three percent (3%), but not to exceed eighteen percent (18%).
                  The "worth at the time of award" of the amount referred to in
                  clause (c), above, shall be computed by discounting such
                  amount at the discount rate of the Federal Reserve Bank of San
                  Francisco at the time of award plus one percent (1%).

      23.2  Even though Tenant has breached this Lease, this Lease shall
            continue in effect for so long as Landlord does not terminate
            Tenant's right to possession, and Landlord shall have the right to
            enforce all its rights and remedies under this Lease, including the
            right to recover all Rent and Additional Rent as it becomes due
            under this Lease. Acts of maintenance or preservation or efforts to
            relet the Leased Space or the appointment of a receiver upon
            initiative of Landlord to protect Landlord's interest under this
            Lease shall not constitute a termination of Tenant's right to
            possession unless written notice of termination is given by Landlord
            to Tenant. In addition to all other rights and remedies it may have,
            Landlord shall have all of the rights and remedies of a landlord
            under Section 1951.4 of the California Civil Code which reads, in
            part:

               "The lessor has the remedy described in California Civil Code
               Section 1951.4 (lessor may continue lease in effect after
               lessee's breach and abandonment and recover rent as it becomes
               due, if lessee has right to sublet or assign, subject only to
               reasonable limitations)."

      23.3  The remedies provided for in this Lease are in addition to all other
            remedies available to Landlord at law or in equity by statute or
            otherwise.

      23.4  All agreements and covenants to be performed or observed by Tenant
            under this Lease shall be at Tenant's sole cost and expense and
            without any abatement of Rent. If Tenant fails to pay any sum of
            money to be paid by Tenant or to perform any other act to be
            performed by Tenant under this Lease, Landlord shall have the right,
            but shall not be obligated, and without waiving or releasing Tenant
            from any obligations of Tenant, to make any such payment or to
            perform any such other act on behalf of Tenant in accordance with
            this Lease. All sums so paid by Landlord and all necessary


                                                                   Page 45 of 54
<PAGE>   46
                                                          Agreement No._________


            incidental costs shall be deemed Additional Rent hereunder and shall
            be payable by Tenant to Landlord on demand, together with interest
            on all such sums from the date of expenditure by Landlord to the
            date of repayment by Tenant at the annual interest rate of prime
            plus three percent (3%), but not to exceed eighteen percent (18%)
            per annum. Landlord shall have, in addition to all other rights and
            remedies of Landlord, the same rights and remedies in the event of
            the nonpayment of such sums plus interest by Tenant as in the case
            of default by Tenant in the payment of Rent.

      23.5  If Tenant abandons or surrenders the Premises, or is dispossessed by
            process of law or otherwise, any movable furniture, equipment, trade
            fixtures or personal property belonging to Tenant and left in the
            Premises shall be deemed to be abandoned, at the option of Landlord,
            and Landlord shall have the right to sell or otherwise dispose of
            such personal property in any commercially reasonable manner.

24.   DEFAULT BY TENANT

      Tenant shall not be in default unless Tenant fails to perform obligations
      required of Tenant within a reasonable time, but in no event later than
      thirty (30) days after written notice by Landlord to Tenant and to the
      holder of any first mortgage or deed of trust covering the Premises whose
      name and address shall have theretofore been furnished to Landlord in
      writing, specifying wherein Tenant has failed to perform such obligation;
      provided, however, that if the nature of Tenant's obligation is such that
      more than thirty (30) days are required for performance then Tenant shall
      not be in default if Tenant commences performance within such thirty (30)
      day period and thereafter diligently pursues the same to completion. If
      Tenant fails to perform or commence performance as required by this
      paragraph within the thirty (30) days, then Tenant shall have the right to
      either terminate this Lease, effective upon the expiration of the thirty
      (30) days, or to cure said default. Tenant shall upon presentation of paid
      receipts by Landlord pay to Landlord its reasonable expenses associated
      with said cure.

