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                                                                   Exhibit 10.11

                                    SUBLEASE

                                     between

                                  ARQULE, INC.

                                       as

                                    SUBLESSOR

                                       and

                         THRESHOLD PHARMACEUTICALS INC.
                                       as

                                    SUBLESSEE

                                       for

                                    PREMISES

                                       at

                              Pacific Shores Center
                             Fifth Floor, Building 8
                             1300 Seaport Boulevard
                         Redwood City, California 94063

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                                    SUBLEASE

Sublease (this "Sublease") made as of this 31st day of August 2004, by and
between ArQule, Inc., a Delaware corporation (the "Sublessor"), and Threshold
Pharmaceuticals Inc., a Delaware corporation (the "Sublessee").

        The parties to this instrument hereby agree with each other as follows:

                                    ARTICLE I
                      SUMMARY OF BASIC SUBLEASE PROVISIONS

1.1 Basic Data

ALL CAPITALIZED TERMS USED HEREIN SHALL HAVE THE SAME RESPECTIVE MEANINGS
ASCRIBED TO THEM IN THE PRIME LEASE (HEREINAFTER DEFINED) UNLESS OTHERWISE
DEFINED HEREIN.

Sublessor:                      ArQule, Inc.

Present Mailing Address
of Sublessor:                   19 Presidential Way
                                Woburn, Massachusetts 01801-5140

Sublessee:                      Threshold Pharmaceuticals Inc.

Present Mailing Address         951 Gateway Boulevard
of Sublessee:                   South San Francisco, CA 94080-7024

Prime Lessor:                   PACIFIC SHORES CENTER LLC, a Delaware
                                limited liability company

Present Mailing Address
of Prime Lessor:                c/o Jay Paul Company
                                350 California Street, Suite 1905
                                San Francisco, California 94104-1432

Commencement Date:              The Commencement Date will be October 1, 2004.

Rent Commencement Date:         The Rent Commencement Date shall be the
                                Commencement Date.

Expiration Date:                February 28, 2010 unless earlier terminated as
                                provided for herein.

Sublease Term:                  The period beginning on the Commencement Date

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                                and expiring, unless sooner terminated by Prime
                                Lessor or Sublessor as provided herein, on the
                                Expiration Date.

Permitted Uses:                 Office, research and development, including
                                non-animal biological and chemical research,
                                together with such ancillary uses which do not
                                cause excessive wear of the Subleased Premises
                                or materially increase the potential liability
                                of Prime Lessor or Sublessor. The use of the
                                Subleased Premises may be modified with the
                                written consent of Prime Lessor, Pacific Shores
                                Development LLC, provided the modified use does
                                not increase Sublessor's liability in relation
                                to the Premises.

Subleased Premises:             Thirty-three thousand, six hundred ninety nine
                                (33,699) rentable square feet (as determined by
                                the "dripline" method referred to in the Prime
                                Lease and including an allocation of the first
                                floor entry and elevator lobby) which Subleased
                                Premises comprise the entire fifth floor of that
                                certain Building, commonly known as 1300 Seaport
                                Boulevard, Redwood City, California 94063
                                ("Building 8") which is one of ten free
                                standing, office and research and development
                                buildings ("Buildings") on real property
                                situated in Redwood City, County of San Mateo,
                                State of California and commonly known as
                                Pacific Shores Center. Building 8 consists of an
                                agreed one hundred sixty four thousand seven
                                hundred thirty two (164,732) rentable square
                                feet. The Subleased Premises include restrooms,
                                and janitor, telephone and electrical closets on
                                the fifth floor and Sublessee shall have the
                                exclusive use thereof, provided that Prime
                                Lessor reserves the right to access and use the
                                same (as well as the space above any dropped
                                ceilings) for cabling, wiring, pipes and other
                                Building system elements. The Subleased Premises
                                are more particularly described and depicted in
                                Exhibit "A" to the Prime Lease. The Subleased
                                Premises demised under this Sublease consist of
                                all of the "Premises" leased by Sublessor from
                                Prime Lessor under the Prime Lease.

Prime Lease:                    That certain Lease dated March 26, 2002,
                                including

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                                exhibits and supplements thereto, a copy of
                                which Prime Lease is attached hereto as Exhibit
                                1.

Sublease Base Rent:             The Base Sublease Rent per square foot shall be:

                                Months:                    Base Rental Rate:
                                10/01/04-11/30/04          $0.00 NNN
                                12/01/04-12/31/05          $0.95 NNN
                                01/01/06-12/31/06          $0.99 NNN
                                01/01/07-12/31/07          $1.03 NNN
                                01/01/08-12/31/08          $1.28 NNN
                                01/01/09-02/28/2010        $1.32 NNN

Sublease Additional Rent:       In addition to the Sublease Base Rent, Sublessee
                                shall pay to Sublessor, beginning on the
                                Commencement Date and continuing throughout the
                                Lease Term as Sublease Additional Rent (i) 100%
                                as to amounts applicable solely to the Subleased
                                Premises and Sublessee's Share (as defined
                                below) as to amounts applicable to Building 8,
                                the Project and the Common Area of all taxes,
                                assessments, fees and other impositions payable
                                by Sublessor in accordance with the provisions
                                of Article IX of the Prime Lease and insurance
                                premiums payable by Sublessor in accordance with
                                the provisions of Article VII of the Prime
                                Lease, (ii) Sublessee's Share of Operating
                                Expenses as defined below, (iii) any other
                                charges, costs and expenses (including
                                appropriate reserves therefor) whether or not
                                contemplated which may arise under any provision
                                of the Prime Lease during the Sublease Term and
                                are payable by Sublessor as "Lessee" thereunder,
                                and (iv) a management fee equal to 3% of the
                                Base Rent payable by Sublessor under the Prime
                                Lease which management fee will be paid over to
                                Prime Lessor. The management fee shall be due
                                and payable, in advance, with each installment
                                of Sublease Base Rent. All of such charges,
                                costs, expenses, management fees and all other
                                amounts payable by Sublessee hereunder, shall
                                constitute Sublease Additional Rent, and upon
                                the failure of Sublessee to pay any of such
                                charges, costs or expenses, Sublessor shall have
                                the same rights and remedies as otherwise
                                provided in this Sublease for the failure of
                                Sublessee to pay Sublease Base Rent.

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Sublessee's Share:              Sublessee's Share shall be equal to "Lessee's
                                Share" determined under Section 4.07 (c) of the
                                Prime Lease and subject to adjustment as
                                provided therein. As of the Commencement Date,
                                Sublessee's Share of Building items shall be
                                twenty and five tenths percent (20.5%) and
                                Sublessee's Share of Project items shall be two
                                percent (2 %).

Operating Expenses:             The term shall have the same meaning as that
                                ascribed to it in Section 4.07 (a) of the Prime
                                Lease.

Sublessee's Share of Operating
Expenses:                       As of the Commencement Date, Sublessee's Share
                                of Operating Expenses attributable to Building 8
                                items shall be twenty and five tenths percent
                                (20.5%) and Sublessee's Share of Operating
                                Expenses attributable to Project items shall be
                                two percent (2 %).

Security Deposit:               (6) months rent or One Hundred Ninety-Two
                                Thousand Eighty-Four and 30/100 Dollars,
                                ($192,084.30). See Article IV, Section 4.5
                                hereof.

Sublessor's FF&E:               All furnishings, fixtures and equipment listed
                                in Exhibit 2 hereto.

Broker(s):                      Randy Scott
                                Cornish & Carey Commercial
                                245 Lytton Avenue, Suite 150
                                Palo Alto, CA 94301

                                Steven Battcher
                                BT Commercial Real Estate
                                2445 Faber Place, Suite 250
                                Palo Alto, CA 94303

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                                   ARTICLE II
                                   PRIME LEASE

2.1 Warranties, Representation and Acknowledgment. Sublessor hereby represents
and warrants that: (i) Sublessor is lessee under the Prime Lease; (ii) the Prime
Lease is in full force and effect, Sublessor has submitted to Sublessee a true
and complete copy of the Prime Lease, and the Prime Lease has not been modified;
and (iii) Sublessor has not received any notice of default on the part of
Sublessor as lessee under the Prime Lease which has not been cured, nor has
Sublessor given Prime Lessor notice of any default on the part of Prime Lessor
as Lessor under the Prime Lease which has not been cured, nor does Sublessor
have any knowledge of any default by either party under the Prime Lease.
Sublessee warrants and acknowledges that it has reviewed the Prime Lease and is
satisfied with the arrangements therein reflected. Sublessee takes the Subleased
Premises "as is" without any representation or warranty by Sublessor regarding
the condition of the Subleased Premises or the fitness of the Subleased Premises
for any particular use except as provided herein. Sublessor shall indemnify and
hold Sublessee, its agents, employees and lenders, harmless from any
liabilities, losses, claims, damages, penalties, fines, attorney fees, expert
fees, court costs, remediation costs, investigation costs, or other expenses
resulting from or arising out of the use, storage, treatment, transportation,
release, presence, generation, or disposal of Hazardous Materials on, from or
about the Project (as defined in the Prime Lease), and/or subsurface or ground
water, from an act or omission of Sublessor (or Sublessor's successor), its
agents, employees, invitees, vendors or contractors. Sublessee agrees to
indemnify and hold Sublessor, its agents, employees and lenders, harmless from
any liabilities, losses, claims, damages, penalties, fines, attorney fees,
expert fees, court costs, remediation costs, investigation costs, or other
expenses resulting from or arising out of the use, storage, treatment,
transportation, release, presence, generation, or disposal of Hazardous
Materials (as defined in Section 17.22 of the Prime Lease or, from or about the
Project (as defined in Section 2.01 the Prime Lease), and/or subsurface or
ground water, after the Commencement Date from an act or omission of Sublessee
(or Sublessee's successor), its agents, employees, invitees, vendors or
contractors. Sublessor's and Sublessee's obligations under this provision shall
survive the expiration of early termination of the Sublease. To the extent
Sublessor is indemnified by Prime Lessor for other environmental matters,
Sublessor shall similarly indemnify Sublessee.

2.2 Incorporation by Reference. As described below certain provisions of the
Prime Lease are hereby deemed to be wholly or partially incorporated into and
made a part hereof and others wholly or partially excluded.

      2.2.1 Unless otherwise indicated, all references to the "Commencement
            Date" in the following Sections as incorporated shall be deemed to
            refer to the Commencement Date of the Sublease, and all references
            in the following sections of the Prime Lease to "Base Rent,"
            "Additional Rent," "Lease," "Lease Term" "Lessor", "Lessee",
            "Lessee's Share," and "Premises", respectively, shall be deemed to
            refer herein to "Sublease Base Rent," "Sublease Additional Rent,"
            "Sublease," "Sublease Term," "Sublessor", "Sublessee", "Sublessee's
            Share," and the "Subleased Premises", respectively and references to
            "Articles", "Sections" and "Exhibits" shall indicate Articles,
            Sections and Exhibits of the Prime Lease:

          (a)  Section 4.05.  Additional Rent.

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          (b)  Section 12.01. Defaults (Except that the references therein to
                              "rent" shall be deemed to mean Sublease Base Rent
                              and Sublease Additional Rent and the reference in
                              clause (c) (i) to Section 4.06 shall be deemed to
                              refer to Section 4.7 of this Sublease).
          (c)  Section 12.02. Remedies (Except that the references therein to
                              "rent" shall mean Sublease Base Rent and Sublease
                              Additional Rent).
          (d)  Section 12.04. Late Charges.
          (e)  Section 12.05. Lessor's Right to Perform Lessee's Obligations
                              (Except that the references therein to "Lessor"
                              shall mean Prime Lessor or Sublessor and the
                              reference to "rent" shall mean Sublease Base Rent
                              and Sublease Additional Rent).
          (f)  Section 15.01. Estoppel Certificate (Except that the references
                              therein to "Lessor" shall be deemed to mean Prime
                              Lessor and Sublessor and the reference to "rent"
                              shall mean Sublease Base Rent and Sublease
                              Additional Rent).
          (g)  Section 16.01. Limitations on Lessor's Liability (Except that the
                              references therein to "Lessor" shall mean Prime
                              Lessor and Sublessor).
          (h)  Section 17.01. Severability.
          (i)  Section 17.03. Time of Essence.
          (j)  Section 17.04. Additional Rent.
          (k)  Section 17.09. Surrender of Possession; Holding Over.
          (l)  Section 17.10. Cumulative Remedies (Except that the references
                              therein to "Lessor" shall mean Prime Lessor and
                              Sublessor, the reference to "rent" shall mean
                              Sublease Base Rent and Sublease Additional Rent).
                              (m) Section 17.11. Covenants and Conditions.
          (n)  Section 17.12. Binding Effect; Choice of Law.
          (o)  Section 17.13. Lease to be Subordinate.
          (p)  Section 17.14. Attorneys' Fees.
          (q)  Section 17.18. Quiet Possession.
          (r)  Section 17.20. Authority.
          (s)  Section 17.21. Force Majeure Delays.
          (t)  Section 17.22. Hazardous Materials (Except that the references
                              therein to "Lessor" shall mean Prime Lessor and
                              Sublessor).
          (u)  Section 17.26. Acknowledgment of Notices (Except that the
                              references therein to "Lessor" shall be deemed to
                              mean Prime Lessor and Sublessor and all references
                              to "Commencement Date" shall mean the Commencement
                              Date of the Sublease).
          (v)  Section 17.27. List of Exhibits.

      2.2.2 Unless otherwise indicated, all references in the following sections
            and/or provisions of the Prime Lease to "Lessor", "Lessee", "Lease",
            and "Premises", respectively, shall be deemed to refer to Prime
            Lessor, Sublessee, this Sublease and the Subleased Premises,
            respectively and references to "Articles", "Sections" and "Exhibits"
            shall indicate Articles, Sections and Exhibits of the Prime Lease
            [i.e., it is the intention of the parties that Prime Lessor shall
            retain all of its rights

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            and obligations under such sections and/or provisions; that
            Sublessor shall not be entitled during the Sublease Term to exercise
            any of Prime Lessor's rights, nor shall be bound by any of Prime
            Lessor's obligations, under such sections and/or provisions; and
            that Sublessee shall be entitled to exercise all of Lessee's rights,
            and shall be bound by all of Lessee's obligations, under such
            sections and/or provisions:

          (a)  Section 2.02.  Common Areas.
          (b)  Section 2.03.  Parking.
          (c)  Section 4.07.  Operating Expenses.
          (d)  Section 4.08.  Lessee's Right to Review Supporting Data (except
                              that the references to "Additional Rent" shall be
                              deemed to mean Sublease Additional Rent).
          (e)  Section 5.01.  Permitted Use and Limitations on Use.
          (f)  Section 5.02.  Compliance with Law (a), (b) and (c).
          (g)  Section 5.05.  Building Security.
          (h)  Section 5.06.  Rules and Regulations.
          (i)  Section 6.01.  Maintenance of Premises and Building.
          (j)  Section 6.02.  Maintenance of Project Common Areas.
          (k)  Section 6.03.  Alterations, Additions and Improvements (Except
                              that Sublessee, if so required by Prime Lessor or
                              Sublessor at the expiration or earlier termination
                              of the Sublease Term, shall remove the Alterations
                              installed by Sublessee (not such Alterations
                              installed by Sublessor))
          (l)  Section 6.04.  Covenant Against Liens.
          (m)  Section 6.05   Reimbursable Capital Expenditures (Except that the
                              reference to "Base Rent" shall mean Sublease Base
                              Rent).
          (n)  Section 7.01.  Property/Rental Insurance for Premises.
          (o)  Section 7.02.  Property Insurance for Fixtures and Inventory.
          (p)  Section 7.03.  Lessor's Liability Insurance.
          (q)  Section 7.04.  Liability Insurance Carried by Lessee (Except that
                              the references therein to "Lessor" shall be deemed
                              to mean Prime Lessor and Sublessor).
          (r)  Section 7.05.  Proof of Insurance (Except that the references
                              therein to "Lessor" shall be deemed to mean Prime
                              Lessor and Sublessor).
          (s)  Section 7.06.  Mutual Waiver of Claims and Subrogation Rights.
          (t)  Section 7.07.  Indemnification and Exculpation (Except that the
                              references to "Lessor" in Section 7.07(b) shall be
                              deemed to mean Prime Lessor and Sublessor).
          (u)  Section 9.01.  Payment of Taxes.
          (v)  Section 9.02.  Pro Ration for Partial Years.
          (w)  Section 9.03.  Personal Property Taxes (Except that the reference
                              in clause (c) to "Lessor" shall be deemed to mean
                              Prime Lessor or Sublessor).
          (x)  Section 10.01. Lessee to Pay.

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          (y)  Section 12.03. Default by Lessor (Except that the references
                              therein to "Lessor" shall be deemed to mean Prime
                              Lessor and Sublessor).
          (z)  Section 14.01. Entry by Lessor Permitted.
          (aa) Section 17.15. Signs.
          (bb) Section 17.19. Easements.
          (cc) Section 17.23. Modifications Required by Lessor's Lender.

      2.2.3 The following sections and/or provisions of the Prime Lease are
            expressly excluded from this Sublease (i.e., they shall not be
            deemed to be incorporated into this Sublease) either because they
            are inapplicable, or they are superseded by specific provisions
            hereof:

          (a) Section 1.01.   Parties
          (b) Section 2.01.   Premises
          (c) Section 2.04    Construction.
          (d) Section 3.01.   Lease Term.
          (e) Section 3.02.   Option to Extend.
          (f) Section 4.01.   Base Rent.
          (g) Section 4.02.   Rent Adjustment.
          (h) Section 4.03.   First Payment of Base Rent.
          (i) Section 4.04.   Absolute Triple Net Lease.
          (j) Section 4.06.   Security Deposit.
          (k) Section 8.01.   Destruction of the Premises.
          (l) Section 8.02.   Waiver of Civil Code Remedies.
          (m) Section 8.03.   No Abatement of Rentals
          (n) Section 8.04.   No Liability for Lessee's Tenant Improvements,
                              Alterations or Personal Property.
          (o) Section 11.01.  Lessor's Consent Required.
          (p) Section 11.02.  Lessee Affiliates.
          (q) Section 11.03.  No Release of Lessee.
          (r) Section 11.04.  Excess Rent.
          (s) Section 11.05.  Information to be Provided.
          (t) Section 11.06.  Lessor's Recapture Rights.
          (u) Section 13.01.  Total Condemnation.
          (v) Section 13.02.  Partial Condemnation.
          (w) Section 13.03.  Award to Lessee.
          (x) Section 17.02.  Agreed Rate Interest on Past-Due Obligations.
          (y) Section 17.06.  Notices
          (z) Section 17.07.  Waivers.
          (aa) Section 17.08. Recording.
          (bb) Section 17.16. Merger.
          (cc) Section 17.17. [Intentionally Omitted]
          (dd) Section 17.24. Brokers
          (ee) Section 17.25. [Intentionally Omitted] and Exhibits B, C, D, E, F
                              and H

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2.5 Subordination to Prime Lease. Except as otherwise expressly set forth in the
written Sublease Consent entered into on or about the date hereof by and among
Prime Lessor, Sublessor and Sublessee, this Sublease is and shall remain subject
and subordinate in all respects to the Prime Lease, and to all renewals,
modifications, consolidations, replacements and extensions thereof. In the event
of termination or cancellation of the Prime Lease for any reason whatsoever with
respect to all or any portion of the Subleased Premises, this Sublease shall
automatically terminate with respect to all or such portion of the Subleased
Premises.

2.6 Limited Obligations of Sublessor. Notwithstanding anything contained in this
Sublease to the contrary, Sublessor shall have no obligation during the term of
this Sublease to provide any services of any nature whatsoever to Sublessee or
to, in, or for the benefit of the Subleased Premises or to expend any money for
the preservation or repair of the Subleased Premises, or to observe or perform
any obligations of Sublessor under this Sublease in any case where such
services, expenditures or obligations are required under the Prime Lease to be
provided, performed or observed by Prime Lessor for the benefit of Sublessor
with respect to the Subleased Premises, and Sublessee agrees to look solely and
directly to Prime Lessor for the furnishing of any such services, expenditure of
any such sums, or observance or performance of any such obligations to which, or
the benefit of which, Sublessee may be entitled under this Sublease, but nothing
in the foregoing shall be deemed to exculpate or otherwise release Sublessor
from, or prevent Sublessee from looking directly to Sublessor for, any liability
arising out of Sublessor's negligence or the failure of Sublessor to perform its
express obligations hereunder; nor shall the foregoing relieve Sublessor of its
express obligations set forth in this Sublease. Sublessor shall, however, upon
the request of Sublessee, use due diligence and reasonable efforts to cause
Prime Lessor to furnish such services, expend such sums, and observe and perform
such obligations. Sublessor's only obligations under the Prime Lease with
respect to the Subleased Premises are to use the aforesaid due diligence and
reasonable efforts, make those payments of all rent and other charges due to
Prime Lessor thereunder, which payments Sublessor hereby agrees to make,
provided, however, that Sublessee makes timely payment to Sublessor of all rent
and other charges payable under this Sublease. It is the intention of the
parties that Sublessee comply with all of Sublessor's obligations as Lessee
under the Prime Lease (not excluded under Section 2.2.3 above) with respect to
the Subleased Premises to the same extent and with the same force and effect as
if Sublessee were tenant thereunder, and Sublessee hereby agrees to so comply
with all of Sublessor's such obligations under the Prime Lease with respect to
the Subleased Premises. Sublessee shall have no claim against Sublessor for any
default by Prime Lessor under Prime Lease unless such default is caused by the
negligence or willful misconduct of Sublessor or breach of any obligation of
Sublessor under this Sublease. If as a result of any default by Prime Lessor as
landlord under the Prime Lease, Sublessor as tenant under the Prime Lease is
entitled to any offset or similar rights against Prime Lessor, Sublessee shall
be entitled to such offset or similar rights. So long as Sublessee is not in
default under this Sublease beyond any applicable notice, grace or cure period,
Sublessee shall have the right, subject to the prior written consent of
Sublessor, which consent shall not be unreasonably withheld and shall be given
or withheld by Sublessor five (5) business days after receipt of the request
therefor, to maintain, in the name of Sublessor but at Sublessee's sole cost and
expense, an action or actions to compel Prime Lessor to discharge the
responsibilities of Lessor under the Prime Lease. Sublessor shall cooperate with
Sublessee, at Sublessee's expense, in bringing such actions. Sublessor shall not
unreasonably

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withhold its consent to the bringing of any such action or actions by Sublessee,
provided, in each instance, that Sublessee shall not sue if Sublessor has itself
commenced an action or actions for the same purpose; and provided, further, that
Sublessor may withhold its consent if, in Sublessor's judgment, such action
would result in an increase in rent or additional rent under the Prime Lease. No
default by Prime Lessor under the Prime Lease shall excuse Sublessee from the
performance of any of its obligations to be performed under this Sublease or to
any reduction in or abatement of any of the rent provided for in this Sublease,
unless and only to the extent that Sublessor shall be excused from the
performance of a corresponding obligation as the " Lessee" under the Prime
Lease.