25.   TERMINATION NOTICE

      25.1  Either Landlord or Tenant may terminate this Lease with or without
            cause upon giving written notice at least sixty (60) days before the
            effective date of the termination to the other party. No act of
            Landlord, including but not limited to Landlord's entry on the
            Leased Space or efforts to relet the Leased Space, or the giving by
            Landlord to Tenant of a notice of default, shall be construed as an
            election to terminate this Lease unless a written notice of
            Landlord's election to do so is given to Tenant.

      25.2  No act of Landlord, including but not limited to Landlord's entry on
            the Leased Space or efforts to relet the Leased Space, or the giving
            by Landlord to Tenant of a notice of default, shall be construed as
            an election to terminate this Lease unless a written notice of
            Landlord's election to do so is given to Tenant.


                                                                   Page 46 of 54
<PAGE>   47
                                                          Agreement No._________


26.   TENANT HOLDOVER

      26.1  With Landlord Consent. If Tenant continues, with the knowledge and
            written consent of Landlord obtained at least thirty (30) days prior
            to the expiration of the Term of this Lease, to remain in the
            premises after the expiration of the Term of this Lease, then and in
            that event, Tenant shall, by virtue of this holdover agreement,
            become a tenant by the month at the Rent stipulated by Landlord in
            said holdover agreement, commencing said monthly tenancy with the
            first day next after the end of the Term above demised. Tenant shall
            give to Landlord at least thirty (30) days written notice of any
            intention to quit said premises. Tenant shall be entitled to thirty
            (30) days written notice to quit said premises, except in the event
            of nonpayment of Rent in advance or of the breach of any other
            covenant by Tenant, in which event Tenant shall not be entitled to
            any notice to quit, the usual thirty (30) days notice to quit being
            hereby expressly waived.

      26.2  Without Landlord Consent. In the event that Tenant, without the
            consent of Landlord, shall hold over the expiration of the Term
            hereby created, then Tenant hereby waives all notice to quit and
            agrees to pay to Landlord for the period that Tenant is in
            possession after the expiration of this Lease, a monthly Rent which
            is one and one-half times the total Rent (Rent, as stipulated in
            Paragraph 2, above, plus Additional Rent) applicable to the last
            month of this Lease. Tenant expressly agrees to hold Landlord
            harmless from all loss and damages, direct and consequential, which
            Landlord may suffer in defense of claims by other parties against
            Landlord arising out of the holding over by Tenant, including
            without limitation attorneys' fees which may be incurred by Landlord
            in defense of such claims. Acceptance of Rent as defined by this
            paragraph by Landlord subsequent to the expiration of the Term of
            this Lease, shall not constitute consent to any holding over.
            Landlord shall have the right to apply all payments received after
            the expiration date of this Lease or any renewal thereof toward
            payment for use and occupancy of the premises subsequent to the
            expiration of the Term and toward any other sums owed by Tenant to
            Landlord. Landlord, at its option, may forthwith re-enter and take
            possession of said premises without process, or by any legal process
            in force. Notwithstanding the foregoing, Tenant's holdover without
            Landlord consent due to acts of God, riot, or war shall be at the
            total Rent applicable to the last month of the term for the duration
            of the condition (but not to exceed ten (10) days), but such
            continued occupancy shall not create any renewal of the Term of this
            Lease or a tenancy from year-to-year, and Tenant shall be liable for
            any loss and damages suffered by Landlord as described above.

27.   QUIET ENJOYMENT

      So long as Tenant shall observe and perform the covenants and agreements
      binding on it hereunder, Tenant shall at all times during the Term herein
      granted, peacefully and quietly have and enjoy possession of the premises
      without any encumbrance or


                                 Page 47 of 54
<PAGE>   48
                                                          Agreement No._________


      hindrance by, from or through Landlord, except as provided for elsewhere
      under this Lease. Nothing in this paragraph shall prevent Landlord from
      performing alterations or repairs on other portions of the building not
      leased to Tenant, nor shall performance of such alterations or repairs be
      construed as a breach of this covenant by Landlord.

28.   WAIVER OF JURY TRIAL

      Landlord and Tenant hereby waive trial by jury in any action, proceeding
      or counterclaim brought by either of the parties hereto against the other
      one or in respect of any matter whatsoever arising out of or in any way
      connected with this Lease, the relationship of Landlord and Tenant
      hereunder, Tenant's use or occupancy of the demised premises, and/or any
      claim of "injury or damage."

29.   LIMITATION OF LIABILITY

      Notwithstanding anything to the contrary contained in this Lease, if any
      provision of this Lease expressly or impliedly obligates Landlord not to
      unreasonably withhold its consent or approval, an action for declaratory
      judgment or specific performance will be Tenant's sole right and remedy in
      any dispute as to whether Landlord has breached such obligation.

30.   PRONOUNS AND DEFINITIONS

      30.1  Feminine or neuter pronouns shall be substituted for those of the
            masculine form, and the plural shall be substituted for the singular
            number, in any place or places herein in which the context may
            require such substitution or substitutions. Landlord and Tenant
            herein for convenience have been referred to in the neuter form.

      30.2  Wherever the word "premises" or "demised premises" is used in this
            Lease, it shall refer to the Leased Space as defined herein, unless
            the context clearly requires otherwise.

31.   WAIVER OF BREACH

      Landlord's waiver of any breach by Tenant shall not be effective unless in
      writing. The waiver by Landlord of any breach by Tenant of any of the
      provisions of this Lease shall not constitute a continuing waiver or a
      waiver of any subsequent default or breach by Tenant either of the same or
      a different provision of this Lease.

31.   NOTICES

      31.1  Except as otherwise expressly provided by law, any and all notices
            or other communications required or permitted by this Lease or by
            law to be served on or given to either party to this Lease by the
            other party shall be in writing, and shall be deemed duly served and
            given when personally delivered to the party to whom it is directed
            or the below identified representative of the party or designee or,
            in lieu of personal service, when


                                                                   Page 48 of 54
<PAGE>   49
                                                          Agreement No._________


            deposited in the United States mail, certified mail, return receipt
            requested, postage prepaid, addressed to Landlord at 333 Ravenswood
            Avenue, Menlo Park, California 94025 or to Tenant at 333 Ravenswood
            Avenue, Menlo Park, California 94025. Any notice properly addressed
            and given by United States certified mail, postage prepaid,
            return-receipt requested, shall be deemed given three (3) business
            days after such notice is deposited in the United States mail.
            Either party may change its address for purposes of this paragraph
            by giving written notice of the change to the other party in the
            manner provided in this paragraph.

      31.2  For purposes of all communications to occur during the Term of this
            Lease, the parties initially have identified the following
            representatives:

<TABLE>
<CAPTION>
                 Landlord's Representative              Tenant's Representative
                 _________________________              _______________________
<S>                                                    <C>
                       Thomas Little                        ______________
            Corporate Director, Support Operations      ______________________
</TABLE>

            The parties may, upon notice given as required by this Lease, change
            their designated representative.

33.   ATTORNEYS' FEES

      If any litigation is commenced between the parties to this Lease
      concerning the Leased Space, this Lease, or the rights and duties of
      either in relation to the Leased Space or the lease, the party prevailing
      in that litigation shall be entitled, in addition to any other relief
      granted, to a reasonable sum as and for its attorneys' fees in litigation,
      which sum shall be determined by the court in that litigation.

34.   BINDING ON HEIRS AND SUCCESSORS

      This Lease shall be binding on and shall inure to the benefit of the
      heirs, executors, administrators, successors, and assigns of the parties,
      but nothing in this paragraph shall be construed as a consent by Landlord
      to any assignment of this Lease or any interest therein by Tenant.

35.   TIME OF ESSENCE

      Time is expressly declared to be of the essence in this Lease.