2.7 Prohibited Actions. Sublessee shall neither do, nor permit anyone else to
do, nor permit to be done anything that would increase Sublessor's obligations
to Prime Lessor under the Prime Lease (unless Sublessee shall indemnify
Sublessor from such increased obligation), or that would cause the Prime Lease
to be cancelled, terminated or forfeited. Sublessor shall not amend or modify
(nor agree to amend or modify) the Prime Lease in any way that would increase
Sublessee's obligations or diminish Sublessee's rights under this Sublease, nor
shall Sublessor do, nor permit to do or be done, anything that would cause the
Prime Lease to be cancelled, terminated or forfeited.

2.8 Copy of Notice. Sublessor shall copy Sublessee on any notice of default,
termination or otherwise affecting the existence or validity of the Sublease,
given by Sublessor or Prime Lessor to the other.

                                   ARTICLE III
                                    PREMISES

3.1 Lease Of Subleased Premises. Sublessor hereby leases to Sublessee, and
Sublessee hereby accepts and leases from Sublessor, upon and subject to the
terms and provisions of this Sublease (except as may otherwise be expressly set
forth in the written Sublease Consent entered into on or about the date hereof
by and among Prime Lessor, Sublessor and Sublessee), all of Sublessor's right,
title and interest in and to the Subleased Premises for the Permitted Uses.

                                   ARTICLE IV
                               RENT AND UTILITIES

4.1 Sublease Base Rent And Sublease Additional Rent. The Sublease Base Rent and
Sublease Additional Rent specified in Section 1.1 hereof, and any other charges
payable pursuant to this Sublease, shall be payable by Sublessee to Sublessor at
Sublessor's mailing address (or to such other place as Sublessor may from time
to time designate by written notice to Sublessee).
Such rent shall be due and payable, in advance on the first day of each and
every calendar month during the Sublease Term.

4.2 Adjustments to Payments. During the term of this Sublease, Sublessee shall
pay to Sublessor, monthly in advance, prorata monthly installments on account of
the projected Sublease Additional Rent payable by Sublessee for the coming
calendar year. Sublessor may adjust such estimated monthly installments from
time to time if Sublessor determines that the

<PAGE>

annual amount of Sublease Additional Rent will increase above Sublessor's
initial estimate due to increases in additional rents due by Sublessor under the
Prime Lease, but monthly installments at any such adjusted amount shall not be
due and payable until thirty (30) days after receipt by Sublessee of a written
invoice, in reasonable detail, calculating such adjusted monthly installment
amount. Sublessor will base its estimate of Sublease Additional Rent on Lessor's
estimate of Additional Rent payable under the Prime Lease. As soon as the
necessary information is available from Lessor, Sublessor shall furnish to
Sublessee a statement of the actual amount of Sublessee's Share of such Sublease
Additional Rent for such period. The statement will provide in reasonable
detail, the actual amount of Sublease Additional Rent for the preceding calendar
year, the actual amount of monthly installments paid by Sublessee for such year
and the amount of the adjustment, if any, between Sublessor and Sublessee on
account of Sublease Additional Rent for each calendar year. If the total of such
monthly installments in any calendar year is greater than the actual amount of
Sublease Additional Rent for such year, Sublessee shall be entitled to a credit
against Sublessee's rental obligations hereunder in the amount of such excess
(or if after the expiration of the Sublease Term, such excess shall be paid to
Sublessee within thirty (30) days after such excess has been calculated). If the
total of such monthly installments is less than the actual amount of Sublease
Additional Rent for such calendar year, Sublessee shall pay to Sublessor the
amount of such deficiency within thirty (30) days after receipt of an invoice
thereafter.

4.3 No Demand Necessary. All Sublease Base Rent, Sublease Additional Rent and
other amounts due under this Sublease shall be paid without demand (except as
otherwise expressly provided herein to the contrary) offset or deduction.
Sublessee shall be entitled to a fair and equitable share of all rent abatements
set forth in the Prime Lease which may be granted to Sublessor during the
Sublease Term with respect to the Subleased Premises. In the event that
Sublessee is required hereunder or under the Prime Lease to pay Sublease Base
Rent or Sublease Additional Rent to Prime Lessor, each such payment shall be an
offset to Sublessee's obligations to make the corresponding equivalent payment
to Sublessor under this Sublease.

4.4 Net Lease. This Sublease is what is commonly called an "Absolute Triple Net
Sublease," it being understood that Sublessor shall receive the Sublease Base
Rent and Sublease Additional Rent free and clear of any and all expenses, costs,
impositions, taxes, assessments, liens or charges of any nature whatsoever.
Sublessee shall pay all rent in lawful money of the United States of America to
Sublessor at the notice address stated herein or to such other persons or at
such other places as Sublessor may designate in writing on or before the due
date specified for same without prior demand, set-off or deduction of any nature
whatsoever. It is the intention of the parties hereto that this Sublease shall
not be terminable for any reason by Sublessee and that Sublessee shall in no
event be entitled to any abatement of or reduction in rent payable under this
Sublease, except as expressly provided herein or in any incorporated provisions
of the Prime Lease. Any present or future law to the contrary shall not alter
this agreement of the parties.

4.5 First Month's Rent Security Deposit. On the Commencement Date, Sublessee
shall deposit with Sublessor the first month's payable rent. Upon Sublease
execution, Sublessee shall post an irrevocable letter of credit (the "L/C") in
the amount of the Security Deposit specified in Section 1.1 above, the same to
be held as security for the performance by Sublessee of all obligations imposed
upon Sublessee under this Sublease. The L/C shall be generally in the form of an

<PAGE>

unconditional, irrevocable letter of credit without documents and otherwise in
form and substance reasonably satisfactory to Sublessor, shall be drawn on a
domestic commercial bank with a letter of credit paying office located in
Boston, Massachusetts, and shall be addressed to, and payable upon simple
written demand by, Sublessor, which demand shall be accompanied by a statement
of an authorized officer or agent of Sublessor stating that the drawing
represents amounts due to Sublessor from Sublessee under this Sublease. If
Sublessee defaults with respect to this Sublease beyond any applicable cure or
grace periods, Sublessor shall be entitled to draw sums under the L/C and apply
such sums, pro tanto, against any damages which Sublessor may sustain by reason
of Sublessee's failure to perform such obligations, but such application shall
not preclude Sublessor from recovering greater damages if the same can be
established. If Sublessor draws any sums under the L/C as aforesaid, Sublessee
shall, within five (5) business days of demand, restore the amount available
under the L/C to the original face amount thereof. If Sublessor conveys
Sublessor's interest under this Sublease, the L/C may be assigned by Sublessor
to Sublessor's grantee, and, if so assigned, Sublessee agrees to look solely to
such assignee for the proper application and return thereof in accordance with
the terms of this Section 4.5. If Sublessee shall faithfully perform all such
obligations, then the L/C shall be returned to Sublessee upon expiration of the
Sublease Term and after Sublessee has vacated the Subleased Premises. Sublessee
agrees that Sublessee will not assign, encumber or pledge, attempt to assign,
encumber or pledge the L/C deposited herein as security, and that neither
Sublessor, nor its successors and assigns, shall be bound by any such
assignment, encumbrance or pledge, attempted assignment, attempted pledge, or
attempted encumbrance. The L/C shall provide for multiple draws and multiple
successor or co-beneficiaries. If, after notice and beyond the expiration of any
applicable grace period (or, if Sublessor is prevented from giving notice by the
automatic stay of a bankruptcy court or by any other legal prohibition, without
notice) Sublessee fails to timely perform or observe any obligation of Sublessee
under this Sublease, including, but not limited to, obligations of Sublessor
under the Prime Lease assumed by Sublessee or restoration of the condition of
the Subleased Premises upon Sublease termination in conformance with the
provisions of this Sublease, Sublessor may (but shall not be required to) use,
apply or retain all or any part of the Security Deposit for the payment of any
amount which Sublessor may spend by reason of Sublessee's default or for
compensation to Sublessor for any loss or damage which Sublessor may suffer or
be entitled to by reason of Sublessee's failure to timely perform or observe any
obligation of Sublessee under this Sublease, including, without limitation,
damages which Sublessor would be entitled to under California Civil Code
Sections 1951.2 or 1951.4. The rights of Sublessor pursuant to this Section 4.6
are in addition to any rights which Prime Lessor may have hereunder. Failure of
Sublessee to deliver a replacement L/C to Sublessor at least forty-five (45)
business days prior to the expiration date of any current L/C shall constitute a
separate event entitling Sublessor to draw down immediately and entirely on the
current L/C and the proceeds shall constitute a cash Security Deposit. Sublessor
shall not be required to keep any cash Security Deposit separate from
Sublessor's general funds or be deemed to be a trustee of same. Sublessee shall
pay when due all fees, charges and costs imposed by the issuing bank for the
issuance, transfer or amendment of the L/C and/or any supplemental L/C.

4.6 No Offset for Utilities. The disruption, failure, lack or shortage of any
service or utility with respect to the Subleased Premises, Building or Project
due to any cause whatsoever shall not affect any obligation of Sublessee
hereunder, and Sublessee shall faithfully keep and observe all

<PAGE>

the terms, conditions and covenants of this Sublease and pay all rent due
hereunder, all without diminution, credit or deduction. To the extent the cause
is the failure of Prime Lessor to observe or perform an obligation of Prime
Lessor under the Prime Lease, Sublessor shall, after receipt from Sublessee of
notice of the failure, exercise its rights under the Prime Lease to cause Prime
Lessor to initiate the cure of such failure.

                                    ARTICLE V
                                    PREMISES

5.1 Condition Of Subleased Premises. Except as provided herein, Sublessee agrees
to accept the Subleased Premises and Sublessor's FF&E in their condition
existing as of the Commencement Date, "AS-IS" and "WITH ALL FAULTS", without any
representation or warranty and subject to all applicable zoning, municipal,
county and state laws, ordinances and regulations governing and regulating the
use and condition of the Subleased Premises, and any covenants or restrictions,
liens, encumbrances and title exceptions of record, and accepts this Sublease
subject thereto and to all matters disclosed hereby and by any exhibits attached
hereto or to the Prime Lease. Sublessee acknowledges that neither Sublessor nor
Lessor nor any agent of Sublessor or Lessor has made any representation or
warranty as to the present or future suitability of the Subleased Premises for
the conduct of Sublessee's business. Not limiting the generality of the
foregoing, Sublessor represents and warrants to Sublessee that as of the date
first set forth above, (i) there are no Hazardous Materials present in the
portion of the Subleased Premises (not including Common Areas) as a result of
Sublessor's occupancy or use of the Subleased Premises, and (ii) all lab benches
are clean, and (iv) the existing fume hoods are in good operating condition.

5.2 Furnishings, Fixtures and Equipment. Sublessee shall have the right to use
all of Sublessor's FF&E for the Sublease Term at no additional expense. So long
as Sublessee is not in default hereunder and Sublessor is not in default under
the Prime Lease beyond any applicable cure period, Sublessee shall have the
right to remove the office furniture and laboratory facilities ("Laboratory
Facilities") portion of the Tenant Improvements made by Sublessor (and any
Alterations consisting of additions to or replacement of same) upon the
expiration of the Prime Lease provided that Sublessee, at its sole cost and
expense, repairs and restores the Subleased Premises to their condition prior to
the installation of said Laboratory Facilities. Laboratory Facilities shall mean
furnishings, fixtures and equipment (to the extent the same may be considered
Tenant Improvements the primary function of which is the conduct or support of
non-animal biological and chemical research including, without limitation,
wastewater treatment systems, chemical hoods, biosafety cabinets, casework,
benches, analytical and automation equipment and associated enclosures, support
equipment, cold rooms, nitrogen generators, vacuum pumps, air compressors, water
systems, nuclear magnetic resonance equipment, ovens, ice makers, freezers and
refrigerators, centrifuges, glass washers, process chillers, security systems,
steam sterilizers/autoclaves, gas manifolds and environmental control systems.

5.3 Alterations to Subleased Premises. Sublessee shall make no improvements,
alterations, renovations, or additions in or to the Subleased Premises, or any
portion thereof without the prior written consent of Sublessor, which consent
shall not be unreasonably withheld or delayed. In

<PAGE>

any event Sublessee, except as permitted by Section 2.2.2 (k) hereof, shall also
obtain such consent from Prime Lessor. Sublessor shall cooperate with Sublessee
to the extent of requesting the consent of Prime Lessor in accordance with the
terms of the Prime Lease. Sublessor shall not be responsible for the failure or
refusal of Prime Lessor to consent to any such improvements, alterations,
renovations or additions; Sublessor hereby agrees that it shall not withhold or
delay its consent to any improvements, alterations, renovations or additions to
which Prime Lessor consents, so long as Sublessee agrees, upon the expiration or
earlier termination of this Sublease, to remove if required by Prime Lessor, the
same and restore the Subleased Premises to substantially the condition they were
in prior to such improvements, alterations, renovations or additions. Any such
approved improvements, alterations, renovations or additions shall be
constructed by Sublessee, at the sole cost and expense of Sublessee in
accordance with plans and specifications therefor reasonably approved in advance
by Sublessor and Prime Lessor and shall be done in conformance with the
applicable provisions of the Prime Lease, in a good and workmanlike manner, and
in compliance with all applicable laws, Project Standards, rules and
regulations.

5.4 Access, Entry and Inspection. Sublessee shall have access to the Subleased
Premises for the purposes of architectural review and planning only, starting
September 1, 2004. Sublessee shall not commence any interior alterations before
October 1, 2004, and then only after providing evidence to the Sublessor of
appropriate insurance required in the Sublease, e.g. coverages substantially
similar to those required of Sublessor under Section 4.2.2.4 of the Work Letter
executed by SubLessor and Prime Lessor pursuant to, and substantially in the
form of, Exhibit C to the Prime Lease. At reasonable times, and upon reasonable
advance written notice to Sublessee, Sublessee shall permit Sublessor, its
agents and invitees to enter and inspect the Subleased Premises or any portion
thereof during Sublessee's regular business hours, subject in all events to
Sublessee's reasonable confidentiality and security needs. Sublessor shall have
such right of entry without any rebate of rent to Sublessee for any loss of
occupancy or quiet enjoyment of the Subleased Premises hereby occasioned unless
Sublessor materially interferes with Sublessee's use and enjoyment of the
Subleased Premises.

5.5 Emergency Access. Notwithstanding any other provision hereof, in the event
Prime Lessor or Sublessor reasonably determine that an emergency situation
exists, either or both of them may enter the Subleased Premises at any time
without notice and take reasonable measures to deal with the emergency.

5.6 Surrender. Sublessee shall surrender the Subleased Premises to Sublessor at
the end of the Sublease Term in accordance with Section 17.09 of the Prime
Lease. Notwithstanding any other provision hereof, Sublessee will not be
required to remove tenant improvements made by Sublessor to the Subleased
Premises.

<PAGE>

                                   ARTICLE VI
                         USES; ASSIGNMENT AND SUBLETTING

6.1 Permitted Uses. Sublessee agrees that the Subleased Premises shall be used
and occupied for the Permitted Uses only, and in compliance with all applicable
laws, rules and regulations now or hereafter in effect.

6.2 Assignment And Subletting By Sublessee. Sublessee shall not, by operation of
law or otherwise, assign, sub-sublet, mortgage, pledge, encumber or in any
manner transfer this Sublease or any interest of Sublessee hereunder, or sublet
or permit the Subleased Premises or any part thereof to be used or occupied by
others, without the prior consent of Sublessor, which consent shall not be
unreasonably withheld or delayed, except, that, Sublessee may, without the
necessity of obtaining the consent of Sublessor, assign or sublet the Subleased
Premises, or any portion thereof, to any corporation which controls, is
controlled by, or is under common control with Sublessee, or to any corporation
resulting from the merger or consolidation with Sublessee, or to any person or
entity which acquires all of Sublessee's stock or all, or substantially all of
the assets of Sublessee as a going concern of the business that is being
conducted on the Subleased Premises ("Affiliate"), provided that said assignee
or sublessee assumes, in full, the obligations of Sublessee under this Sublease
and provided further that the use to which the Subleased Premises will be put
does not materially change. Any rent resulting from a further sublease of the
Subleased Premises (other than to an Affiliate (as defined below)) which is in
excess of Sublessee's Rent under this Sublease which Sublessor is entitled to
shall be split 50/50 between Sublessor and Sublessee after deducting customary
broker commissions and attorneys' fees. Any such assignment shall not, in any
way, affect or limit the liability of Sublessee under the terms of this
Sublease. Sublessee acknowledges, however, that, notwithstanding the foregoing,
any such assignment or sub-sublet (including, without limitation, any assignment
or sub-sublet to an Affiliate of Sublessee) shall also be subject to approval of
the Prime Lessor in accordance with the Prime Lease. Sublessor shall not be
responsible for the failure or refusal of Prime Lessor to consent to any such
assignment or sub-sublet.

                                   ARTICLE VII
                                    INSURANCE

     7.1 Insurance Coverage. Sublessee shall carry and maintain, throughout the
Term hereof, at its own cost and expense, (a) a commercial general liability
insurance policy insuring against any claim involving bodily injury (including
death) or damage to property and (b) a fire and other casualty policy insuring
(i) the full replacement value of Sublessee's improvements, fixtures,
furnishings, equipment and personal property located in the Subleased Premises
or any portion thereof, and (ii) the full replacement value of Sublessor's FF&E
against loss or damage by fire, theft, sprinkler leakage and such other risks or
hazards as are insurable under present and future forms of "All Risk" insurance
policies, and (c) during any period that construction or renovations are being
performed at any portion of the Subleased Premises, the insurance required in
(b) above shall be written on a builder's risk, completed value, non-reporting
form, meeting all of the terms in (b) above, cover the total value of the work
performed, materials, equipment, machinery and supplies furnished, and contain
soft cash (loss of rents) coverage and permission to occupy endorsements. Said
casualty policy shall also insure against physical damage to the Subleased
Premises arising out of an accident covered thereunder. Coverage amounts under
the

<PAGE>

commercial, general liability, insurance policy for each occurrence and in
the aggregate shall be the same as those required of Sublessor by Prime Lessor
pursuant to the Primary Lease. The limits of said insurance required by this
Sublease as carried by Sublessee shall not, however limit the liability of
Sublessee (except as stated in Section 7.07(a) of the Prime Lease incorporated
herein pursuant to Section 2.2.2 hereof) nor relieve Sublessee of any obligation
hereunder. All insurance to be carried by Sublessee shall be primary to and not
contributory with, any similar insurance carried by Sublessor or Prime Lessor
whose insurance shall be considered excess insurance only.

7.2 Rated Companies. All insurance policies required under Section 7.1 above,
are to be written by good and solvent insurance companies licensed or authorized
to do business in the State of California with a minimum Best's Rating of A-VI;
shall be for such limits and with such maximum deductibles as commercially
reasonable (Sublessee hereby agreeing that Sublessor shall in no event be
responsible for payment of any such deductibles); and shall name Sublessor, and
Prime Lessor and any lender(s) of Prime Lessor whose names are provided to
Lessee as additional insureds and loss payees against claims and liability for
bodily injury, personal injury and property damage based upon involving or
arising out of ownership, use, occupancy or maintenance of the Subleased
Premises and all areas appurtenant thereto, as applicable (provided, however,
that the casualty policy insuring Sublessor's FF&E shall name Sublessor as the
insured). Sublessor expressly reserves the right to increase limits and require
adjustments to coverage commensurate with any increases required by Prime Lessor
of Sublessor pursuant to the terms of the Prime Lease.

7.3 Evidence Of Insurance. Prior to the time insurance is first required to be
carried by Sublessee under Section 7.1, above (e.g on the Commencement Date of
this Sublease), and thereafter at least fifteen (15) days prior to the
expiration date of any such policy, Sublessee agrees to deliver to Sublessor a
certificate of insurance (or other evidence of such insurance satisfactory to
Sublessor) upon which both Sublessor and Prime Lessor are entitled to rely,
which shall contain an endorsement that any such insurance policy may not be
cancelled without at least ten (10) days' prior written notice to each insured.
Sublessee's failure to provide and keep in force the aforementioned insurance or
to make the aforementioned payments to Sublessor shall be regarded as a default
hereunder, entitling Sublessor to exercise any or all of the remedies provided
in this Sublease in the event of Sublessee's default. All insurance policies
carried by Sublessee shall be written as primary coverage policies not
contributing with or secondary to coverage which Sublessor carries.

7.4 Subrogation and Waiver. Each of Sublessor and Sublessee hereby releases and
relieves the other, and waives its entire claim of recovery for loss or damage
to property arising out of or incident to fire, lightning, and the other perils
included in a standard "all risk" insurance policy of a type described in
Section 7.1 and above, when such property constitutes the Subleased Premises, or
is in, on or about the Subleased Premises, whether or not such loss or damage is
due to the negligence of Sublessor or Sublessee, or their respective agents,
employees, guests, licensees, invitees, or contractors. Each of Sublessor and
Sublessee hereby waives all rights of subrogation against the other on behalf
of, and shall obtain a waiver of all subrogation rights from, all property and
casualty insurers referenced above.

<PAGE>

                                  ARTICLE VIII
                               CASUALTY AND TAKING

8.1 General. If the Subleased Premises or any portion thereof is damaged by fire
or other casualty, or taken by eminent domain, Sublessee shall promptly notify
Prime Lessor and Sublessor. Pursuant to Sections 8.01 and 13.01 of the Prime
Lease, Prime Lessor may, under certain circumstances, terminate the Prime Lease.
If Prime Lessor elects to terminate the Prime Lease pursuant to such Sections,
the Prime Lease shall cease and come to an end, and this Sublease shall
similarly terminate. In addition, if Sublessor elects to terminate the Prime
Lease pursuant to such Sections, the Prime Lease shall cease and come to an end,
and this Sublease shall similarly terminate. All rent shall be paid up to the
date of termination, and Sublessee shall have no claim against Sublessor for the
value of the unexpired portion of the Sublease Term. In any event, Sublessee
shall perform the obligations and assume the liabilities of Sublessor under
Sections 8.01 and 13.01. Sublessee acknowledges that Sublessor shall, in no
event, have any obligation whatsoever to reconstruct or restore the Subleased
Premises or any portion thereof damaged by fire or other casualty or taken by
eminent domain.

8.2 Partial Condemnation. If any portion of the Subleased Premises is taken by
condemnation during the Sublease Term, whether by exercise of governmental power
or the sale for transfer by Lessor to an condemnor under threat of condemnation
or while proceedings for condemnation are pending, this Sublease shall remain in
full force and effect except that in the event a partial taking (i) is more than
thirty-three percent (33%) of the total square footage of the Subleased
Premises; or (ii) leaves the Subleased Premises unfit for the conduct of the
business of Sublessee, then Sublessee shall have the right to terminate this
Lease effective upon the date transfer of possession is required. Moreover,
Sublessor and Prime Lessor have the right to terminate the Prime Lease effective
on the date transfer of possession is required if more than thirty-three percent
(33%) of the total square footage of the Subleased Premises is taken by
condemnation. If Sublessor or Prime Lessor elects to terminate the Prime Lease
in such event, the Prime Lease shall cease and come to an end and this Sublease
shall similarly terminate. Sublessee may elect to exercise its right to
terminate this Sublease pursuant to this Section by serving written notice to
Sublessor within fifteen (15) days after receipt of notice of condemnation. All
rent shall be paid up to the date of termination, and Sublessee shall have no
claim against Sublessor for the value of any unexpired portion of the Sublease
Term. If this Sublease shall not be terminated, the rent after such partial
taking shall be that percentage of the adjusted Sublease Base Rent specified
herein, equal to the percentage which the square footage of the untaken part of
the Subleased Premises, immediately after the taking, bears to the square
footage of the entire Subleased Premises immediately before the taking. If
Sublessee's continued use of the Subleased Premises requires alterations and
repair by reason of a partial taking, all such alterations and repair shall be
made by Sublessee at Prime Lessor's expense. Sublessee waives all rights it may
have under California Code of Civil Procedure Section 1265.130 or otherwise, to
terminate this Sublease based on partial condemnation.

8.3 Award to Sublessor. In the event of any condemnation, whether total or
partial, any condemnation award shall belong to Sublessee or Prime Lessor as
their respective interests may

<PAGE>

appear (including, without limitation, any amount attributable to any excess of
the market value of the Subleased Premises for the remainder of the Sublease
Term over the then present value of the rent payable for the remainder of the
Sublease Term) and Sublessee shall have no further right to recover from
Sublessor or Prime Lessor or the condemning authority for any claims arising out
of such taking.

8.4 Waiver of Civil Code Remedies. Sublessee hereby expressly waives any rights
to terminate this Sublease upon damage or destruction to the Subleased Premises,
including without limitation any rights pursuant to the provisions of Section
1932, Subdivisions 1 and 2 and Section 1933, Subdivision 4, of the California
Civil Code, as amended from time-to-time, and the provisions of any similar law
hereinafter enacted.

8.5 No Abatement of Rentals. The Base Rent, Additional Rent and other charges
due under this Sublease shall not be reduced or abated by reason of any damage
or destruction to the Subleased Premises (but will be subject to credit as
provided herein with respect to rental loss insurance proceeds received or which
would have been paid but for Prime Lessor's failure to carry same in
contravention of its duty to do so under Section 7.06 of the Prime Lease), and
Sublessee shall be entitled to all proceeds of the insurance maintained pursuant
to Section 7.1 above during any period of rebuilding, or if this Sublease is
terminated pursuant to Section 8.1 or 8.2 above (unless Sublessee is entitled to
rent abatement under the Prime Lease). Sublessee shall not have any claim
against Sublessor, including, without limitation, any claim for compensation for
inconvenience or loss of business, profits or goodwill during any period of
repair or reconstruction.

8.6 No Liability for Tenant Improvements or Lessee's, Alterations or Personal
Property. In no event shall Sublessor have any liability for, nor shall it be
required to repair or restore, any injury or damage to Alterations made by
Sublessee or personal property of Sublessee or to any other personal property of
Sublessee in or upon the Subleased Premises, Building 8 or the Project.

                                   ARTICLE IX
                            MISCELLANEOUS PROVISIONS

9.1 Sublessee's Risk. Except as provided herein, Sublessee agrees to use and
occupy the Subleased Premises at Sublessee's own risk; and to the fullest extent
permitted by law, Sublessor shall have no responsibility or liability for any
loss of or damage to fixtures or other personal property of Sublessee, or of
those claiming by, through or under Sublessee, including without limitation, any
loss or damage from the breaking, bursting, crossing, stopping or leaking of
electric cables and wires, and water, gas, sewer or steam pipes or like matters,
except to the extent caused by Sublessor's gross negligence or willful
misconduct. In the event of such loss or damage to Sublessee's property
resulting from the gross negligence or willful misconduct of Sublessor, its
agents, contractors or employees, subject, however, to the waiver of subrogation
provision contained herein, Sublessor shall bear only the loss of or damage to
laboratory equipment, furniture, computer hardware and other small items of
tangible personal property of

<PAGE>

the kind which may customarily be expected to be found on the premises of a
business conducting activities substantially similar to those conducted by
Sublessee, provided, however, that Sublessor shall have no responsibility or
liability for any such loss or damage relating directly or indirectly to loss of
business, lost profits or other indirect or consequential damages, loss of data
(including, without limitation, data contained in computer tapes, disks, other
storage media and similar property) or unusually valuable, rare or exotic
materials, works of art, and the like. In the event of such loss or damage to
Sublessee's property resulting from the negligence or willful misconduct of
Prime Lessor, its agents, contractors or employees, subject, however, to the
limitations contained herein and in the Prime Lease, Sublessor shall cooperate
with Sublessee in a commercially reasonable manner in seeking compensation from
Prime Lessor for such loss or damage, to the extent requested by Sublessee and
at Sublessee's expense.

9.2 Waiver. Failure on the part of either party to complain of any action or
non-action on the part of the other, no matter how long the same may continue,
shall never be deemed to be a waiver by such party of any of its rights
hereunder. Further, it is agreed that no waiver of any of the provisions hereof
by either party shall be construed as a waiver of any of the other provisions
hereof and that a waiver at any time of any of the provisions hereof shall not
be construed as a waiver at any subsequent time of the same provisions. The
consent to or approval of any action by either party requiring such consent or
approval shall not be deemed to waive or render unnecessary such consent to or
approval of any subsequent similar act by such party.

9.3 No Brokerage. The parties represent that they have dealt with no real estate
broker or agent in connection with this Sublease or with anyone who would
otherwise be entitled to a brokerage commission or other compensation with
respect to this Sublease except for the Brokers named herein. Each of Sublessor
and Sublessee agrees to defend and indemnify the other against any claims,
losses, damages, liabilities or expenses (including reasonable attorneys' fees)
arising out of the breach of any of its respective foregoing representations.

9.4 Notices. Whenever by the terms of this Sublease (including terms of the
Prime Lease incorporated herein) notice, demand or other communication shall or
may be given, either to Sublessor, Sublessee or Prime Lessor, the same shall be
adequately given if in writing and delivered in the manner specified in Section
17.06 (b) of the Prime Lease:

     If intended for Sublessor, addressed to it at the Present Mailing Address
     of Sublessor, with a copy to Sublessor's General Counsel at the Present
     Mailing Address of Sublessor (or to such other address or addresses as may
     from time to time hereafter be designated by Sublessor by like notice).

     If intended for Sublessee, addressed to it at the Subleased Premises (or to
     such other address or addresses as may from time to time hereafter be
     designated by Sublessee by like notice).

     If intended for Prime Lessor, addressed to it at the Present Mailing
     Address of Prime Lessor (or to such other address or addresses as may from
     time to time hereafter be designated by Prime Lessor by like notice).

<PAGE>

     All such notices shall be effective upon receipt. Any correctly addressed
notice that is refused, unclaimed, or undeliverable because of an act or
omission of the party to be notified shall be considered to be effective as of
the first date that the notice was refused, unclaimed, or considered
undeliverable by the postal authorities, messenger, or overnight delivery
service.

9.5 Effectiveness Of Sublease. This Sublease shall not be effective until and
unless Prime Lessor has given its consent hereto, which consent shall be in form
and substance reasonably satisfactory to Sublessee and Sublessor; Sublessee
shall be responsible for paying all costs and expenses payable to Prime Lessor
under the Prime Lease in connection with obtaining such consent. Sublessor shall
use reasonable efforts to obtain Prime Lessor's consent, but shall not be
responsible for the failure or refusal of Prime Lessor to consent to this
Sublease

9.6 Provisions Binding, Etc. Except as herein otherwise expressly provided, the
terms hereof shall be binding upon and shall inure to the benefit of the heirs,
legal representatives, successors and assigns, respectively, of Sublessor and
Sublessee. Each term and each provision of this Sublease to be performed by
Sublessee shall be construed to be both a covenant and a condition. The
reference contained to the successors and assigns of Sublessee is not intended
to constitute a consent to assignment by Sublessee, but has reference only to
those instances in which Sublessor shall have given its consent to a particular
assignment if such consent is required by the provisions of this Sublease. Each
person executing this Sublease on behalf of Sublessor warrants that Sublessor is
a duly existing and valid Delaware corporation qualified to do business in
Massachusetts, that Sublessor has duly executed and delivered this Sublease,
that the execution and delivery of, and the performance by Sublessor of its
obligations under this Sublease are within the powers of Sublessor and have been
duly authorized by all requisite corporate action, and that this Sublease is a
valid and binding obligation of Sublessor in accordance with its terms. Each of
the persons executing this instrument on behalf of Sublessee hereby covenant and
warrant that Sublessee is a duly existing and valid Delaware corporation
qualified to do business in California, that Sublessee has duly executed and
delivered this Sublease, that the execution and delivery of, and the performance
by Sublessee of its obligations under this Sublease are within the powers of
Sublessee and have been duly authorized by all requisite corporate action, and
that the Sublease is a valid and binding obligation of Sublessee in accordance
with its terms.

9.7 Sole Agreement. This Sublease (including Exhibits hereto and provisions of
and Exhibits to the Prime Lease incorporated herein) contains all agreements of
the parties with respect to any matter mentioned herein. No prior agreement or
understanding pertaining to any such matter shall be effective. This Sublease
may be modified in writing only, signed by the parties in interest at the time
of the modification. Except as otherwise stated in this Sublease, Sublessee
hereby acknowledges that neither Sublessor nor Prime Lessor nor any of their
respective employees or agents has made any oral or written warranty or
representation to Sublessee relative to the condition or use by Sublessee of the
Subleased Premises and Sublessee acknowledges that it assumes all responsibility
regarding the Occupational Safety Health Act, the legal use and adaptability of
the Subleased Premises and the compliance thereof with all applicable laws and
regulations in effect during the Sublease Term except as otherwise specifically
stated in this

<PAGE>

Sublease. Neither party has been induced to enter into this Sublease by, and
neither party is relying on, any representation or warranty outside those
expressly set forth in this Sublease.

9.8 No Recording. Sublessee agrees not to record this Sublease or any notice
thereof.

9.9 Counterparts. This Sublease may be signed in any number of counterparts, and
in such event each shall act as an original for all purposes, so long as each
party has signed at least one counterpart.

EACH OF SUBLESSOR AND SUBLESSEE HAS CAREFULLY READ AND HAS REVIEWED THIS
SUBLEASE AND BEEN ADVISED BY LEGAL COUNSEL OF ITS OWN CHOOSING AS TO EACH TERM
AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS SUBLEASE, SHOWS ITS
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES ACKNOWLEDGE THAT, AT THE
TIME THIS SUBLEASE IS EXECUTED, THE TERMS AND CONDITIONS OF THIS SUBLEASE ARE
COMMERCIALLY REASONABLE AND GIVE EFFECT TO THE INTENT AND PURPOSE OF SUBLESSOR
AND SUBLESSEE WITH RESPECT TO THE SUBLEASED PREMISES.

<PAGE>

Executed under seal as of the date first written above.

Sublessor:               ArQule, Inc.

                         By: /s/ Stephen A. Hill
                             -------------------------
                         Its CEO
                         hereunto duly authorized

Sublessee:               Threshold Pharmaceuticals Inc.

                         By: /s/ Janet I. Swearson
                             -------------------------
                         Its CFO, VP Finance & Ops
                         hereunto duly authorized

Exhibits:
--------
Exhibit A:  Location of Subleased Premises
Exhibit B:  Sublessor's FF&E

<PAGE>

                              BROKER CERTIFICATION

     Each of the undersigned represents to the other that it has had no dealings
with any real estate broker or agent in connection with the negotiation of this
Sublease, except for the real estate brokers or agents executing this
certification ("Brokers") and that each knows of no other real estate broker or
agent who is entitled to a commission or finder's fee in connection with this
Sublease. By signing below, Brokers are not being made a party to the Sublease.

SUBLESSOR'S BROKER:                          ADDRESS:

By:
   -----------------------------------
         (Type or print name)

Its:
   -----------------------------------

Its:
   -----------------------------------

SUBLESSEE'S BROKER:                          ADDRESS:

By:
   -----------------------------------
         (Type or print name)

Its:
   -----------------------------------

<PAGE>

                                   Exhibit I

                             TRIPLE NET SPACE LEASE

                                     between

                         PACIFIC SHORES DEVELOPMENT LLC,

                                       as
                                     LESSOR

                                       and

                                  ARQULE, INC.,
                             A DELAWARE CORPORATION
                                       as
                                     LESSEE

                                       for

                                    PREMISES
                                       at
                              PACIFIC SHORES CENTER
                             FIFTH FLOOR, BUILDING 8
                             1300 SEAPORT BOULEVARD
                         REDWOOD CITY, CALIFORNIA 94063

<PAGE>

                                    ARTICLE I
                                     PARTIES

     SECTION 1.01. PARTIES. This Lease, dated for reference purposes, and
effective as of March 26, 2002, is made by and between PACIFIC SHORES CENTER
LLC, or assignee, ("LESSOR") and ARQULE, Inc., a Delaware corporation
("LESSEE").

                                   ARTICLE II
                                    PREMISES

     SECTION 2.01. DEMISE OF PREMISES. Lessor hereby leases to Lessee and Lessee
leases from Lessor for the term, at the rental, and upon all of the terms and
conditions set forth herein, certain space consisting of an agreed thirty-three
thousand, six hundred ninety nine rentable square feet (33,699) ("PREMISES")
which Premises comprise the entire fifth floor of that certain Building,
sometimes known as "Building 8" and commonly known as 1300 Seaport Boulevard,
Redwood City, California 94063 ("BUILDING 8") which is one of ten free standing,
office and research and development buildings ("BUILDINGS") on real property
situated in Redwood City, County of San Mateo, State of California and commonly
known as Pacific Shores Center. Building 8 consists of an agreed one hundred
sixty four thousand seven hundred thirty two (164,732) rentable square feet. The
Premises are more particularly described and depicted herein in Exhibit "A." The
Premises include restrooms, and janitor, telephone and electrical closets on the
fifth floor and Lessee shall have the exclusive use thereof, provided that
Lessor reserves the right to access and use the same (as well as the space above
any dropped ceilings) for cabling, wiring, pipes and other Building system
elements. The rentable square footage of the Premises, Building 8 and other
Buildings (the "RENTABLE AREA") has been determined and certified by Lessor's
architect by a method described as "dripline," whereby the measurement
encompasses the outermost perimeter of the constructed building, including every
projection thereof and all area beneath each such projection, whether or not
enclosed, with no deduction for any inward deviation of structure and with the
measurement being made floor by floor, but beginning from the top of the
Building; the Rentable Area of the Premises also includes an allocation of the
first floor entry and elevator lobby. The Premises, the Buildings and
appurtenances described herein, including Common Area (defined below), and all
other improvements at Pacific Shores Center together with the land on which the
same are located are together designated as the project ("PROJECT").

     SECTION 2.02. COMMON AREA. During the Lease Term, Lessee shall have the
non-exclusive right to use the Common Area defined herein. Lessor reserves the
right to modify the Common Area, including increasing or reducing the size,
adding additional buildings, structures or other improvements or changing the
use, configuration and elements thereof in its sole discretion and to close or
restrict access from time to time for repair, maintenance or construction or to
prevent a dedication thereof, provided that Lessee nonetheless (i) shall have
reasonable access to parking and the Premises during such activities; (ii) such
modifications, when completed, shall not unreasonably interfere with or restrict
Lessee's possession and use of the

                                        2

<PAGE>

Premises; and (iii) no such modification shall unreasonably and materially
increase Lessee's Share of Operating Expenses. Lessor further reserves the right
to establish, repeal and amend from time to time rules and regulations for the
use of the Common Area and to grant reciprocal easements or other rights to use
the Common Area to owners of other property provided that no amendment to the
rules and regulations shall unreasonably interfere with or restrict Lessee's use
of the Premises or unreasonably and materially increase Lessee's Share of
Operating Expenses and provided further, to the extent of any conflict between
an express provision of this Lease (other than the attached Rules and
Regulations) and such amended Common Area rules and regulations, this Lease
controls. "Common Area" means both (i) Project Common Area which includes all
portions of the Project other than the Buildings, including landscaping,
sidewalks, walkways, driveways, curbs, parking lots (including striping),
roadways within the Project, sprinkler systems, lighting, surface water drainage
systems, an athletic facility to be available for use by Lessee's employees (the
"ATHLETIC FACILITY"), as well as baseball and soccer fields, a water front park,
and a perimeter walking/biking trial, and, to the extent required by government
authorities having jurisdiction over Lessor's development of the Project,
amphitheater, marine life resource center, retreat and conference center, child
care center and such further portions of the Project or additional or different
facilities as Lessor may from time to time designate or install or make
available for the use by Lessee in common with others and (ii) Building 8 Common
Area which includes the total area on the fifth floor consisting of mechanical
areas, public stairs, elevator shafts and pipe, cabling and wiring shafts,
together with their enclosing walls, plus the first floor entrance and elevator
lobby and on each other floor of Building 8, the same and, to the extent not
leased to an occupant, public corridors, elevator lobbies, restrooms and
janitor, telephone and electrical closets.

     SECTION 2.03. PARKING. Lessor shall provide Lessee with parking spaces
within the Common Area as required by law, which is three (3) spaces per one
thousand (1,000) square feet of interior space within the Premises. In the event
Lessor elects or is required by any law to limit or control parking at the
Premises, whether by validation of parking tickets or any other method of
assessment, Lessee agrees to participate in such validation or assessment
program under such reasonable rules and regulations as are from time to time
established by Lessor. Lessor agrees that Lessee's access to parking shall not
be unreasonably limited beyond any requirement of law by any such rules and
regulations. All costs associated with parking shall be an element of Common
Area costs payable hereunder in Article VI for reimbursement of repair,
replacement and maintenance costs and expenses, and in Article IX for payment or
reimbursement of any real property taxes including governmental or public
authority charges, fees or impositions of any nature hereafter imposed.

     SECTION 2.04.  CONSTRUCTION.

     (a)  CONSTRUCTION OF TENANT IMPROVEMENTS. Lessee shall have the right to
construct certain improvements ("TENANT IMPROVEMENTS") within the Premises
pursuant to the Work Letter Agreement attached hereto as Exhibit "C."
Notwithstanding any other provisions hereof, Lessee will not be required to
remove the Tenant Improvements at the expiration of the Lease Term. Lessor has
approved Lessee's use of Integrated Office Solutions, Inc. as construction

                                        3

<PAGE>

manager for Tenant Improvements to Building 8 and WHL as Lessee's architect.
Lessee will have reasonable access to the floor beneath the Premises for any
necessary reinforcement of the Premises, if Lessor consents to Tenant
Improvements which require such reinforcement.

     (b) PAYMENT FOR TENANT IMPROVEMENTS. Lessee shall pay when due, to all
third parties involved in the design, permitting, engineering and construction
of same, the entire cost of the Tenant Improvements so that construction shall
be complete pursuant to the approved construction schedule described in the Work
Letter Agreement.