36.   SOLE AND ONLY AGREEMENT

      This instrument constitutes the sole and only agreement between Landlord
      and Tenant respecting the Leased Space or the leasing of the Leased Space
      to Tenant, and sets forth the obligations of Landlord and Tenant to each
      other as of its date. Any agreements or representations respecting the
      Leased Space or their leasing by Landlord to Tenant not expressly set
      forth in this instrument or an amendment hereto executed by both parties
      are null and void.


                                                                   Page 49 of 54
<PAGE>   50
                                                          Agreement No._________


37.   CONSENT

      Whenever this Lease requires an approval, consent, designation,
      determination or judgment by either Landlord or Tenant, such approval,
      consent, designation, determination or judgment shall be reasonable, shall
      not be unreasonably withheld or delayed unless otherwise indicated herein,
      and, in exercising any right or remedy hereunder, each party shall at all
      times act reasonably and in good faith.

38.   BROKERS

      Each party represents that it has not had dealings with any real estate
      broker, finder or other person, with respect to this Lease. Landlord shall
      indemnify and hold Tenant harmless from all liability and damages
      resulting from any claims that may be asserted against Landlord and/or
      Tenant by any broker, finder or other person with whom the Landlord or its
      agents or employees has, or purportedly has, dealt. Tenant shall indemnify
      and hold Landlord harmless from all liability or damages resulting from
      any claims that may be asserted against Landlord and/or Tenant by any
      broker, finder or other person with whom the Tenant or its agents or
      employees has, or purportedly has dealt.

39.   MISCELLANEOUS

      39.1  This Lease shall be governed by and construed in accordance with the
            laws of the State of California, other than the law regarding
            conflicts of laws.

      39.2  Should any provision of this Lease be held to be void, invalid, or
            inoperative, the remaining provisions of this Lease shall not be
            affected and shall continue in effect as though such provisions were
            deleted.

      39.3  Neither party shall be deemed in default of this Lease to the extent
            that performance of their obligations or attempts to cure any breach
            are delayed or prevented by reason of any act of God, fire, natural
            disaster, accident, act of government, shortages of materials or
            supplies, or any other cause beyond the control of such party
            ("Force Majeure") provided that such party gives the other party
            written notice thereof promptly and, in any event, within fifteen
            (15) days of discovery thereof and uses its best efforts to cure the
            delay. In the event of such Force Majeure, the time for performance
            or cure shall be extended for a period equal to the duration of the
            Force Majeure or three (3) months, whichever is shorter.

      39.4  This Lease may be executed in duplicate counterparts, each of which
            will be deemed to be an original but both of which together will
            constitute one and the same instrument.

EXECUTED on ______________, ____, at Menlo Park, San Mateo County, California.

SRI INTERNATIONAL                   TENANT


                                                                   Page 50 of 54
<PAGE>   51
                                                          Agreement No._________


By: _____________________________       By: ________________________________

Name: ___________________________       Name: ______________________________

Title: __________________________       Title: _____________________________



                                                                   Page 51 of 54
<PAGE>   52
                                                          Agreement No._________


                               EXHIBIT A TO LEASE


                                  LEASED SPACE



                                                                   Page 52 of 54
<PAGE>   53
                                                          Agreement No._________


                               EXHIBIT B TO LEASE

                         BUILDING RULES AND REGULATIONS

B.1   Halls and Stairways. Tenants shall not loiter in the halls and entryways,
      nor permit their employees or patrons to loiter in the halls and
      entryways, and shall not obstruct in any way the entryways, passages,
      stairways, elevators, and halls of the Building or use them for any other
      purpose than ingress and egress to and from their respective offices.

B.2   Signs. No sign, placard, picture, name advertisement, or notice visible
      from outside a Tenant's premises shall be displayed in or on the Building
      without the express written consent of Landlord, and Landlord may remove,
      at the expense of Tenant, any sign, placard, picture, name, advertisement,
      or notice so displayed. Landlord shall prepare and install signs
      identifying Tenant's location at Tenant's expense.