     (c) LESSOR WORK. Lessor will demise the Premises from the floor beneath by
closing the existing stairwell and constructing a floor over the existing
stairwell opening. With respect to any work required to be performed by Lessor
hereunder, Lessor warrants that; (i) all materials and equipment used for or
incorporated into such work by Lessor, will be of first quality and new; (ii)
such work will be free from material defects not inherent in the quality so
required or permitted. Work not so conforming with these requirements shall be
considered defective and Lessor shall remedy any defects promptly and within a
reasonable time. Except as provided in Section 12.03, Lessee shall have no
further rights or remedies and Lessor shall have no other obligation or
liability with respect to such defective work. Lessee acknowledges that the
above-described work will be performed by Lessor during Lessor's buildout
period, i.e., months one through five of the Lease Term.

     (d) REMOVAL OF LABORATORY FACILITIES PORTION OF TENANT IMPROVEMENTS. So
long as Lessee is not in default beyond any applicable cure period, Lessee shall
have the right to remove the laboratory facilities ("LABORATORY FACILITIES")
portion of the Tenant Improvements (and any Alterations consisting of additions
to or replacement of same) upon the expiration or earlier termination of the
Lease provided that Lessee, at its sole cost and expense, repairs and restores
the Premises to the condition it was in prior to the installation of said
Laboratory Facilities. Laboratory Facilities shall mean furnishings, fixtures
and equipment (to the extent the same may be considered Tenant Improvements the
primary function of which is the conduct or support of non-animal biological and
chemical research, including, without limitation, wastewater treatment systems,
chemical hoods, biosafety cabinets, casework, benches, analytical and automation
equipment and associated enclosures, support equipment, cold rooms, nitrogen
generators, vacuum pumps, air compressors, water systems, nuclear magnetic
resonance equipment, ovens, icemakers, freezers and refrigerators, centrifuges,
glass washers, process chillers, specialized security systems related to the
Laboratory Facilities (but not general security systems guarding access to the
Premises or any part thereof), steam sterilizers/autoclaves, gas manifolds and
environmental control systems.

                                        4

<PAGE>

                                   ARTICLE III
                                      TERM

     SECTION 3.01.  LEASE TERM.

     (a) COMMENCEMENT DATE. The term of this Lease ("LEASE TERM") shall be for
eight (8) years beginning on March 1, 2002 (the "COMMENCEMENT DATE") and
expiring, unless sooner terminated as provided for herein, on February 28, 2010
("EXPIRATION DATE"). The parties shall execute a "Memorandum of Commencement of
Lease Term" on the Commencement Date and shall be substantially in the form
attached hereto as Exhibit "E."

     (b) TERMINATION IN EVENT OF DELAY. If for any Force Majeure delay excused
under Section 17.21 Lessor is unable to tender possession of the Premises
(subject to Lessor's retained right of entry to perform Lessor's work described
in Section 2.04(c), above), on or before the date which is sixty (60) days after
the Commencement Date, Lessee, at its sole election, may terminate this Lease
upon giving notice within ten (10) business days thereafter. Failure to give
such notice within said time period constitutes an irrevocable waiver of the
foregoing right to terminate under this Section 3.01(b). If Lessee terminates
this Lease in accordance with this paragraph, neither party shall have any
further rights or obligations hereunder. If possession is so delayed and this
Lease is not terminated the date on which payment of Base Rent is to commence
shall be postponed by the same number of days as tender of possession is
delayed.

     SECTION 3.02.  OPTION TO EXTEND.

     (a) EXERCISE. Lessee is given two (2) options to extend the Lease Term
(each an "OPTION TO EXTEND") each for a three (3) year period ("EXTENDED TERM")
following the date on which the initial Lease Term or preceding Extended Term
would otherwise expire, which option may be exercised only by written notice
("OPTION NOTICE") from Lessee to Lessor given not less than twelve (12) months
prior to the end of the initial Lease Term or the preceding Extended Term as the
case may be ("OPTION EXERCISE DATE"); provided, however, if Lessee is in
material default under this Lease (after notice and beyond the expiration of any
applicable grace period) on the Option Exercise Date or on any day thereafter on
or before the last day of the initial Lease Term or the preceding Extended Term
as the case may be, the Option Notice shall be totally ineffective, and this
Lease shall expire on the last day of the initial Lease Term or the last day of
the preceding Extended Term as the case may be, if not sooner terminated. The
right of Lessee to exercise an Option to Extend shall not be affected by any
sublease or assignment of this Lease previously entered into by Lessee pursuant
to the provisions of this Lease. If Lessee fails to timely exercise the first
Option to Extend or if the first Extended Term either fails to commence or
terminates prior to its expiration, the second Option to Extend shall
automatically terminate and be null and void.

     (b) EXTENDED TERM RENT. In the event Lessee exercises one or both of its
Option to Extend set forth herein, all the terms and conditions of this Lease
shall continue to apply to the Extended Term, except that the Base Rent payable
by Lessee during the Extended Term shall be equal to one hundred percent (100%)
of Fair Market Rent (defined below), as determined under subparagraph (c) below.
"FAIR MARKET RENT" shall mean the greater of (i) the effective rate being
charged (including periodic adjustments thereto as applicable during the period
of the Extended Term), for comparable space in similar buildings in the
vicinity, i.e., of a similar age and quality considering any recent renovations
or modernization, and floor plate size or, if such

                                        5

<PAGE>

comparable space is not available, adjustments shall be made in the
determination of Fair Market Rent to reflect the age and quality of the Building
and Premises as contrasted to other buildings used for comparison purposes, with
similar amenities, taking into consideration: size, location, floor level,
leasehold improvements or allowances provided or to be provided, term of the
lease, extent of services to be provided, the time that the particular rate
under consideration became or is to become effective, and any other relevant
terms or conditions applicable to both new and renewing tenants or (ii) the Base
Rent payable during the last year of the initial Lease Term. "Comparable space"
shall not include space which is subleased or subject to expansion rights of
other tenants or builtout entirely or primarily as laboratory space but shall
include space which is builtout entirely as office or office research and
development space (or with less than half as laboratory space) notwithstanding
that the Premises have been builtout to include a large portion of laboratory
space.

     (c)  DETERMINATION OF FAIR MARKET RENT.

          (i) NEGOTIATION. If Lessee so exercises one or both of its Option to
Extend in a timely manner, the parties shall then meet in good faith to
negotiate the Base Rent for the Premises for the Extended Term, during the first
thirty (30) days after the date of the delivery by Lessee of the Option Notice
(the "NEGOTIATION PERIOD"). If, during the Negotiation Period, the parties agree
on the Base Rent applicable to the Premises for the corresponding Extended Term,
then such agreed amount shall be the Base Rent payable by Lessee during such
Extended Term.

          (ii) ARBITRATION. In the event that the parties are unable to agree on
the Base Rent for the Premises within the Negotiation Period, then within ten
(10) business days after the expiration of the Negotiation Period, each party
shall separately designate to the other in writing an appraiser to make this
determination. Each appraiser designated shall be a member of MAI and shall have
at least ten (10) years experience in appraising commercial real property, of
similar quality and use as the Premises, in San Mateo County. The failure of
either party to appoint an appraiser within the time allowed shall be deemed
equivalent to appointing the appraiser appointed by the other party, who shall
then determine the Fair Market Rent for the Premises for the Extended Term.
Within five (5) business days of their appointment, the two designated
appraisers shall jointly designate a third similarly qualified appraiser. Within
thirty (30) days after their appointment, each of the two appointed appraisers
shall submit to the third appraiser a sealed envelope containing such appointed
appraiser's good faith determination of the Fair Market Rent for the Premises
for the Extended Term in accordance with the procedures and guidelines set forth
herein; concurrently with such delivery, each such appraiser shall deliver a
copy of his or her determination to the other appraiser. The third appraiser
shall within ten (10) days following receipt of such submissions, then determine
which of the two appraisers' determinations most closely reflects Fair Market
Rent as defined above. The determination most closely reflecting the third
appraiser's determination shall be deemed to be the Fair Market Rent for the
Premises during the Extended Term; the third appraiser shall have no rights to
adjust, amend or otherwise alter the determinations made by the appraiser
selected by the parties, but must select one or the other of such appraisers'
submissions. The determination by such third appraiser shall be final and
binding upon the parties. Said third appraiser shall, upon selecting

                                        6

<PAGE>

the determination which most closely reflects Fair Market Rent, concurrently
notify both parties hereto. The Base Rent for the Extended Term shall be the
greater of (i) the determination so selected or (ii) the Base Rent payable
during the last year of the initial Lease Term or the last year of the preceding
Extended Term as the case may be. The parties shall share the appraisal expenses
equally. If the Extended Term begins prior to the determination of Fair Market
Rent, Lessee shall pay monthly installments of Base Rent equal to one hundred
ten percent (110%) of the monthly installment of Base Rent in effect for the
last year of the initial Lease Term (in lieu of "holdover rent" payable under
Section 17.09(b)). Once a determination is made, any over payment or under
payment shall be reimbursed as a credit against, or paid by adding to, the
monthly installment of Base Rent next falling due.

                                   ARTICLE IV
                             RENT: TRIPLE NET LEASE

     SECTION 4.01. BASE RENT. Lessee shall pay to Lessor as Base Rent an initial
monthly installment of Two Dollars and Twenty Five Cents ($2.25) per square foot
of Rentable Area as defined in Section 2.01, in advance, on the first day of
each calendar month of the Lease Term, commencing on the Commencement Date,
subject to the advance payment of the first month of Base Rent pursuant to
Section 4.03, provided that so long as Lessee is not in default hereunder,
Lessee shall not be required to pay Base Rent for March, April, May, June and
July, 2002 and the advance payment shall be applied to the August installment of
Base Rent. Base Rent for any period during the Lease Term which is for less than
one month shall be a pro rata portion of the monthly installment (based on the
actual days in that month).

     SECTION 4.02. RENT ADJUSTMENT. The Base Rent set forth in Section 4.01
above shall be adjusted upward by an annual compounded increase of four percent
(4%), as of each anniversary of the Commencement Date during the initial Lease
Term, as shown on Exhibit "E" attached hereto.

     SECTION 4.03. FIRST PAYMENT OF BASE RENT. Lessee shall pay in advance the
first payment of Base Rent in the amount of Seventy Five Thousand, Eight Hundred
Twenty Two Dollars and seventy-five cents ($75,822.75) at the time of Lessee's
execution of this Lease. Subject to the provisions of Section 4.01, Lessee's
obligation for Base Rent shall resume on the first day of the calendar month
immediately succeeding the Commencement Date.

     SECTION 4.04. ABSOLUTE TRIPLE NET LEASE. This Lease is what is commonly
called a "Absolute Triple Net Lease," it being understood that Lessor shall
receive the Base Rent set forth in Section 4.01 free and clear of any and all
expenses, costs, impositions, taxes, assessments, liens or charges of any nature
whatsoever. Lessee shall pay all rent in lawful money of the United States of
America to Lessor at the notice address stated herein or to such other persons
or at such other places as Lessor may designate in writing on or before the due
date specified for same without prior demand, set-off or deduction of any nature
whatsoever. It is the intention of the parties hereto that this Lease shall not
be terminable for any reason by Lessee and that Lessee shall in no event be
entitled to any abatement of or reduction in rent payable under this Lease,

                                        7

<PAGE>

except as herein expressly provided in Articles III, VIII and XIII, concerning
delay, destruction and condemnation. Any present or future law to the contrary
shall not alter this agreement of the parties.

     SECTION 4.05. ADDITIONAL RENT. In addition to the Base Rent reserved by
Section 4.01, Lessee shall pay, beginning on the Commencement Date and
continuing throughout the Lease Term (and notwithstanding the waiver of Base
Rent payments as provided in Section 4.01) as Additional Rent (i) 100% as to
amounts applicable solely to the Premises and Lessee's Share (as defined in
Section 4.07(c) below) as to amounts applicable to Building 8, the Project and
the Common Area of all taxes, assessments, fees and other impositions payable by
Lessee in accordance with the provisions of Article IX and insurance premiums in
accordance with the provisions of Article VII, (ii) Lessee's Share of Operating
Expenses defined below, and (iii) any other charges, costs and expenses
(including appropriate reserves therefor) whether or not contemplated which may
arise under any provision of this Lease during the Lease Term, plus a Management
Fee to Lessor equal to 3% of the Base Rent. The Management Fee is due and
payable, in advance, with each installment of Base Rent and is waived to the
same extent as payments of Base Rent pursuant to Section 4.01. All of such
charges, costs, expenses, Management Fee and all other amounts payable by Lessee
hereunder, shall constitute Additional Rent, and upon the failure of Lessee to
pay any of such charges, costs or expenses, Lessor shall have the same rights
and remedies as otherwise provided in this Lease for the failure of Lessee to
pay Base Rent.

     SECTION 4.06. SECURITY DEPOSIT. Upon the date this Lease is executed by
Lessee, Lessee shall deposit with Lessor a Security Deposit equal to three (3)
months of Base Rent and estimated Additional Rent in the total amount of Two
Hundred Eighty Four, Fifty Two Dollars and seventy-five cents ($284,052.75) in
the form of an unconditional, irrevocable letter of credit without documents,
with Lessor as beneficiary, in whole or in part, and providing for payment in
San Francisco ("SECURITY DEPOSIT"). The letter of credit shall be in form and
substance reasonably satisfactory to Lessor, shall be drawn on a domestic
commercial money center bank with a letter of credit paying office located in
San Francisco reasonably satisfactory to Lessor and shall be addressed to, and
payable upon simple demand by, Lessor and Lessor's Lenders (i.e., lenders whose
loans are secured by all or any portion of Project) as co-beneficiaries, which
demand shall be accompanied by a statement of an authorized officer or agent of
Lessor stating that the drawing represents amounts due to Lessor from Lessee
under this Lease. The letter of credit shall provide for multiple draws and
multiple successors or co-beneficiaries. The Security Deposit shall be held by
Lessor as security for the faithful performance by Lessee of all of the terms,
covenants, and conditions of this Lease applicable to Lessee. If, after notice
and beyond the expiration of any applicable grace period (or, if Lessor is
prevented from giving notice by the automatic stay of a Bankruptcy court or by
any other legal prohibition, without notice) Lessee fails to the payment of rent
or other money due hereunder, timely perform or observe any obligation of Lessee
under this Lease, including, but not limited to, the construction of Tenant
Improvements or Alterations, the maintenance and repair of the Premises, or
restoration of the condition of the Premises upon Lease Termination in
conformance with the provisions of this Lease, Lessor may (but shall not be
required to) use, apply or retain all or any part of the Security

                                        8

<PAGE>

Deposit for the payment of any amount which Lessor may spend by reason of
Lessee's default or for compensation to Lessor for any loss or damage which
Lessor may suffer or be entitled to by reason of Lessee's failure to timely
perform or observe any obligation of Lessee under this Lease, including, without
limitation, damages which Lessor would be entitled to under California Civil
Code Sections 1951.2 or 1951.4. If any portion of the Security Deposit is so
used or applied, Lessee shall, within ten (10) days after written demand
therefor, deposit with Lessor a supplemental letter of credit in an amount
sufficient to restore the Security Deposit to its original amount and otherwise
in form and substance as required for the original letter of credit. The rights
of Lessor pursuant to this Section 4.06 are in addition to any rights which
Lessor may have pursuant to Article 12 below. If Lessee fully and faithfully
performs every provision of this Lease to be performed by it, the Security
Deposit or any balance thereof shall be returned (without interest) to Lessee
(or, at Lessor's option, to the last assignee of Lessee's interests hereunder)
at Lease expiration or termination and after Lessee has vacated the Premises.
Failure of Lessee to deliver a replacement letter of credit to Lessor at least
forty-five (45) business days prior to the expiration date of any current letter
of credit shall constitute a separate event entitling Lessor to draw down
immediately and entirely on the current letter of credit and the proceeds shall
constitute a cash Security Deposit. Lessor shall not be required to keep the
cash Security Deposit separate from Lessor's general funds or be deemed to be a
trustee of same. Lessee shall pay when due all fees, charges and costs imposed
by the issuing bank for the issuance, transfer or amendment of the letter of
credit and/or any supplemental letter of credit.

     SECTION 4.07.  OPERATING EXPENSES.

     (a) DEFINITION. "OPERATING EXPENSES" shall mean and include, those actual
costs or expenses of the Premises, Building or Project described in to Articles
VI, VII or IX, as well as all actual costs and expenses of every kind and nature
paid or incurred by Lessor (whether obligated to do so or undertaken at Lessor's
discretion) in the ownership, operation, maintenance, repair and replacement of
the Common Areas, including Common Area buildings and improvements located
within the Project and Building Common Areas provided, that, Lessor agrees to
use commercially reasonable efforts to obtain competitive rates. Such cost and
expenses shall include, but not be limited to, costs of cleaning; lighting;
maintaining, repairing and replacing all Common Area improvements and elements
(replacing shall be deemed to include but not be limited to the replacement of
light poles and fixtures, storm and sanitary sewers, parking lots, driveways and
roads as well as Building elevators, stairways, floors and walls in Common
Areas, roof, roof membrane and other Building elements which are the
responsibility of Lessor to maintain, repair and replace under this Lease),
repairs to and maintenance of the structural and non-structural portions of the
amenity/athletic facility; supplies, tools, equipment and materials used in the
operation and maintenance of the Project; snow removal; parking lot striping;
removal of trash, rubbish, garbage and other refuse; painting; removal of
graffiti; painting of exterior walls; landscaping; providing security to the
extent Lessor determines in its sole discretion to do so (including security
systems and/or systems designed to safeguard life or property against acts of
God and/or criminal and/or negligent acts, and the costs of maintaining of
same); personal property taxes; fire protection and fire hydrant charges
(including fire protection system signaling devices, now or hereafter required,
and the costs of maintaining of

                                        9

<PAGE>

same); water and sewer charges; utility charges; license and permit fees
necessary to operate and maintain the Project; the initial cost or the
reasonable depreciation of equipment used in operating and maintaining the
Common Areas which is expensed or amortized, respectively by Lessor in its good
faith discretion using accounting practices commonly utilized in the commercial
real estate industry, consistently applied and rent paid for leasing any such
equipment; reasonable cost of on or off site storage space of any and all items
used in conjunction with the operation, maintenance and management of the
Project, including but not limited to tools, machinery, records, decorations,
tables, benches, supplies and meters; the cost of and installation cost of any
and all items which are installed for the purpose of reducing Operating
Expenses, increasing building or public safety or which may be then required by
governmental authority, laws, statutes, ordinances and/or regulations, a use
privilege consisting of Base Rent and Operating Expenses allocated to the
Athletic Facility and all costs and expenses arising from the operation of same
(net of any fees paid by individual users) ("CATEGORY 1 COSTS"); and (ii) total
compensation and benefits (including premiums for workers' compensation and
other insurance) paid to or on behalf of Lessor's employees, including but not
limited to full or part time on-site management or maintenance personnel
("CATEGORY 2 COSTS"). Notwithstanding anything to the contrary contained herein,
after December 31, 2002 the amount of Category 2 Costs used in calculating
Lessee's actual Share of Operating Expenses shall be the lower of: (i) actual
Category 2 Costs; and (ii) one hundred and four percent (104%) of the prior
year's Category 2 Costs. Any revenues received by Lessor in respect of Common
Area amenities from individual users thereof (as opposed to Lessee or other
tenants of the Project) shall be applied first to reduction of any increase in
Operating Expenses arising from such use, with any balance to be retained by
Lessor.

     (b) PAYMENT. Lessee shall pay Lessee's Share of Additional Rent in monthly
installments on the first day of each month in an amount set forth in a written
estimate by Lessor. Lessor agrees that it will base its estimate on Lessor's
experience in managing the Project and in a reasonable manner. As soon as
available and not later than ninety (90) days following the end of the period
used by Lessor in estimating Lessor's cost (e.g., calendar year), Lessor shall
furnish to Lessee a statement (hereinafter referred to as "Lessor's Statement")
of the actual amount of Lessee's Share of such Additional Rent for such period.
Within thirty (30) days thereafter, Lessee shall pay to Lessor, as Additional
Rent, or Lessor shall apply as a credit to Additional Rent next falling due (or
if the Lease Term has expired or terminated and there remains no money due to
Lessor, remit to Lessee), as the case may be, the difference between the
estimated amounts paid by Lessee and the actual amount of Lessee's Share of
Additional Rent for such period as shown by such Statement. Lessee's Share of
Additional Rent for the ensuing estimation period shall be adjusted upward or
downward based upon Lessor's Statement.

     (c) LESSEE'S SHARE. For purposes hereof, "Lessee's Share" shall mean (i) as
to amounts allocable solely to Building 8 (and with respect to real property
tax, also to the legal parcel in which Building 8 is located), the Rentable Area
of the Premises divided by the Rentable Area of Building 8, and (ii) as to
amounts allocable to the Project or Common Area, the Rentable Area of the
Premises divided by the Rentable Area of all Buildings at the Project
(irrespective of whether they are rented), in each case measured (at the time in
question) on a dripline basis.

                                       10

<PAGE>

Subject to being increased or decreased (in an amount Lessor shall, in good
faith, determine), upon the increase or reduction in the Rentable Area of the
Building and Project, respectively, Lessee's Share of Building items shall be
twenty and one-half percent (20.5%) and Lessee's Share of Project items shall be
two percent (2%). Rentable Area of Building 8 and of all Buildings at the
Project shall not be reduced for vacancies in the ordinary course of business.

     (d) EXCLUSIONS. For purposes of this Lease, the term Operating Expenses
shall not include (and Lessee shall have no liability for) any of the following:
initial construction of any Common Area improvements; legal fees, permit fees,
architectural and engineering fees related to the initial development and
construction of the Project, marketing costs, costs of leasing commissions,
attorneys' fees and other costs and expenses incurred in connection with
negotiations or disputes with prospective tenants or other occupants of the
Project; costs (including permit, license and inspection costs) incurred in
renovating or otherwise improving, decorating or redecorating rentable space for
prospective tenants or vacant rentable space; any bad debt loss, rent loss, or
reserves for bad debts or rent loss; interest, charges and fees incurred on
debt, payments on mortgages and amounts paid as ground rental for the real
property underlying the Project by the Lessor; any costs covered by any
warranty, rebate, guarantee or service contract which are actually collected by
Lessor (which shall not prohibit Lessor from passing through the costs of any
such service contract if otherwise includable in Operating Expenses); interest,
late charges and tax penalties incurred as a result of Lessor's gross negligence
or unwillingness to make payments or file returns when due as well as certain
taxes expressly extended pursuant to Section 9.01(a) and (b), and any costs
representing an amount paid to a person, firm, corporation or other entity
related to Lessor which is in excess of the amount which would have been paid in
the absence of such relationship(s). Nothing contained in this Section 4.07(d)
shall be deemed to affect Lessee's obligation to pay Lessee's Share of the real
estate tax payments due pursuant to Section 9.01(a), below, related to the
Community Facility District Bond referenced therein or to exclude from Operating
Expenses any costs or expenses related to the repair, maintenance and
replacement of such initial development and construction of the Project as
provided in Article VI.

     SECTION 4.08.  LESSEE'S RIGHT TO REVIEW SUPPORTING DATA.

     (a) EXERCISE OF RIGHT BY LESSEE. Provided that Lessee is not in default
under this Lease and provided further that Lessee strictly complies with the
provisions of this Section, Lessee, or its legal counsel and public accounting
firm, shall have the right upon reasonable notice and at reasonable times to
audit all books and records of Lessor used in calculating Operating Expenses,
Common Area charges, taxes and other Additional Rent hereunder. Lessor will
cooperate reasonably with Lessee in such audit on the terms and conditions set
forth below. In order for Lessee to exercise its right under this Section,
Lessee shall, within thirty (30) days after any Lessor's Statement, deliver a
written notice to Lessor exercising its rights hereunder with regard to such
Lessor's Statement, and Lessee shall simultaneously pay to Lessor all amounts
due from Lessee to Lessor as specified in the Lessor's Statement. Except as
expressly set forth in subparagraph (c) below, in no event shall Lessee be
entitled to withhold, deduct, or offset any monetary obligation of Lessee to
Lessor under the Lease including, without limitation, Lessee's obligation to
make all Base

                                       11

<PAGE>

Rent payments and all payments for Additional Rent pending the completion of,
and regardless of the results of, any review under this Section 4.08. The right
to review granted to Lessee under this Section 4.08 may only be exercised once
for any Lessor's Statement, and if Lessee fails to meet any of the above
conditions as a prerequisite to the exercise of such right, the right of Lessee
under this Section 4.08 for a particular Lessor's Statement shall be deemed
waived.

     (b) PROCEDURES FOR REVIEW. Lessee acknowledges that Lessor maintains its
books and records for the Building and Project at its offices in San Francisco,
and Lessee therefore agrees that any review and audit of the same and supporting
data under this Section shall occur at such location. Any review to be conducted
by Lessee under this Section shall be at the sole expense of Lessee and shall be
conducted by a firm of certified public accountants of national standing (which
may be Lessee's outside auditing firm) on a non-contingency fee basis. Lessee
acknowledges and agrees that any supporting data reviewed under this Section
shall constitute confidential information of Lessor, which shall not be
disclosed to anyone other than the accountants performing the review and the
principals of Lessee who receive the results of the review. The disclosure of
such information or results of the review to any other person, by Lessee or its
agents, shall result in a forfeiture, the right to any credit otherwise due with
respect to said review but not to any subsequent review.

     (c) FINDING OF ERROR. Any errors disclosed by the audit of books and
records or review of supporting data under this Section shall be promptly
corrected, provided that Lessor shall have the right to cause another review of
the supporting data to be made by a firm of certified public accountants of
Lessor's choice. In the event of a disagreement between the two accounting
firms, the two accounting firms shall agree on an independent accountant who
shall decide each item of disagreement and whose decision shall be deemed to be
correct, final and binding on both Lessor and Lessee. If the two accounting
firms fail to so agree within thirty (30) days after Lessor's accounting firm
completes its review, Lessor or Lessee may apply to the presiding judge of the
Superior Court to appoint such independent accountant, whose decision shall be
final and binding. If the audit and review process described above results in a
determination that Lessee has overpaid obligations for a preceding period, the
amount of such overpayment shall be credited against Lessee's subsequent
installment obligations to pay its share of Additional Rent or, if the Lease has
terminated or expired paid in cash to Lessee within thirty (30) days after the
determination of overpayment is delivered to Lessor. In the event that such
results show that Lessee has underpaid its obligations for a preceding period,
the amount of such underpayment shall be paid by Lessee to Lessor with the next
succeeding installment obligation of Additional Rent or, if the Lease has
terminated or expired, in cash within thirty (30) days after the determination
of underpayment is delivered to Lessee. Each party shall pay all the costs, and
expenses of its chosen accounting firm and one half of the costs and expenses of
the independent accountant, if any.

     (d) EFFECT OF LESSEE'S DEFAULT. In the event that Lessee fails to timely
observe or perform any of its obligations under this Lease and fails to cure
such failure after notice and within any applicable cure period provided in
Article XII at any time during the pendency of a review of records under this
Section, said right to review shall immediately cease.

                                       12

<PAGE>

                                    ARTICLE V
                                       USE

     SECTION 5.01. PERMITTED USE AND LIMITATIONS ON USE. The Premises shall be
used and occupied only for office, research and development, including
non-animal biological and chemical research, together with such ancillary uses
which do not cause excessive wear of the Premises or materially increase the
potential liability of Lessor, and for no other use, without Lessor's prior
written consent which shall not be unreasonably withheld, conditioned or delayed
so long as such use is lawful and does not conflict with any other provision of
this Lease including without limitation the restrictions set forth in the
following provisions of this Section. Lessee shall not use, suffer or permit the
use of the Premises in any manner that will tend to constitute waste, nuisance
or unlawful acts provided, that biological and chemical and other waste
generated and disposed of in the ordinary course of business for the permitted
uses in full and timely compliance with all applicable laws shall not be deemed
a violation of this Section 5.01. In no event shall it be unreasonable for
Lessor to withhold its consent as to uses other than those expressly permitted
above which it determines would tend to increase materially the wear of the
Premises or any part thereof or increase the potential liability of Lessor or
decrease the marketability, financability, leasability or value of the Premises
or Project. Lessee shall not do anything in or about the Premises which will (i)
cause structural injury to the Building or Premises, or (ii) cause damage to any
part of the Building or Premises except to the extent reasonably necessary for
the installation of Tenant Improvements, Lessee's trade fixtures and Lessee's
Alterations, and then only in a manner and to the extent consistent with this
Lease. Lessee shall not operate any equipment within the Building or Premises
which will (i) materially damage the Building or the Common Area, (ii) overload
existing electrical systems or other mechanical equipment servicing the
Building, (iii) impair the efficient operation of the sprinkler system or the
heating, ventilating or air conditioning ("HVAC") equipment within or servicing
the Building, (iv) damage, overload or corrode the sanitary sewer system, or (v)
damage the Common Area or any other part of the Project. Lessee shall not
attach, hang or suspend anything from the ceiling, roof, walls or columns of the
Building or set any load on the floor in excess of the load limits for which
such items are designed nor operate hard wheel forklifts within the Premises.
Any dust, fumes, or waste products generated by Lessee's use of the Premises
shall be contained and disposed so that they do not (i) create an unreasonable
fire or health hazard, (ii) damage the Premises, or (iii) result in the
violation of any law. Except as approved by Lessor, Lessee shall not change the
exterior of the Building, or the outside area of the Premises, or install any
equipment or antennas on or make any penetrations of the exterior or roof of the
Building. Lessee shall not conduct on any portion of the Premises any sale of
any kind (but nothing herein is meant to prohibit sales and marketing activities
of Lessee's products and services in the normal course of business consistent
with the permitted uses), including any public or private auction, fire sale,
going-out-of-business sale, distress sale or other liquidation sale. No
materials, supplies, tanks or containers, equipment, finished products or
semifinished products, raw materials, inoperable vehicles or articles of any
nature shall be stored upon or permitted to remain within the outside areas of
the Premises except in fully fenced and screened areas outside

                                       13

<PAGE>

the Building which have been designed for such purpose and have been approved in
writing by Lessor for such use by Lessee.

     SECTION 5.02.  COMPLIANCE WITH LAW.

     (a) Lessor shall deliver the Premises to Lessee on the Commencement Date
(without regard to the use for which Lessee will use the Premises) free of
violations of any covenants or restrictions of record, or any applicable law,
building code, regulation or ordinance in effect on such Commencement Date,
including without limitation, the Americans with Disability Act. Lessor hereby
represents and warrants that it has no actual (as opposed to constructive)
knowledge, as of the Commencement Date, of any covenant, restriction, law,
building code, regulation or ordinance which would be violated by the permitted
use of the Premises in accordance with the terms hereof.

     (b) Except as provided in paragraph 5.02(a), Lessee shall, at Lessee's cost
and expense, comply promptly with all statutes, ordinances, codes, rules,
regulations, orders, covenants and restrictions of record, and requirements
applicable to the Premises and Lessee's use and occupancy of same in effect
during any part of the Lease Term, whether the same are presently foreseeable or
not, and without regard to the cost or expense of compliance provided that any
Alteration(s) required for compliance shall be subject to the provisions of this
Lease.

     (c) By executing this Lease, Lessee acknowledges that it has reviewed and
satisfied itself as to its compliance, or intended compliance with the
applicable zoning and permit laws, hazardous materials and waste requirements,
and all other statutes, laws, or ordinances relevant to the uses stated in
Section 5.01, above.

     SECTION 5.03. CONDITION OF PREMISES AT COMMENCEMENT DATE. Lessor shall
deliver the Premises to Lessee on the Commencement Date with the Building
plumbing, lighting, heating, ventilating, air conditioning, gas, electrical, and
sprinkler systems in good operating condition. Subject only to the foregoing
sentence, Section 5.02(a) above and Sections 5.04 and 6.01(b) below, and having
made such inspection of the Premises, Building and Project as it deemed prudent
and appropriate (including, without limitation, testing for the presence of
mold), Lessee hereby accepts the Premises in their condition existing as of the
Commencement Date, "AS-IS" and "WITH ALL FAULTS" subject to all applicable
zoning, municipal, county and state laws, ordinances and regulations governing
and regulating the use and condition of the Premises, and any covenants or
restrictions, liens, encumbrances and title exceptions of record, and accepts
this Lease subject thereto and to all matters disclosed thereby and by any
exhibits attached hereto. Except as otherwise expressly provided in Section
5.02(a) above as to the condition of the Premises on the Commencement Date,
Lessee acknowledges that neither Lessor nor any agent of Lessor has made any
representation or warranty as to the present or future suitability of the
Premises for the conduct of Lessee's business.

     SECTION 5.04.  DEFECTIVE CONDITION AT COMMENCEMENT DATE. In the event that
Lessee determines, and Lessee notifies Lessor in writing within one year after
the Commencement Date,

                                       14

<PAGE>

that any of the obligations of Lessor set forth in Section 5.02(a) or Section
5.03 were not performed, then it shall be the obligation of Lessor (and together
with its rights under Section 12.03 the sole right and remedy of Lessee), after
receipt of written notice from Lessee setting forth with specificity the nature
of the failed performance, to promptly, within a reasonable time and at Lessor's
sole cost, correct same. Except as to certain defects which remain Lessor's
responsibility under Section 6.01(b) Lessee's failure to give such written
notice to Lessor within one year after the Commencement Date shall constitute a
conclusive presumption that Lessor has complied with all of Lessor's obligations
under the foregoing Section 5.02(a), and any required correction after that date
shall be performed by Lessee, at its sole cost and expense. At the end of the
first year of the Lease Term, Lessor shall promptly assign to Lessee all of
Lessor's contractor's, and/or manufacturer's guarantees, warranties, and causes
of action which do not relate to Lessor's obligations under Section 6.01(b).

     SECTION 5.05. BUILDING SECURITY. Lessee acknowledges and agrees that it
assumes sole responsibility for security at the Premises for its agents,
employees, invitees, licensees, contractors, guests and visitors and will
provide such systems and personnel for same including, without limitation, while
such person(s) are using the Common Area, as it deems necessary or appropriate
and at its sole cost and expense. Lessee acknowledges and agrees that Lessor
does not intend to provide any security system or security personnel at the
Premises or Project, including, without limitation, at the Common Areas,
provided, however, that nothing herein shall be deemed to prevent Lessor from
providing such system or personnel in the future, the cost of which will be
included in those items for which Lessee pays additional rent.

     SECTION 5.06. RULES AND REGULATIONS. Lessor may from time to time
promulgate reasonable and nondiscriminatory rules and regulations applicable for
the care and orderly management of the Premises, the Project and/or its Common
Area. Such rules and regulations shall be binding upon Lessee upon delivery of a
copy thereof to Lessee, and Lessee agrees to abide by such rules and
regulations. A copy of the initial Rules and Regulations is attached hereto as
Exhibit "L." If there is a conflict between the rules and regulations and any of
the provisions of this Lease, the provisions of this Lease shall prevail. Lessor
shall not be responsible for the violation of any such rules and regulations by
any person, including, without limitation, Lessee or its employees, agents,
invitees, licensees, guests, visitors or contractors.

                                       15

<PAGE>

                                   ARTICLE VI
                      MAINTENANCE, REPAIRS AND ALTERATIONS

     SECTION 6.01.  MAINTENANCE OF PREMISES AND BUILDING.

     (a) Throughout the Lease Term, Lessee, at its sole cost and expense, shall
keep, maintain, repair and replace the Premises and every part thereof (except
as provided in 6.01(b) and also except for uninsured maintenance, repairs or
replacement costs caused solely by an act of gross negligence or intentional
misconduct by Lessor during the Lease Term) and all improvements and
appurtenances in the Premises, including, without limitation, all interior
walls, all doors and windows, all wall surfaces and floor coverings, all Tenant
Improvements and Alterations, additions and improvements installed by or on
behalf of Lessee during the Lease Term, all sewer, plumbing, electrical,
lighting, heating, ventilation and cooling systems and fixtures, fire
sprinklers, fire safety and security systems and fixtures and all wiring and
glazing, in the same good order, condition and repair as they are in on the
Commencement Date, or may be improved during the Lease Term, reasonable wear
excepted, provided that wear which could be prevented by first class maintenance
shall not be deemed reasonable provided that Lessee shall not be obligated to
keep, maintain, repair and replace cabling, wiring, pipes and other systems or
elements in the Premises which Lessor has installed (or subsequently installs
pursuant to its reserved rights under Section 2.01) and which do not service
Lessee or the Premises in whole or in part.

     (b) Lessor, at its sole cost and expense, (and in addition to its
obligations set forth in Section 5.04) shall repair defects in the exterior
walls (including all exterior glass which is damaged by structural defects in
such exterior walls), supporting pillars, structural walls, roof structure and
foundations of the Building and sewer and plumbing systems outside the Building,
provided that the need for repair is not caused by Lessee, in which event Lessor
shall, at Lessee's sole cost and expense, repair same. Lessor, subject to
recovering the cost and expense of same as Operating Expense (except for damage,
other than normal wear and tear, caused by Lessee or its employees, agents,
contractors, invitees or visitors, the cost and expense of which shall be paid
by Lessee within ten (10) days after presentation of Lessor's bill for same),
shall maintain, repair and replace the Building Common Area elements (including
lobbies, stairs, hallways and elevators) as well as portions of the Building
systems not located within the Premises or other leased space and the exterior
walls, structural, roof, walls and other elements and roof membrane of the
Building; provided, however, that Lessor's obligation under this Section 6.01(b)
in any instance where the damage, other than normal wear and tear, was caused by
Lessor or its employees, agents or contractors shall not be recovered by Lessor
from Lessee as Operating Expenses or in any other manner. Lessee shall give
Lessor written notice of any needed repairs which are the obligation of Lessor
hereunder. It shall then be the obligation of Lessor, after receipt of such
notice, to perform the same within ten (10) business days after such notice;
provided, however, that if the nature of the repairs is such that more than ten
(10) business days are reasonably required for performance, then Lessor shall
not be deemed to be in default hereunder if Lessor commences such repairs within
said ten (10) business day period and thereafter diligently completes them and
provided further, that for purposes of this sentence "commences" includes any
steps taken by Lessor to investigate, design, consult, bid or seek permit or
other governmental approval in connection with such repair.. Should Lessor
default as provided in Section 12.03 with respect to its obligation to make any
of the repairs assumed by it hereunder with respect to the Premises or Building,
Lessee shall have the right to perform such repairs and Lessor agrees that
within thirty (30) days after written demand accompanied by

                                       16

<PAGE>

detailed invoice(s), it shall pay to Lessee the cost of any such repairs
together with accrued interest from the date of Lessee's payment at the Agreed
Rate. Lessor shall not be liable to Lessee for any damage to person or property
as a result of any failure to timely perform any of its obligations with respect
to the repair, maintenance or replacement of the Premises, Buildings or Project
or any part thereof, and Lessee's sole right and remedy (together with its
rights under Section 12.03 below) shall be the performance of said repairs by
Lessee with right of reimbursement from Lessor of the reasonable fair market
cost of said repairs, not exceeding the out-of-pocket sums actually expended by
Lessee, together with accrued interest from the date of Lessee's payment at the
Agreed Rate, provided that nothing herein shall be deemed to create a right of
setoff or withholding by Lessee of Base Rent or Additional Rent or any other
amounts due herein. Lessee hereby expressly waives all rights under and benefits
of Sections 1941 and 1942 of the California Civil Code or under any similar law,
statute or ordinance now or hereafter in effect to make repairs and offset the
cost of same against rent or to withhold or delay any payment of rent or any
other of its obligations hereunder as a result of any default by Lessor under
this Section 6.01(b).

     (c) Lessee agrees to keep the Premises, both inside and out, clean and in
sanitary condition as required by the health, sanitary and police ordinances and
regulations of any political subdivision having jurisdiction and to remove all
trash and debris which may be found in or around the Premises. Lessee further
agrees to keep the interior surfaces of the Premises, including, without
limitation, windows, floors, walls, doors, showcases and fixtures clean and neat
in appearance.

     (d) If Lessee refused or neglects to commence such repairs and/or
maintenance for which Lessee is responsible under this Article VI within a ten
(10) day period (or as soon as practical and in no event later than five (5)
days, if the failure to initiate the repair threatens to cause further damage to
the Premises) after written notice from Lessor and thereafter diligently
prosecute the same to completion, then Lessor may (i) enter the Premises (except
in an emergency, upon at least 24 hours advance written notice) during Lessor's
business hours and cause such repairs and/or maintenance to be made and shall
not be responsible to Lessee for any loss or damage occasioned thereby other
than physical damage to the Premises caused by the negligence of Lessor which
damage Lessor shall repair at its sole cost as Lessor's sole obligation and
Lessee's sole right and remedy with respect to such damages, and Lessee agrees
that upon demand, it shall pay to Lessor the reasonable cost of any such
repairs, not exceeding the amount of out-of-pocket expenses actually expended by
Lessor, together with accrued interest from the date of Lessor's payment at the
Agreed Rate, and (ii) if Lessor becomes entitled to enter the Premises as
aforesaid more than once in any twelve (12) calendar months or more than twice
during the Lease Term, elect to enter into a maintenance contract at a market
rate for first-rate maintenance with a third party for the performance of all or
a part of Lessee's maintenance obligations, whereupon, Lessee shall be relieved
from its obligations to perform only those maintenance obligations covered by
such maintenance contract, and Lessee shall bear the entire cost of such
maintenance contract which shall be paid in advance, as Additional Rent, on a
monthly basis with Lessee's Base Rent payments.

                                       17

<PAGE>

     SECTION 6.02. MAINTENANCE OF PROJECT COMMON AREAS. Lessor shall maintain,
repair and replace all landscape, hardscape and other improvements within the
Project Common Area and shall operate and manage the Athletic Facility and other
Project Common Area features and facilities described in Section 2.02 including,
without limitation, all landscape, hardscape and other improvements within the
outside areas of Building 8 and the other Buildings located within the Project,
including without limitation, landscaping, curbs, walkways, driveways, roadways,
parking areas and lighting, sprinkler, drainage, sewer, plumbing systems, except
for damage, other than normal wear, caused by Lessee or its employees, agents,
contractors, invitees or visitors which shall be repaired by Lessor and the cost
of which shall be paid by Lessee within ten (10) days after presentation of
Lessor's bill for same. The cost and expense of Lessor's obligations hereunder
shall be Operating Expenses as to which Lessee shall pay Lessee's Share pursuant
to Section 4.05; provided, however, that Lessor's obligation under this Section
6.02(b) in any instance where the damage, other than normal wear and tear, was
caused by Lessor or its employees, agents or contractors shall not be recovered
by Lessor from Lessee as Operating Expense or in any other manner.