B.3   Locks and Keys. Tenant shall not change or alter any lock without
      Landlord's prior written consent. No additional lock or locks shall be
      placed on any door in the Leased Space by Tenant without the prior written
      consent of Landlord. Tenant shall receive, without cost, two (2) keys to
      each door having a lock in Tenant's Leased Space. If Tenant desires extra
      keys to any door, Tenant must obtain them from Landlord and Landlord may
      impose a reasonable charge for them.

B.4   Wiring and Electricity. Wiring of any kind shall be introduced in the
      Building and connected only as directed by Landlord, and no boring or
      cutting for wires will be allowed except with the prior consent of
      Landlord. The location of all telephones and call boxes affixed to the
      Building shall be prescribed by Landlord.

B.5   Connection of Machinery. Tenant shall not connect any apparatus,
      machinery, or device to the electric wires, water, or air pipes of the
      Building without the consent of Landlord.

B.6   Moving Furniture and Equipment.  Landlord shall prescribe the
      permissible times for moving equipment and furniture into the Building
      and Tenant's Leased Space.  Tenant shall give Landlord at least
      twenty-four (24) hours' advance notice of the time Tenant intends to
      move furniture or equipment into Tenant's Leased Space.  Landlord shall
      not be liable for any damage or loss caused by the moving of the
      furniture or equipment, and any damage to Building or Leased Space
      caused by the moving furniture or equipment shall be repaired by
      Landlord at Tenant's expense.

B.7   Obstructing Light. The glass doors, windows, lights, and skylights
      admitting light into the halls and other common areas of the Building
      shall not at any time be covered or obstructed by Tenant.

B.8   Landlord's Office and Employees. Any request of Tenant for service or any
      other matter connected with the Building must be made to and at the SRI
      Facilities department in Building 303, (650) 859-2222, Monday through
      Friday during


                                                                   Page 53 of 54
<PAGE>   54
                                                          Agreement No._________


      regular business hours. In the event of an emergency during off-hours,
      Tenant shall contact SRI Security, Building E, (650) 859-2900.

B.9   Locking of Entrance Doors. All entrance and exit doors of the Building
      shall be open and unlocked by Landlord during the following hours:

         Monday through Friday, from 6:30 a.m. to 6:00 p.m. At all other times,
         including all national holidays, all entrance and exit doors shall be
         locked.

B.10  Entry After Building Closed. Any person entering or leaving the Building
      at any time when its entrance and exit doors are closed and locked may be
      questioned about his or her business in entering or leaving the Building,
      and may be required to sign the Building register by security personnel.
      Any person not satisfying the security personnel that he or she has a
      right to enter the Building may be excluded from the Building.

      Tenant shall notify Landlord's Security Department any time Tenant or its
      employees will perform hazardous chemical operations outside of normal
      business hours. Tenant must provide notice prior to commencement of the
      operation and at its conclusion.

B.11  Removal of Persons. Landlord reserves the right to exclude and expel from
      the Building any person who, in the judgment of Landlord, is intoxicated
      or under the influence of any intoxicating beverage or drug or who in any
      manner violates any of these rules and regulations or creates, in the
      judgment of Landlord, a disturbance in the Building.

B.12  No Canvassing or Soliciting. Canvassing, soliciting, and peddling in the
      Building are prohibited and Tenant shall promptly report to Landlord any
      person found by him or her to be canvassing, soliciting or peddling in the
      Building.

B.13  No Smoking. Tenant acknowledges that Landlord operates a nonsmoking
      facility and that smoking is not permitted in or on the Premises at any
      time. Tenant shall not allow its employees, guests or invitees to smoke in
      or on the Premises at any time.

B.14  Further Rules and Regulations. Landlord reserves the right to amend these
      rules and regulations and to make any other and further rules and
      regulations for the Building that, from time-to-time in the reasonable
      judgment of Landlord, are required for the orderly and safe conduct of
      Building operations.

B.15  Pets/Animals on Premises. Except for seeing eye dogs or other handicap
      assist trained animals, no pets or animals are permitted in or on the
      Premises. Tenant shall not allow its employees, guests or invitees to
      bring animals in the Building or on the Premises at any time.


                                                                   Page 54 of 54