     SECTION 6.03. ALTERATIONS, ADDITIONS AND IMPROVEMENTS. No alterations,
additions, or improvements ("ALTERATIONS") shall be made to the Premises by
Lessee without the prior written consent of Lessor which Lessor will not
unreasonably withhold, condition or delay, provided, however, that Lessee may
make Alterations (including removal and rearrangement of Tenant Improvements and
prior Alterations) which do not affect the Building 8 systems, exterior
appearance, structural components or structural integrity, which do not require
a building permit and which do not exceed collectively Twenty Five Thousand
Dollars ($25,000) in cost within any twelve (12) month period, without Lessor's
prior written consent. As a condition to Lessor's obligation to consider any
request for consent hereunder, Lessee shall pay Lessor upon demand for the
reasonable out-of-pocket costs and expenses of consultants, engineers,
architects and others for reviewing plans and specifications and for monitoring
the construction of any proposed Alterations, and if consent is granted, within
ten (10) days after Lessee executes a construction contract for the Alterations,
a construction management fee equal to one percent (1%) of all costs of
demolition, construction and installation of any Alterations; the fee shall be
adjusted on thirty (30) days notice after cancellation of the Alterations and a
determination of final costs of same, which Lessee shall provide to Lessor along
with all supporting documentation within said thirty (30) days. Lessor may
require Lessee to remove any such Alterations at the expiration or sooner
termination of the Lease Term and to restore the Premises to their prior
condition by written notice given on or before the earlier of (i) ninety (90)
days prior to the expiration of the Lease Term or (ii) thirty (30) days after
termination of the Lease or (iii) thirty (30) days after a written request from
Lessee for such notice from Lessor provided, that, if Lessee requests same from
Lessor, Lessor will notify Lessee within five (5) business days after receipt of
Lessee's request for consent and a copy of all plans and specifications for the
proposed Alteration whether it will require removal. All Alterations to be made
to the Premises shall be made under the supervision of a competent, California
licensed architect and/or competent California licensed structural engineer
(each of whom has been approved by Lessor) and shall be made in accordance with
plans and specifications which have been furnished to and approved by Lessor in
writing prior to commencement of work. All Alterations shall be

                                       18

<PAGE>

designed, constructed and installed at the sole cost and expense of Lessee by
California licensed architects, engineers, and contractors approved by Lessor,
in compliance with all applicable law, and in good and workmanlike manner. Such
approvals shall not be unreasonably withheld, conditioned or delayed by Lessor.
Subject to Lessor's right to have Lessee retain ownership and remove same, any
Alteration, including, without limitation, all lighting, electrical, heating,
ventilation, air conditioning (other then air handling equipment which is part
of the Laboratory Facilities) and full height partitioning (but not moveable,
free standing cubicle-type partitions which do not extend to the ceiling or
connect to Building walls or other movable furniture), drapery and carpeting
installations made by Lessee, together with all property that has become an
integral part of the Premises, shall not be deemed trade fixtures and shall
become the property of Lessor at the expiration or sooner termination of the
Lease, unless Lessor directs otherwise. Lessee shall retain title to all
furniture and trade fixtures placed on the Premises. Within thirty (30) days
after completion of any Alteration, Lessee shall provide Lessor with a complete
set of "as built" plans for same. The initial Tenant Improvements shall not be
deemed "Alterations."

     SECTION 6.04. COVENANT AGAINST LIENS. Lessee shall not allow any liens
arising from any act or omission of Lessee to exist, attach to, be placed on, or
encumber Lessor's or Lessee's interest in the Premises, Building 8 or Project,
or any portion of either, by operation of law or otherwise. Lessee shall not
suffer or permit any lien of mechanics, material suppliers, or others to be
placed against the Premises, Building 8 or Project, or any portion of either,
with respect to work or services performed or claimed to have been performed for
Lessee or materials furnished or claimed to have been furnished to Lessee or the
Premises. Lessor has the right at all times to post and keep posted on the
Premises any notice that it considers necessary for protection from such liens.
At least ten (10) days before beginning construction of any Alteration, Lessee
shall give Lessor written notice of the expected commencement date of that
construction to permit Lessor to post and record a notice of nonresponsibility.
If any such lien attaches or Lessee received notice of any such lien, Lessee
shall cause the lien to be immediately released and removed of record. Despite
any other provision of this Lease, if the lien is not released and removed
within twenty (20) days after Lessor delivers notice of the lien to Lessee,
Lessor may immediately take all action necessary to release and remove the lien,
without any duty to investigate the validity of it. All expenses (including
reasonable attorney fees and the cost of any bond) incurred by Lessor in
connection with a lien incurred by Lessee or its removal shall be considered
Additional Rent under this Lease and be immediately due and payable by Lessee.
Notwithstanding the foregoing, If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense, defend and protect itself, Lessor and the Premises, Building 8 and
Project against the same and shall pay and satisfy any such adverse judgment
that may be rendered thereon before the enforcement thereof. If Lessor shall
require, Lessee shall furnish a surety bond in an amount equal to one hundred
fifty percent (150%) of the amount of such contested lien, claim or demand,
indemnifying Lessor against liability for the same. If Lessor elects to
participate in or is made a party to any such action, Lessee shall reimburse
Lessor's attorneys' fees and costs within ten (10) days after demand.

     SECTION 6.05   REIMBURSABLE CAPITAL EXPENDITURES. Except for items of
capital expenditures which are to be made at Lessor's sole cost and expense
pursuant to the first

                                       19

<PAGE>

sentence of Section 6.01(b) above, that portion of any capital expenditures,
together with interest thereon at the Agreed Rate, for any single replacement
item at or part of Building 8, but excluding any item of improvement in excess
of Fifty Thousand Dollars ($50,000.00) (or within the Project Common Area, in
excess of One Hundred Fifty Thousand Dollars ($150,000.00)) during the Lease
Term shall be amortized over the remaining Lease Term for the useful life of
such replacement item within the numerator being the number of months remaining
in the Lease Term and the denominator being the number of months of the "useful
life" of the improvements as determined by Lessor in its good faith discretion
using accounting practices commonly utilized in the commercial real estate
industry, consistently applied. Lessee shall be obligated for such amortized
portion of any such expenditure in equal monthly installments due and payable
with each installment of Base Rent.

                                   ARTICLE VII
                                    INSURANCE

     SECTION 7.01. PROPERTY/RENTAL INSURANCE FOR PREMISES. At all times during
the Lease Term, Lessor shall keep the Premises, Building and Project insured
against loss or damage by fire and those risks normally included in the term
"all risk," extended coverage, fire and casualty insurance, including, without
limitation, coverage for (i) earthquake and earthquake sprinkler leakage, (ii)
flood, (iii) loss of rents and extra expense for eighteen (18) months, including
scheduled rent increases, (iv) boiler and machinery, and (v) fire damage legal
liability form, including waiver of subrogation. Lessee shall pay Lessee's Share
of any deductibles. The amount of such insurance shall not be less than 100% of
replacement cost. Insurance shall include a Building Ordinance and Increased
Cost of Construction Endorsement insuring the increased cost of reconstructing
the Premises incurred due to the need to comply with applicable statutes,
ordinances and requirements of all municipal, state and federal authorities now
in force, which or may be in force hereafter. Any recovery received from said
insurance policy shall be paid to Lessor and thereafter applied by Lessor to the
reconstruction of the Premises in accordance with the provisions of Article VIII
below. Lessee, as part of the Operating Expenses, shall reimburse Lessor for
Lessee's Share of the cost of the premiums for all such insurance in accordance
with Article IV. Such reimbursement and shall be made within (15) days of
Lessee's receipt of a copy of Lessor's statement therefor. To the extent
commercially available, Lessor's insurance shall have a deductible not greater
than fifteen percent (15%) for earthquake and ten percent (10%) for the basic
"all risk" coverage. Lessor shall use commercially reasonable efforts to obtain
competitive rates, while maintaining its discretion as a prudent project manager
to select insurers and coverage Lessor believes to be appropriate.

     SECTION 7.02. PROPERTY INSURANCE FOR FIXTURES AND INVENTORY. At all times
during the Lease Term, Lessee shall, at its sole expense, maintain fire and
casualty insurance with "all risk" coverage which includes the same coverage as
required of Lessor in Section 7.01, above, on any trade fixtures, furnishings,
merchandise, equipment, artwork or other personal property and on all Tenant
Improvements and Alterations, whether or not presented to Lessor for its consent
in or on the Premises, whether in place as of the date hereof or installed
hereafter. The amount of such

                                       20

<PAGE>

insurance shall not be less than one hundred percent (100%) of the replacement
cost thereof with commercially reasonable deductibles, and Lessor shall not have
any responsibility nor pay any cost for maintaining any types of such insurance.
Lessee shall pay all deductibles.

     SECTION 7.03. LESSOR'S LIABILITY INSURANCE. During the Lease Term, Lessor
shall maintain a policy or policies of commercial general liability insurance
naming Lessor (and such others as designated by Lessor) against claims and
liability for bodily injury, personal injury and property damage on our about
the Premises and Project, with combined single limit coverage in an amount
determined by Lessor in its sole discretion (which amount is currently Fifty
Million Dollars ($50,000,000.00)); provided that if such policy is a blanket
policy that covers properties (other than the Project) owned by Lessor, only
that portion allocable to the Project shall be payable hereunder. Lessee, in
addition to the rent and other charges provided herein, agrees to pay Lessee's
Share of the premiums for all such insurance in accordance with Article IV.

     SECTION 7.04. LIABILITY INSURANCE CARRIED BY LESSEE. At all times during
the Lease Term (and any holdover period) Lessee shall obtain and keep in force a
commercial general liability policy of insurance protecting Lessee, Lessor and
any lender(s) whose names are provided to Lessee as additional insureds against
claims and liability for bodily injury, personal injury and property damage
based upon involving or arising out of ownership, use, occupancy or maintenance
of the Premises and all areas appurtenant thereto. Such insurance shall be on an
occurrence basis providing a single limit coverage in amount of not less than
Ten Million Dollars ($10,000,000) per occurrence. Such insurance shall include
coverage for Additional Lessors or Premises and coverage for "amendment of the
pollution exclusion" to provide coverage for damage caused by heat, smoke, fumes
from a hostile fire. The limits of said insurance required by this Lease as
carried by Lessee shall not, however limit the liability of Lessee nor relieve
Lessee of any obligation hereunder. All insurance to be carried by the Lessee
shall be primary to and not contributory with, any similar insurance carried by
Lessor whose insurance shall be considered excess insurance only.

     SECTION 7.05. PROOF OF INSURANCE. Lessee shall furnish to Lessor prior to
the Commencement Date, and at least thirty (30) days prior to the expiration
date of any policy, certificates indicating that the property insurance and
liability insurance required to be maintained by Lessee is in full force and
effect for the twelve (12) month period following such expiration date; that
Lessor has been named as an additional insured to the extent of contractual
liability assumed in Section 7.07. "indemnification" and Section 7.08 "Lessor as
Party Defendant"; and that all such policies will not be canceled unless thirty
(30) days' prior written notice of the proposed cancellation has been given to
Lessor. The insurance shall be with insurers approved by Lessor, provided,
however, that such approval shall not be unreasonably withheld so long as
Lessee's insurance carrier has a Best's Insurance Guide rating not less than A+
VIII and is licensed to do business in California. Lessor shall furnish to
Lessee reasonable evidence of its insurance coverage required hereunder within
fifteen (15) business days after demand made not more than once in any calendar
year.

                                       21

<PAGE>

     SECTION 7.06. MUTUAL WAIVER OF CLAIMS AND SUBROGATION RIGHTS. Lessor and
Lessee hereby release and relieve the other, and waive their entire claim of
recovery for loss or damage to property arising out of or incident to fire,
lightning, and the other perils included in a standard "all risk" insurance
policy of a type described in Sections 7.01 and 7.02 above, when such property
constitutes the Premises, or is in, on or about the Premises, whether or not
such loss or damage is due to the negligence of Lessor or Lessee, or their
respective agents, employees, guests, licensees, invitees, or contractors.
Lessee and Lessor waive all rights of subrogation against each other on behalf
of, and shall obtain a waiver of all subrogation rights from, all property and
casualty insurers referenced above.

     SECTION 7.07.  INDEMNIFICATION AND EXCULPATION.

     (a) Except as otherwise provided in Section 7.07(b), Lessee shall indemnify
and hold Lessor free and harmless from any and all liability, claims, loss,
damages, causes of action (whether in tort or contract, law or equity, or
otherwise), expenses, charges, assessments, fines, and penalties of any kind,
including without limitation, reasonable attorney fees, expert witness fees and
costs, arising by reason of the death or injury of any person, including any
person who is an employee, agent, invitee, licensee, permittee, visitor, guest
or contractor of Lessee, or by reason of damage to or destruction of any
property, including property owned by Lessee or by any person who is an
employee, agent, invitee, permitee, visitor, or contractor of Lessee, caused or
allegedly caused (1) while that person or property is in or about the Premises;
(2) by some condition of the Premises; (3) by some act or omission by Lessee or
its agent, employee, licensee, invitee, guest, visitor or contractor or any
person in, adjacent, on, or about the Premises with the permission, consent or
sufferance of Lessee; (4) by any matter connected to or arising out of Lessee's
occupation and use of the Premises; or (5) by any breach or default in timely
observance or performance of any obligation on Lessee's part to be observed or
performed under this Lease, provided that Lessee, as to any one occurrence
(irrespective of whether such occurrence gives rise to multiple claims) shall
not be required to pay or contribute, on Lessor's behalf (separate and apart
from what Lessee may pay or contribute on behalf of itself or some other person)
more than Five Million Dollars ($5,000,000.00) under this Section 7.07(a), over
and above any insurance coverage required to be carried by Lessee hereunder and
applicable to such occurrence.

     (b) Notwithstanding the provisions of Section 7.07(a) of this Lease,
Lessee's duty to indemnify and hold Lessor harmless shall not apply to any
liability, claims, loss or damages arising from Lessor's negligence or willful
act of misconduct and Lessor shall indemnify and hold Lessee harmless from any
and all liability claims, loss, damages, causes of action (whether in tort or
contract, law or equity, or otherwise), expenses, charges, assessments, fines,
and penalties of any kind, including without limitation, reasonable attorney
fees, expert witness fees and costs, arising by reason of the death or injury of
any person, including any person who is an employee, agent, invitee, licensee,
permittee, visitor, guest or contractor of Lessee, or by reason of damage to or
destruction of any property, including property owned by Lessor or by any person
who is an employee, agent, invitee, permitee, visitor, or contractor of Lessor,
caused or allegedly caused by such negligence or willful act of misconduct,
provided, that Lessor, as to

                                       22

<PAGE>

any one claim shall not be required to pay or contribute on Lessee's behalf
(separate and apart from what Lessor may pay or contribute on behalf of itself
or some other person) more than Five Million Dollars ($5,000,000.00) under this
Section 7.07 (b), over and above any insurance coverage required to be carried
by Lessor hereunder and applicable to such occurrence.

     (c) Lessee hereby waives all claims against Lessor for damages to goods,
wares and merchandise and all other personal property in, on or about the
Premises and for injury or death to persons in, on or about the Premises from
any cause arising at any time to the fullest extent permitted by law.
Notwithstanding the provisions of Section 7.07(b) above, or any other provision
of this Lease, in no event shall Lessor be liable (i) for lost profits or other
consequential damages arising from any cause or (ii) for any damage which is or
could be covered by the insurance Lessee is required to carry under this Lease.

     (d) In no event shall either party be liable for any damage which is
covered by the insurance the other party is required to carry under this Lease
or to the extent it would be covered but for the other party's failure to carry
same. Furthermore, Lessee shall not be liable to Lessor for lost profits or
consequential damages beyond those items of damages which Lessor is entitled to
recover under Article XII hereof and this sentence shall not be deemed to limit
in any manner either (i) Lessor's entitlement to recover those damages or (ii)
Lessee's indemnity obligations under Sections 17.09 and 17.22(e). The provisions
of Article XII, Sections 17.09 and 17.22(e), respectively, shall control any
apparent conflict between those provisions and this Section 7.07.

     SECTION 7.08. LESSOR AS PARTY DEFENDANT. If by reason of an act or omission
of Lessee or any of its employees, agents, invitees, licensee, visitors, guests
or contractors, Lessor is made a party defendant or a cross-defendant to any
action involving the Premises or this Lease, Lessee shall hold harmless and
indemnify Lessor from all liability or claims of liability, including all
damages, attorney fees and costs of suit.

                                  ARTICLE VIII
                              DAMAGE OR DESTRUCTION

     SECTION 8.01.  DESTRUCTION OF THE PREMISES.

     (a) In the event of a partial destruction of the Premises (i.e., less than
fifty percent (50%) of its Rentable Area) during the Lease Term from any cause,
Lessor, upon receipt of, and to the extent of, insurance proceeds paid in
connection with such casualty (or within a reasonable time of the event if
Lessor does not receive such proceeds due to Lessor's failure to carry same in
contravention of its duty to do so under Section 7.06 above) and the deductible
from Lessee which Lessee shall pay to Lessor within ten (10) business days after
demand, shall forthwith repair the same, provided the repairs can be made within
a reasonable time under state, federal, county and municipal applicable law, but
such partial destruction shall in no way annul or void this Lease, (except as
provided in Section 8.01(b) below) provided that Lessee shall be entitled to a
proportionate credit for rent equal to rental income insurance proceeds received
by Lessor (or equal to the amount of such proceeds which would have been paid
but for Lessor's failure to

                                       23

<PAGE>

carry same in contravention of its duty to do so under Section 7.06 above) and
provided further that Lessee shall repair all damage and destruction to those
items as to which Lessee is required to maintain fire and casualty insurance
under Section 7.02 above. Lessor and Lessee each shall use diligence in making
such repairs within a reasonable time period, subject to the Force Majeure
provisions of Section 17.21, in which instance the time period shall be extended
accordingly, and this Lease shall remain in full force and effect, with the rent
to be proportionately reduced as provided above in this Section. If the Premises
are damaged by any peril within twelve (12) months prior to the last day of the
Lease Term and, in the reasonable opinion of the Lessor's architect or
construction consultant, the restoration of the Premises cannot be substantially
completed within ninety (90) days after the date of such damage Lessor may
terminate this Lease on sixty (60) days written notice to Lessee.

     (b) If the Premises are damaged or destroyed by any cause to the extent of
more than fifty percent (50%) of their total Rentable Area during the Lease
Term, Lessor shall notify Lessee within sixty (60) days after such damage or
destruction whether it will repair the same within nine (9) months (subject to
the Force Majeure provision of Section 17.21) from the date of such notice. If
Lessor states that it will not repair within said nine (9) months (subject to
Force Majeure) this Lease shall terminate thirty (30) business days after Lessor
gives its notice. In the event of such termination, Lessee shall pay to Lessor
all insurance proceeds, if any, received by Lessee as a result of the damage or
destruction to the extent allocable to Tenant Improvements (other than the
laboratory facilities portion thereof which Lessee would have been entitled to
remove hereunder) and Alterations installed therein by Lessee with or without
the prior written consent of Lessor. If Lessor states that it will repair within
said nine (9) months (subject to Force Majeure), Lessor shall, upon receipt of
and to the extent of insurance proceeds paid (or which would have been paid but
for Lessor's failure to carry same in contravention of its duty to do so under
Section 7.06 above) in connection with such casualty and the deductible amount
from Lessee, forthwith conduct the repair and diligently pursue the same to
completion, but such destruction shall in no way annul or void this Lease,
provided that Lessee shall be entitled to a proportionate credit for rent equal
to rental income insurance proceeds received by Lessor.

     SECTION 8.02. WAIVER OF CIVIL CODE REMEDIES. Lessee hereby expressly waives
any rights to terminate this Lease upon damage or destruction to the Premises,
including without limitation any rights pursuant to the provisions of Section
1932, Subdivisions 1 and 2 and Section 1933, Subdivision 4, of the California
Civil Code, as amended from time-to-time, and the provisions of any similar law
hereinafter enacted.

     SECTION 8.03. NO ABATEMENT OF RENTALS. The Base Rent, Additional Rent and
other charges due under this Lease shall not be reduced or abated by reason of
any damage or destruction to the Premises (but will be subject to credit as
provided in Section 8.01(a) and (b) above with respect to rental loss insurance
proceeds received or which would have been paid but for Lessor's failure to
carry same in contravention of its duty to do so under Section 7.06 above by
Lessor), and Lessor shall be entitled to all proceeds of the insurance
maintained pursuant to Section 7.01 above during the period of rebuilding
pursuant to Section 8.01 above, or if the Lease is terminated pursuant to
Section 8.01 above. Lessee shall have no claim against Lessor,

                                       24

<PAGE>

including, without limitation, for compensation for inconvenience or loss of
business, profits or goodwill during any period of repair or reconstruction.

     SECTION 8.04. NO LIABILITY FOR LESSEE'S TENANT IMPROVEMENTS, ALTERATIONS OR
PERSONAL PROPERTY. In no event shall Lessor have any liability for, nor shall it
be required to repair or restore, any injury or damage to Lessee's Tenant
Improvements, Alterations or personal property or to any other personal property
of other in or upon the Premises, Building 8 or Project.

                                   ARTICLE IX
                               REAL PROPERTY TAXES

     SECTION 9.01.  PAYMENT OF TAXES.

     (a) Subject to Lessee timely paying Lessor the same in advance as provided
below, Lessor shall pay all real property taxes, including any escaped or
supplemental tax and any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license, fee, charge, excise or
imposition ("real property tax"), imposed, assessed or levied on or with respect
to the Project by any Federal, State, County, City or other political
subdivision or public authority having the direct or indirect power to tax,
including, without limitation, any improvement district or any community
facilities district (including with respect to a district established for
purposes of constructing the Seaport Boulevard improvements and other
improvements as required in the Development Agreement or by the City of Redwood
City ("Community Facility District Bond"), as against any legal or equitable
interest of Lessor in the Project or against the Project or any part thereof
applicable to the Project for all periods of time included within the Lease Term
(as the same may be extended and during any holdover period), as well as any
government or private cost sharing agreement assessments made for the purpose of
augmenting or improving the quality of services and amenities normally provided
by government agencies and any tax, fee, charge, imposition or excise described
in subsection (b) below. All such payments shall be made by Lessee directly
pursuant to Section 4.05 hereof no later than ten (10) days after Lessor's
delivery to Lessee of a statement of the real property tax due, together with a
copy of the applicable tax bill except to the extent such amounts are included
in estimated real property taxes paid monthly pursuant to Section 4.07(b).
Notwithstanding the foregoing, Lessee shall not be required to pay any net
income taxes, franchise taxes, or any succession, estate or inheritance taxes of
Lessor.

     (b) If at anytime during the Lease Term, the State of California or any
political subdivision of the state, including any county, city, city and county,
public corporation, district, or any other political entity or public
corporation of this state, levies or assesses against Lessor a tax, fee, charge,
imposition or excise on rents under the Lease, the square footage of the
Premises or Project, the act of entering into this Lease, or the occupancy of
Lessee, or levies or assesses against Lessor any other tax, fee, or excise,
however described, including, without limitation, a so-called value added,
business license, transit, commuter, environmental or energy tax fee, charge or
excise or imposition related to the Project as a direct substitution in whole or
in part

                                       25

<PAGE>

for, or in addition to, any real property taxes on the Project the same shall be
included in real property taxes and Lessee shall pay ten (10) days before
delinquency or ten (10) days after receipt of the tax bill, whichever is later,
that tax, fee, charge, excise or imposition except to the extent estimated real
property taxes are billed and paid monthly and such tax, fee, charge, excise or
imposition is included therein. Lessee's obligation with respect to the
aforesaid substitute taxes shall be limited to the amount thereof as computed at
the rates that would be payable if the Project were the only property of Lessor.

     (c) Lessor shall provide Lessee with copies of all tax and assessment bills
on the Premises promptly upon Lessor's receipt of Lessee's written request
therefore, thereof, Lessor shall also promptly provide to Lessee evidence of
payment upon Lessor's receipt of Lessee's written request therefore.

     (d) With respect to taxes and assessments which may lawfully be paid in
installments, for the purpose of this Section, real property tax in any period
shall include only such portion of the same which is payable within such period
and any interest payable thereon computed (whether or not such is the case) as
if Lessor had elected to pay the same over the longest period permitted by law.

     (e) If Lessor shall obtain any abatement or refund on account of any real
property tax as to which Lessee shall have paid payments hereunder, Lessor shall
promptly refund to Lessee Lessee's portion of any such abatement or refund,
after deducting there from the reasonable costs and expenses incurred by Lessor
in obtaining such abatement or refund.

     (f) Real property taxes payable by Lessee hereunder shall not include real
property taxes applicable to office/research and development buildings other
than Building 8 or the legal parcels on which such other buildings are located,
but Lessee shall pay Lessee's Share of real property taxes applicable to (i)
Building 8 (together with the legal parcel on which it is located) and (ii) the
Project Common Area.

     SECTION 9.02. PRO RATION FOR PARTIAL YEARS. If any such taxes paid by
Lessee shall cover any period prior to the Commencement Date or after the
Expiration Date of the Lease Term, Lessee's Share of such taxes shall be
equitably prorated to cover only the period of time within the tax fiscal year
during which this Lease shall be in effect, and Lessor shall reimburse Lessee to
any extent required. If Lessee shall fail to pay any such taxes, Lessor shall
have the right to pay the same in which case Lessee shall repay such amount to
Lessor within ten (10) days after written demand, together with interest at the
Agreed Rate.

     SECTION 9.03.  PERSONAL PROPERTY TAXES.

     (a) Lessee shall pay prior to delinquency all taxes imposed, assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere. When
possible, Lessee shall cause said trade fixtures,

                                       26

<PAGE>

furnishings, equipment and all other personal property to be assessed and billed
separately from the real property of Lessor.

     (b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee
within ten (10) days after receipt of a written statement setting forth the
taxes applicable to Lessee's property.

     (c) If Lessee shall fail to pay any such taxes, Lessor shall have the right
to pay the same, in which case Lessee shall repay such amount to Lessor with
Lessee's next rent installment together with interest at the Agreed Rate.

                                    ARTICLE X
                                    UTILITIES

     SECTION 10.01. LESSEE TO PAY. Lessee shall pay prior to delinquency and
throughout the Lease Term, all charges for water, gas, heating, cooling, sewer,
telephone, electricity, garbage, air conditioning and ventilation, janitorial
service, landscaping and all other services and utilities supplied to the
Premises, including Lessee's Share of any such services or utilities which are
not separately metered for the Premises. The disruption, failure, lack or
shortage of any service or utility with respect to the Premises, Building or
Project due to any cause whatsoever shall not affect any obligation of Lessee
hereunder, and Lessee shall faithfully keep and observe all the terms,
conditions and covenants of this Lease and pay all rent due hereunder, all
without diminution, credit or deduction, provided that, to the extent the cause
is the failure of Lessor to observe or perform an obligation of Lessor,
hereunder Lessor shall initiate the cure of such failure immediately after
receipt from Lessee of notice of the failure and Lessor shall thereafter
diligently prosecute said cure to completion.

                                   ARTICLE XI
                            ASSIGNMENT AND SUBLETTING

     SECTION 11.01. LESSOR'S CONSENT REQUIRED. Except as provided in Section
11.02, Lessee shall not voluntarily or by operation of law assign, transfer,
mortgage, sublet, license or otherwise transfer or encumber all or any part of
Lessee's interest in this Lease or in the Premises or any part thereof, without
Lessor's prior written consent, which Lessor shall not unreasonably withhold,
condition or delay. Lessor shall respond in writing to Lessee's request for
consent hereunder in a timely manner and any attempted assignment, transfer,
mortgage, encumbrance, subletting or licensing without such consent shall be
void, and shall constitute a breach of this Lease. By way of example, but not
limitation, reasonable grounds for denying consent include: (i) poor credit
history or insufficient financial strength of transferee, (ii) transferee's
intended use of the Premises is inconsistent with the permitted use or will
materially and adversely affect Lessor's interest. Lessee shall reimburse Lessor
upon demand for Lessor's reasonable costs and expenses (including attorneys'
fees, architect fees and engineering fees) involved in renewing any request for
consent whether or not consent is granted, provided that Lessee's obligation for

                                       27

<PAGE>

attorneys' fees shall not exceed One Thousand Dollars ($1,000) unless any of the
documents involved in the transaction become the subject of negotiation.

     SECTION 11.02. LESSEE AFFILIATES. Lessee may assign or sublet the Premises,
or any portion thereof, to any corporation which controls, is controlled by, or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all of Lessee's stock or all, or substantially all of the assets of Lessee as a
going concern of the business that is being conducted on the Premises
("Affiliate"), provided that said assignee or sublessee assumes, in full, the
obligations of Lessee under this Lease and provided further that the use to
which the Premises will be put does not materially change. Any such assignment
shall not, in any way, affect or limit the liability of Lessee under the terms
of this Lease. Any portion of the Premises which is assigned or sublet to an
Affiliate of Lessee shall not be included in the calculation of subleased,
assigned or transferred Rentable Area for the purposes of Section 11.06.

     SECTION 11.03. NO RELEASE OF LESSEE. Regardless of Lessor's consent, no
subletting or assignment shall release Lessee of Lessee's obligation or alter
the primary liability of Lessee to pay the rent and to perform all other
obligations to be performed by Lessee hereunder. The acceptance of rent by
Lessor from any other person shall not be deemed consent to any subsequent
assignment or subletting. In the event of default by any assignee of Lessee or
any successor of Lessee, in the performance of any of the terms hereof, Lessor
may proceed directly against Lessee without the necessity of exhausting remedies
against said assignee.

     SECTION 11.04. EXCESS RENT. In the event Lessor shall consent to a sublease
or an assignment, Lessee shall pay to Lessor with its regularly scheduled Base
Rent payments, fifty percent (50%) of all sums and the fair market value of all
consideration collected or received by Lessee from a sublessee or assignee which
are in excess of the Base Rent and Additional Rent due and payable with respect
to the subject space pursuant to Article IV for the time period encompassed by
the sublease or assignment term, after first deducting reasonable leasing
commissions paid by Lessee with respect to such sublease or assignment.

     SECTION 11.05. INFORMATION TO BE PROVIDED. Lessee's written request to
Lessor for consent to an assignment or subletting or other form of transfer
shall be accompanied by (a) the name and legal composition of the proposed
transferee; (b) the nature of the proposed transferee's business to be carried
on in the Premises; (c) the terms and provisions of the proposed transfer
agreement; and (d) such financial and other reasonable information as Lessor may
request concerning the proposed transferee.

     SECTION 11.06. LESSOR'S RECAPTURE RIGHTS.

     (a) LESSOR'S RECAPTURE RIGHTS. Notwithstanding any other provision of this
Article 11, in the event that Lessee proposes to sublease or assign or otherwise
transfer to any person or entity not an Affiliate of Lessee any interest in this
Lease or the Premises or any part thereof affecting (collectively with all other
such subleases, assignments, or transfers then in effect) more

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than fifty percent (50%) of the square footage of the Rentable Area of the
Premises (such affected portion of the Rentable Area of the Premises is
hereafter designated "RECAPTURE SPACE") for more than the lesser of either (i)
three (3) years, or (ii) fifty percent (50%) of the then remaining Lease Term,
then Lessor shall have the option to recapture the Recapture Space by written
notice to Lessee ("RECAPTURE NOTICE") given within ten (10) business days after
Lessor receives any notice of such proposed assignment or sublease or other
transfer ("TRANSFER NOTICE"). A timely Recapture Notice terminates this Lease
for the Recapture Space, effective as of the date specified in the Transfer
Notice. If Lessor declines or fails timely to deliver a Recapture Notice, Lessor
shall have no further right under this Section 11.06 to the Recapture Space
unless it becomes available again after transfer by Lessee. Lessor's recapture
rights shall be subject to the rights of any sublessee, assignee or transferee
of Lessee set forth in any sublease, assignment or agreement of transfer to
which Lessor has consented, but subject to the terms and conditions set forth in
Lessor's consent; any such sublease, assignment or agreement of transfer shall
be assigned to Lessor as of the effective date of the recapture.

     (b) CONSEQUENCES OF RECAPTURE. To determine the new Base Rent under this
Lease if Lessor recaptures the Recapture Space, the then current Base Rent
(immediately before Lessor's recapture) under the Lease shall be multiplied by a
fraction, numerator of which is the square feet of the Rentable Area retained by
Lessee after Lessor's recapture and the denominator of which is the total square
feet of the Rentable Area before Lessor's recapture. The Additional Rent, to the
extent that it is calculated on the Rentable Area of the Premises, shall be
reduced to reflect Lessee's Share based on the Rentable Ares of the Premises
retained by Lessee after Lessor's recapture. This Lease as so amended shall
continue thereafter in full force and effect. Either party may require written
confirmation of the amendments to this Lease necessitated by Lessor's recapture
of the Recapture Space. If Lessor recaptures the Recapture Space, Lessor shall,
at Lessor's sole expense, construct, paint, and furnish any partitions required
to segregate the Recapture Space from the remaining Premises retained by Lessee
as well as arrange separate metering of utilities.

                                   ARTICLE XII
                               DEFAULTS; REMEDIES

     SECTION 12.01. DEFAULTS. The occurrence of any one or more of the following
events shall constitute a material default and breach of this Lease by Lessee:

     (a) The abandonment of the Premises by Lessee or the commission of waste at
the Premises or the making of an assignment or subletting in violation of
Article XI, provided however, abandonment shall be considered to not occur if
the Premises are maintained and occupied to the extent necessary to maintain the
insurance on each and every portion of the Premises;

     (b) The failure by Lessee to make any payment of rent or any other payment
required to be made by Lessee hereunder, as and when due, if such failure
continues for a period of five (5) business days after written notice thereof
from Lessor to Lessee. In the event that Lessor

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<PAGE>

serves Lessee with a Notice to Pay Rent or Quit in the form required by
applicable Unlawful Detainer statutes such Notice shall constitute the notice
required by this paragraph, provided that the cure period stated in the Notice
shall be five (5) business days rather than the statutory three (3) days;

     (c) Lessee's failure to provide (i) any supplemental letter of credit as
required by Section 4.06, (ii) any instrument or assurance as required by
Section 7.05 or (iii) estoppel certificate as required by Section 15.01 or (iv)
any document subordinating this Lease to a Lender's deed of trust as required by
Section 17.13, if any such failure continues for five (5) business days after
written notice of the failure. In the event Lessor serves Lessee with a Notice
to Perform Covenant or Quit in the form required by applicable Unlawful Detainer
Statutes, such Notice shall constitute the notice required by this paragraph,
provided that the cure period stated in the Notice shall be five (5) business
days rather than the statutory three (3) days;

     (d) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee,
other than described in paragraph (a) (b) or (c) above, if such failure
continues for a period of ten (10) business days after written notice thereof
from Lessor to Lessee; provided, however, that if the nature of Lessee's default
is such that more than ten (10) business days are reasonably required for its
cure, then Lessee shall not be deemed to be in default if Lessee commences such
cure within said ten (10) business day period and thereafter diligently
prosecutes such cure to completion;

     (e) (i) The making by Lessee of any general arrangement or assignment for
the benefit of creditors; (ii) the filing by Lessee of a voluntary petition in
bankruptcy under Title 11 U.S.C. or the filing of an involuntary petition
against Lessee which remains uncontested for a period of sixty days; (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease;
or (iv) the attachment, execution or other judicial seizure of substantially all
of Lessee's assets located at the Premises or of Lessee's interest in this
Lease, provided, however, in the event that any provisions of this Section
12.01(e) is contrary to any applicable law, such provision shall be of no force
or effect;

     (f) The discovery by Lessor that any financial statement given to Lessor by
Lessee, or any guarantor of Lessee's obligations hereunder, was materially
false; and

     (g) The occurrence of a material default and breach by Lessee under any
other Lease between Lessee and Lessor (or any affiliate of Lessor) for Premises
in Pacific Shores Center.

     SECTION 12.02. REMEDIES. In the event of any such material default and
breach by Lessee, Lessor may at any time thereafter, and without limiting Lessor
in the exercise of any right or remedy which Lessor may have by reason of such
default and breach:

     (a) Terminate Lessee's right to possession of the Premises by any lawful
means including by way of unlawful detainer (and without any further notice if a
notice in compliance

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with the unlawful detainer statutes and in compliance with paragraphs (b), (c)
and (d) of Section 12.01 above has already been given), in which case this Lease
shall terminate and Lessee shall immediately surrender possession of the
Premises to Lessor. In such event Lessor shall be entitled to recover from
Lessee all damages incurred by Lessor by reason of Lessee's default including,
but not limited to, (i) the cost of recovering possession of the Premises
including reasonable attorney's fees related thereto; (ii) the worth at the time
of the award of any unpaid rent that had been earned at the time of the
termination, to be computed by allowing interest at the Agreed Rate but in no
case greater than the maximum amount of interest permitted by law, (iii) the
worth at the time at the time of the award of the amount by which the unpaid
rent that would have been earned between the time of the termination and the
time of the award exceeds the amount of unpaid rent that Lessee proves could
reasonably have been avoided, to be computed by allowing interest at the Agreed
Rate but in no case greater than the maximum amount of interest permitted by
law, (iv) the worth at the time of the award of the amount by which the unpaid
rent for the balance of the Lease Term after the time of the award exceeds the
amount of unpaid rent that Lessee proves could reasonably have been avoided, to
be computed by discounting that amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of the award plus one per cent (1%),
(v) any other amount necessary to compensate Lessor for all the detriment
proximately caused by Lessee's failure to perform obligations under this Lease,
including brokerage commissions and advertising expenses, expenses of remodeling
the Premises for a new tenant (whether for the same or a different use), and any
special concessions made to obtain a new tenant, and (vi) any other amounts, in
addition to or in lieu of those listed above, that may be permitted by
applicable law.

     (b) Maintain Lessee's right to possession as provided in Civil Code Section
1951.4 in which case this Lease shall continue in effect whether or not Lessee
shall have abandoned the Premises. In such event Lessor shall be entitled to
enforce all of Lessor's rights and remedies under this Lease, including the
right to recover the rent as it becomes due hereunder.

     (c) Pursue any other remedy now or hereafter available to Lessor under the
laws or judicial decisions of the state of California. Unpaid amounts of rent
and other unpaid monetary obligations of Lessee under the terms of this Lease
shall bear interest from the date due at the Agreed Rate.

     SECTION 12.03. DEFAULT BY LESSOR. Lessor shall not be in default under this
Lease unless Lessor fails to perform obligations required of Lessor within a
reasonable time, but in no event later than ten (10) business days after written
notice by Lessee to Lessor 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 Lessee in writing, specifying that Lessor has failed to perform
such obligation; provided, however, that if the nature of Lessor's obligation is
such that more than ten (10) business days are reasonably required for
performance then Lessor shall not be in default if Lessor commences performance
within such ten (10) business day period and thereafter diligently prosecutes
the same to completion. In the event Lessor does not commence performance within
the ten (10) business day period provided herein, Lessee may perform such
obligation and will be reimbursed for its expenses by Lessor together with
interest thereon at the

                                       31

<PAGE>

Agreed Rate. Lessee waives any right to terminate this Lease or to vacate the
Premises on Lessor's default under this Lease. Lessee's sole remedy on Lessor's
default is an action for damages or injunctive or declaratory relief.
Notwithstanding the foregoing, nothing herein shall be deemed applicable in the
event of Lessor's delay in delivery of the Premises. In that situation, all
rights and remedies shall be determined under Section 3.01 above.

     SECTION 12.04. LATE CHARGES. Lessee hereby acknowledges that late payment
by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Lessor by the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designated agent within five (5) days
after such amount is due and owing, Lessee shall pay to Lessor a late charge
equal to (i) 3% of such overdue amount the first time a late charge is payable,
and (ii) five percent (5%) of such overdue amount every other time a late charge
is payable during the Lease Term. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Lessor will incur by
reason of late payment by Lessee. Acceptance of such late charge by Lessor shall
in no event constitute a waiver of Lessee's default with respect to such overdue
amount, nor prevent Lessor from exercising any of the other rights and remedies
granted hereunder. In the event that a late charge is payable hereunder, whether
or not collected, for three (3) consecutive installments of rent, then rent
shall automatically become due and payable quarterly in advance, rather than
monthly, notwithstanding Section 4.01 or any other provision of this Lease to
the contrary.

     SECTION 12.05 LESSOR'S RIGHT TO PERFORM LESSEE'S OBLIGATIONS. All
obligations to be performed or observed by Lessee under this Lease shall be
performed or observed by Lessee at Lessee's expense and without any reduction of
rent. Lessor may perform or observe any obligation of Lessee which is in default
hereunder, without waiving Lessor's other rights and remedies for Lessee's
failure to perform or observe any obligations under this Lease and without
releasing Lessee from any such obligations. Within ten (10) days after receiving
a statement from Lessor, Lessee shall pay to Lessor the amount of expense
reasonably incurred by Lessor in performing or observing Lessee's obligation.

                                  ARTICLE XIII
                            CONDEMNATION OF PREMISES.

     SECTION 13.01. TOTAL CONDEMNATION. If the entire Premises, whether by
exercise of governmental power or the sale or transfer by Lessor to any
condemnor under threat of condemnation or while proceedings for condemnation are
pending, at any time during the Lease Term, shall be taken by condemnation such
that there does not remain a portion suitable for occupation, this Lease shall
then terminate as of the date transfer of possession is required. Upon such
condemnation, all rent shall be paid up to the date transfer of possession is
required, and Lessee shall have no claim against Lessor or the award for the
value of the unexpired portion of this Lease Term.

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<PAGE>

     SECTION 13.02. PARTIAL CONDEMNATION. If any portion of the Premises is
taken by condemnation during the Lease Term, whether by exercise of governmental
power or the sale for transfer by Lessor to an condemnor under threat of
condemnation or while proceedings for condemnation are pending, this Lease shall
remain in full force and effect except that in the event a partial taking (i) is
more than thirty-three percent (33%) of the total square footage of the
Premises; or (ii) leaves the Premises unfit for the conduct of the business of
Lessee, then Lessee shall have the right to terminate this Lease effective upon
the date transfer of possession is required. Moreover, Lessor shall have the
right to terminate this Lease effective on the date transfer of possession is
required if more than thirty-three percent (33%) of the total square footage of
the Premises is taken by condemnation. Lessee and Lessor may elect to exercise
their respective rights to terminate this Lease pursuant to this Section by
serving written notice to the other within thirty (30) days after receipt of
notice of condemnation. All rent shall be paid up to the date of termination,
and Lessee shall have no claim against Lessor for the value of any unexpired
portion of the Lease Term. If this Lease shall not be terminated, the rent after
such partial taking shall be that percentage of the adjusted Base Rent specified
herein, equal to the percentage which the square footage of the untaken part of
the Premises, immediately after the taking, bears to the square footage of the
entire Premises immediately before the taking. If Lessee's continued use of the
Premises requires alterations and repair by reason of a partial taking, all such
alterations and repair shall be made by Lessee at Lessee's expense. Lessee
waives all rights it may have under California Code of Civil Procedure Section
1265.130 or otherwise, to terminate this Lease based on partial condemnation.

     SECTION 13.03. AWARD TO LESSEE. In the event of any condemnation, whether
total or partial, Lessee shall have the right to claim and recover from the
condemning authority such compensation as may be separately awarded or
recoverable by Lessee for loss of its business fixtures, or equipment belonging
to Lessee immediately prior to the condemnation including any laboratory
facilities portion of the Tenant Improvements which Lessee has the right to
remove but elects not to. The balance of any condemnation award shall belong to
Lessor (including, without limitation, any amount attributable to any excess of
the market value of the Premises for the remainder of the Lease Term over the
then present value of the rent payable for the remainder of the Lease Term) and
Lessee shall have no further right to recover from Lessor or the condemning
authority for any claims arising out of such taking, provided that Lessee shall
have the right to make a separate claim in the condemnation proceeding, as long
as the award payable to Lessor is not reduced thereby, for the taking of the
unamortized (using the first sixty (60) months of the initial Lease Term as the
amortization period) value of any Tenant Improvements paid for by Lessee which
are not removed by Lessee.

                                   ARTICLE XIV
                                 ENTRY BY LESSOR

     SECTION 14.01. ENTRY BY LESSOR PERMITTED. Lessee shall permit Lessor and
its employees, agents and contractors to enter the Premises and all parts
thereof (i) upon twenty-four (24) hours notice (or without notice in an
emergency), including without limitation, the Building

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<PAGE>

and all parts thereof at all reasonable times for any of the following purposes:
to inspect the Premises; to maintain the Premises; to make such repairs to the
Premises as Lessor is obligated or may elect to make; to make repairs,
alterations or additions to any other portion of the Premises and (ii) upon
twenty-four (24) hours notice to show the Premises and post "To Lease" signs for
the purposes of reletting during the last twelve (12) months of the Lease Term
(provided that Lessee has failed to exercise its option to extend) or extended
Lease Term to show the Premises as part of a prospective sale by Lessor or to
post notices of nonresponsibility. Lessor shall have such right of entry without
any rebate of rent to Lessee for any loss of occupancy or quiet enjoyment of the
Premises hereby occasioned.

                                   ARTICLE XV
                              ESTOPPEL CERTIFICATE

     SECTION 15.01. ESTOPPEL CERTIFICATE.

     (a) Lessee shall at any time upon not less than fifteen (15) days' prior
written notice from Lessor execute, acknowledge and deliver to Lessor a
statement in writing (i) certifying, if true, that this Lease is unmodified and
in full force and effect (or, if modified, stating the nature of such
modification and certifying, if true, that this Lease, as so modified, is in
full force and effect) and the date to which the rent and other charges are paid
in advance, if any, and (ii) acknowledging, if true, that there are not, to
Lessee's knowledge, any uncured defaults on the part of Lessor hereunder, or
specifying such defaults if any are claimed and (iii) certifying or
acknowledging, if true, such other matters as are requested by any prospective
lender or buyer which are reasonably related to the loan or sale transaction.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Premises.

     (b) Lessee's failure to deliver such statement within such time shall be
conclusive upon Lessee (i) that this Lease is in full force and effect, without
modification except as may be represented by Lessor, (ii) that there are no
uncured defaults in Lessor's performance, and (iii) that not more than one
month's rent has been paid in advance.

                                   ARTICLE XVI
                               LESSOR'S LIABILITY

     SECTION 16.01. LIMITATIONS ON LESSOR'S LIABILITY. The term "Lessor" as used
herein shall mean only the owner or owners at the time in question of the fee
title of the Premises. In the event of any transfer of such title or interest,
Lessor herein named (and in case of any subsequent transfers then the grantor)
shall be relieved from and after the date of such transfer of all liability as
respects Lessor's obligations thereafter to be performed, provided that any
funds in the hands of Lessor or the then grantor at the time of such transfer,
in which Lessee has an interest, shall be delivered to the grantee. The
obligations contained in this Lease to be performed by Lessor shall, subject as
aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership. For any breach of this Lease by Lessor, the
liability of Lessor (including all persons and entities that comprise Lessor,
and any successor

                                       34

<PAGE>

Lessor) and any recourse by Lessee against Lessor shall be limited to the
interest of Lessor, and Lessor's successors in interest, in and to the Project.
On behalf of itself and all persons claiming by, through, or under Lessee,
Lessee expressly waives and releases Lessor and each member, agent and employee
of Lessor from any personal liability for breach of this Lease.

                                  ARTICLE XVII
                               GENERAL PROVISIONS

     SECTION 17.01. SEVERABILITY. The invalidity of any provision of this Lease
as determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.

     SECTION 17.02. AGREED RATE INTEREST ON PAST-DUE OBLIGATIONS. Except as
expressly herein provided, any amount due to either party not paid when due
shall bear interest at the Bank of America prime rate plus one percent (1%)
("AGREED RATE"). Payment of such interest shall not excuse or cure any default
by Lessee under this Lease. Despite any other provision of this Lease, the total
liability for interest payments shall not exceed the limits, if any, imposed by
the usury laws of the State of California. Any interest paid in excess of those
limits shall be refunded to the payor by application of the amount of excess
interest paid against any sums outstanding in any order that payee requires. If
the amount of excess interest paid exceeds the sums outstanding, the portion
exceeding those sums shall be refunded in cash to the payor by the payee. To
ascertain whether any interest payable exceeds the limits imposed, any
nonprincipal payment (including late charges) shall be considered to the extent
permitted by law to be an expense or a fee, premium, or penalty rather than
interest.

     SECTION 17.03. TIME OF ESSENCE. Time is of the essence in the performance
of all obligations under this Lease.

     SECTION 17.04. ADDITIONAL RENT. Any monetary obligations of Lessee to
Lessor under the terms of this Lease shall be deemed to be Additional Rent and
Lessor shall have all the rights and remedies for the nonpayment of same as it
would have for nonpayment of Base Rent, except that the one year requirement of
Code of Civil Procedure Section 1161(2) shall apply only to scheduled
installments of Base Rent and not to any Additional Rent. All references to
"rent" (except specific references to either Base Rent or Additional Rent) shall
mean Base Rent and Additional Rent.

     SECTION 17.05. INCORPORATION OF PRIOR AGREEMENTS, AMENDMENTS AND EXHIBITS.
This Lease (including Exhibits A, B, C, D, E, F, G, H, I, J, K and L) contains
all agreements of the parties with respect to any matter mentioned herein. No
prior agreement or understanding pertaining to any such matter shall be
effective. This Lease may be modified in writing only, signed by the parties in
interest at the time of the modification. Except as otherwise stated in this
Lease, Lessee hereby acknowledges that neither the Lessor nor any employees or
agents of the Lessor has made any oral or written warranties or representations
to Lessee relative to the condition or use by Lessee of said Premises and Lessee
acknowledges that Lessee assumes all

                                       35

<PAGE>

responsibility regarding the Occupational Safety Health Act, the legal use and
adaptability of the Premises and the compliance thereof with all applicable laws
and regulations in effect during the Lease Term except as otherwise specifically
stated in this Lease. Neither party has been induced to enter into this Lease
by, and neither party is relying on, any representation or warranty outside
those expressly set forth in this Lease.

     SECTION 17.06. NOTICES.

     (a) WRITTEN NOTICE. Any notice required or permitted to be given hereunder
shall be in writing and shall be given by a method described in paragraph (b)
below and shall be addressed to Lessee or to Lessor at the addresses noted
below, next to the signature of the respective parties, as the case may be.
Either party may by notice to the other specify a different address for notice
purposes. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by notice to
Lessee, but delay or failure of delivery to such person shall not affect the
validity of the delivery to Lessor or Lessee.

     (b)  METHODS OF DELIVERY:

          (i)   When personally delivered to the recipient, notice is effective
on delivery. Delivery to the person apparently designated to receive deliveries
at the subject address is personally delivered if made during business hours
(e.g. receptionist).

          (ii) When mailed by certified mail with return receipt requested,
notice is effective on receipt if delivery is confirmed by a return receipt.

          (iii) When delivery by overnight delivery Federal Express/Airborne/
United Parcel Service/DHL WorldWide Express with charges prepaid or charged to
the sender's account, notice is effective on delivery if delivery is confirmed
by the delivery service.

     (c) REFUSED, UNCLAIMED OR UNDELIVERABLE NOTICES. Any correctly addressed
notice that is refused, unclaimed, or undeliverable because of an act or
omission of the party to be notified shall be considered to be effective as of
the first date that the notice was refused, unclaimed, or considered
undeliverable by the postal authorities, messenger, or overnight delivery
service.

     SECTION 17.07. WAIVERS. No waiver of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach of the same or
any other provisions. Any consent to, or approval of, any act shall not be
deemed to render unnecessary the obtaining of consent to or approval of any
subsequent act. The acceptance of rent hereunder by Lessor shall not be a waiver
of any preceding breach by Lessee of any provision hereof, other than the
failure of Lessee to pay the particular rent so accepted, regardless of Lessor's
knowledge of such preceding breach at the time of acceptance of such rent.

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<PAGE>

     SECTION 17.08. RECORDING. Either Lessor or Lessee shall, upon request of
the other, execute, acknowledge and deliver to the other a "short form"
memorandum of this Lease for recording purposes, provided that Lessee shall also
simultaneously execute in recordable form and delivering to Lessor a Quit Claim
Deed as to its leasehold and any other interest in the Premises and hereby
authorizes Lessor to date and record the same only upon the expiration or sooner
termination of this Lease.

     SECTION 17.09. SURRENDER OF POSSESSION; HOLDING OVER.

     (a) At the expiration of the Lease, Lessee agrees to deliver up and
surrender to Lessor possession of the Premises and all improvements thereon
broom clean and, in as good order and condition as when possession was taken by
Lessee, excepting only ordinary wear and tear (wear and tear which could have
been avoided by first class maintenance practices and in accordance with
industry standards shall not be deemed "ordinary"). Upon expiration or sooner
termination of this Lease, Lessor may reenter the Premises and remove all
persons and property therefrom. If Lessee shall fail to remove any personal
property which it is entitled or obligated to remove from the Premises upon the
expiration or sooner termination of this Lease, for any cause whatsoever,
Lessor, at its option, may remove the same and store or dispose of them, and
Lessee agrees to pay to Lessor on demand any and all expenses incurred in such
removal and in making the Premises free from all dirt, litter, debris and
obstruction, including all storage and insurance charges. If the Premises are
not surrendered at the end of the Lease Term, Lessee shall indemnify Lessor
against loss or liability resulting from delay by Lessee in so surrendering the
Premises, including, without limitation, actual damages for lost rent and with
respect to any claims of a successor occupant.

     (b) If Lessee, with Lessor's prior written consent, remains in possession
of the Premises after expiration of the Lease Term and if Lessor and Lessee have
not executed an express written agreement as to such holding over, then such
occupancy shall be a tenancy from month to month at a monthly Base Rent
equivalent to one hundred twenty-five percent (125%) of the monthly rental in
effect immediately prior to such expiration, such payments to be made as herein
provided for Base Rent. In the event of such holding over, all of the terms of
this Lease, including the payment of Additional Rent all charges owing hereunder
other than rent shall remain in force and effect on said month to month basis.

     SECTION 17.10. CUMULATIVE REMEDIES. No remedy or election hereunder by
Lessor shall be deemed exclusive but shall, wherever possible, be cumulative
with all other remedies at law or in equity, provided that notice and cure
periods set forth in Article XII are intended to extend and modify statutory
notice provisions to the extent expressly stated in Section 12.01.

     SECTION 17.11. COVENANTS AND CONDITIONS. Each provision of this Lease to be
observed or performed by Lessee shall be deemed both a covenant and a condition.

     SECTION 17.12. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions
hereof restricting assignment or subletting by Lessee and subject to the
provisions of Article XVI, this

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<PAGE>

Lease shall bind the parties, their personal representatives, successors and
assigns. This Lease shall be governed by the laws of the State of California and
any legal or equitable action or proceeding brought with respect to the Lease or
the Premises shall be brought in Santa Clara County, California except for such
actions or proceedings as are required by California law to be brought in the
County were the subject real property is located.

     SECTION 17.13. LEASE TO BE SUBORDINATE. Lessee agrees that this Lease is
and shall be, at all times, subject and subordinate to the lien of any mortgage,
deed of trust or other encumbrances which Lessor may create against the Premises
including all renewals, replacements and extensions thereof provided, however,
that regardless of any default under any such mortgage, deed of trust or other
encumbrance or any sale of the Premises under such mortgage, deed of trust or
other encumbrance so long as Lessee timely performs all covenants and conditions
of this Lease and continues to make all timely payments hereunder, this Lease
and Lessee's possession and rights hereunder shall not be disturbed by the
mortgagee or beneficiary or anyone claiming under or through such mortgagee or
beneficiary. Lessee shall execute any documents which are commercially
reasonable (i.e., of a type customarily executed between lenders and lessees for
similar loans and leases) subordinating this Lease within ten (10) days after
delivery of same by Lessor so long as the mortgagee or beneficiary agrees
therein that this Lease will not be terminated if Lessee is not in default
following a foreclosure, including, without limitation, any Subordination
Non-Distribution and Attornment Agreement ("SNDA") which is substantially in the
form attached hereto as Exhibit "F."

     SECTION 17.14. ATTORNEYS' FEES. If either party herein brings an action to
enforce the terms hereof or to declare rights hereunder, the prevailing party in
any such action, on trial or appeal, shall be entitled to recover its reasonable
attorney's fees, expert witness fees and costs as fixed by the Court.

     SECTION 17.15. SIGNS. Lessee shall not place any sign outside the Premises
(or visible from outside the Premises) without Lessor's prior written consent,
which consent shall not be unreasonably withheld and subject to Lessee's
obtaining approval by the City of Redwood City. Lessee, at its sole cost and
expense, after obtaining Lessor's prior written consent, shall install, maintain
and remove prior to expiration of this Lease (or within ten (10) days after any
earlier termination of this Lease) all signage in full compliance with (i) all
applicable law, statutes, ordinances and regulations and (ii) all provisions of
this Lease concerning Alterations and (ii) Lessor's signage policy set forth on
Exhibit G hereto.

     SECTION 17.16. MERGER. The voluntary or other surrender of this Lease by
Lessee, or a mutual cancellation thereof, or a termination by Lessor, shall not
work a merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.

     SECTION 17.17. GUARANTOR. [Intentionally Omitted]

                                       38

<PAGE>

     SECTION 17.18. QUIET POSSESSION. Upon Lessee timely paying the rent for the
Premises and timely observing and performing all of the covenants, conditions
and provisions on Lessee's part to be observed and performed hereunder, Lessee
shall have quiet possession of the Premises for the entire Lease Term, subject
to all of the provisions of this Lease.

     SECTION 17.19. EASEMENTS. Lessor reserves to itself the right, from time to
time, to grant such easements, rights and dedications that Lessor deems
necessary or desirable, and to cause the recordation of Parcel Maps and
conditions, covenants and restrictions, so long as such easements, rights,
dedications, Maps and conditions, covenants and restrictions do not unreasonably
interfere with the use of the Premises of parking rights granted hereunder,
including access thereto, by Lessee. Lessee shall sign any of the aforementioned
or other documents, and take such other actions, which are reasonably necessary
or appropriate to accomplish such granting, recordation and subordination of the
Lease to same, upon request of Lessor, and failure to do so within ten (10)
business days after a written request to do so shall constitute a material
breach of this Lease, provided that Lessor shall reimburse Lessee for Lessee's
reasonable out-of-pocket expenses necessarily incurred in the performance of
Lessee's obligations under this Section 17.19..

     SECTION 17.20. AUTHORITY. Each individual executing this Lease on behalf of
a corporation, limited liability company or partnership represents and warrants
that he or she is duly authorized to execute and deliver this Lease on behalf of
such entity in accordance with a duly adopted resolution of the governing group
of the entity empowered to grant such authority, and that this Lease is binding
upon said entity in accordance with its terms. Each party shall provide the
other with a certified copy of its resolution within thirty (30) days after
execution hereof, but failure to do so shall in no manner (i) be evidence of the
absence of authority or (ii) affect the representation or warranty.

     SECTION 17.21. FORCE MAJEURE DELAYS. In any case where either party hereto
is required to do any act (other than the payment of money), delays caused by or
resulting from Acts of God or Nature, war, civil commotion, fire, flood or other
casualty, labor difficulties, shortages of labor or materials or equipment,
government regulations, delay by government or regulatory agencies with respect
to approval or permit process, unusually severe weather, or other causes beyond
such party's reasonable control the time during which act shall be completed,
shall be deemed to be extended by the period of such delay, whether such time be
designated by a fixed date, a fixed time or "a reasonable time."

     SECTION 17.22. HAZARDOUS MATERIALS.

     (a)  DEFINITION OF HAZARDOUS MATERIALS AND ENVIRONMENTAL LAWS. "Hazardous
Materials" means any (a) substance, product, waste or other material of any
nature whatsoever which is or becomes listed regulated or addressed pursuant to
the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. sections 9601, et seq. ("CERCLA"); the Hazardous Materials Transportation
Act ("HMTA") 49 U.S.C. section 1801, et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. section 6901, et seq. ("RCRA"); the Toxic

                                       39

<PAGE>

Substances Control Act, 15 U.S.C. sections 2601, et seq. ("TSCA"); the Clean
Water Act, 33 U.S.C. sections 1251, et seq.; the California Hazardous Waste
Control Act, Health and Safety Code sections 25100, et seq.; the California
Hazardous Substances Account Act, Health and Safety Code sections 26300, et
seq.; the California Safe Drinking Water and Toxic Enforcement Act, Health and
Safety Code sections 25249.5, et seq.; California Health and Safety Code
sections 25280, et seq.; (Underground Storage of Hazardous Substances); the
California Hazardous Waste Management Act, Health and Safety Code sections
25170.1, et seq.; California Health and Safety Code sections 25501. et seq.
(Hazardous Materials Response Plans and Inventory); or the Porter-Cologne Water
Quality Control Act, California Water Code sections 13000, et seq., all as
amended, or any other federal, state or local statute, law, ordinance,
resolution, code, rule, regulation, order or decree regulating, relating to or
imposing liability (including, but not limited to, response, removal and
remediation costs) or standards of conduct or performance concerning any
hazardous, toxic or dangerous waste, substance or material, as now or at any
time hereafter may be in effect (collectively, "Environmental Laws"); (b) any
substance, product, waste or other material of any nature whatsoever whose
presence in and of itself may give rise to liability under any of the above
statutes or under any statutory or common law theory based on negligence,
trespass, intentional tort, nuisance, strict or absolute liability or under any
reported decisions of a state or federal court, (c) petroleum or crude oil,
including but not limited to petroleum and petroleum products contained within
regularly operated motor vehicles and (d) asbestos.

     (b) LESSOR'S REPRESENTATIONS AND DISCLOSURES. Lessor represents that it has
provided Lessee with a description of the Hazardous Materials on or beneath the
Project as of the date hereof, attached hereto as Exhibit I and incorporated
herein by reference and that except as described in the documents identified in
Exhibit "I," Lessor has no actual knowledge of any Hazardous Materials at the
Project. Lessee acknowledges receipt of the attached Exhibit I, which Lessor has
provided pursuant to California Health & Safety Code Section 25359.7 which
requires:

          "Any owner of nonresidential real property who knows, or has
reasonable cause to believe, that any release of hazardous substances has come
to be located on or beneath that real property shall, prior to the sale, lease
or rental of the real property by that owner, give written notice of that
condition to the buyer, lessee or renter of the real property."

     (c) LESSOR'S ENVIRONMENTAL INDEMNITY. Lessor agrees to indemnify and hold
Lessee harmless from any liabilities, losses, claims, damages, penalties, fines,
attorneys' fees, expert fees, court costs, remediation costs, investigation
costs, or other expenses resulting from or arising out of the use, storage,
treatment, transportation, release, presence, generation, or disposal of
Hazardous Materials on, from or about the Project, and/or subsurface or ground
water, before or after the Commencement Date from an act or omission of Lessor
(or Lessor's successor), its agents or employees (but not from an act or
omission of any other person, including, without limitation, a tenant of or
licensee of the Project or its agents, employees, invitees, vendors,
contractors, agents or visitors or any other visitor to the Project) or from
Lessor's

                                       40

<PAGE>

misrepresentation of its actual knowledge of Hazardous Materials at the Project
pursuant to the California Health & Safety Code or as otherwise required by law.

     (d) USE OF HAZARDOUS MATERIALS. Lessee shall not cause or permit any
Hazardous Materials to be brought upon, kept or used in, on or about the Project
by Lessee, its agents, employees, contractors, licensee, guests, visitors or
invitees without the prior written consent of Lessor. Lessor shall not
unreasonably withhold such consent so long as Lessee demonstrates to Lessor's
reasonable satisfaction that such Hazardous Materials are necessary or useful to
Lessee's business and will be used, kept and stored in a manner that complies
with all applicable Environmental Laws. Lessee shall, at all times, use, keep,
store, handle, transport, treat or dispose all such Hazardous Materials in or
about the Project in compliance with all applicable Environmental Laws. Lessee
shall remove all Hazardous Materials used or brought onto the Project during the
Lease Term from the Project prior to the expiration or earlier termination of
the Lease.

     (e) LESSEE'S ENVIRONMENTAL INDEMNITY. Lessee agrees to indemnify and hold
Lessor harmless from any liabilities, losses, claims, damages, penalties, fines,
attorney fees, expert fees, court costs, remediation costs, investigation costs,
or other expenses resulting from or arising out of the use, storage, treatment,
transportation, release, presence, generation, or disposal of Hazardous
Materials on, from or about the Project, and/or subsurface or ground water,
after the Commencement Date from an act or omission of Lessee (or Lessee's
successor), its agents, employees, invitees, vendors or contractors.

     (f) LESSEE'S OBLIGATION TO PROMPTLY REMEDIATE. If the presence of Hazardous
Materials on the Premises after the Commencement Date results from an act or
omission of Lessee (or Lessee's successors), its agents, employees, invitees,
vendors, contractors, guests, or visitors results in contamination or
deterioration of the Project or any water or soil beneath the Property, Lessee
shall promptly take all action necessary or appropriate to investigate and
remedy that contamination, at its sole cost and expense, provided that Lessor's
consent to such action shall first be obtained, which consent shall not be
unreasonably withheld, conditioned or delayed. In no event shall Lessee be
responsible for, and Lessor shall indemnify and hold Lessee harmless with
respect to, remediation of Hazardous Materials identified in Exhibit "I" which
were disclosed as being present at the Project prior to the Commencement Date.

     (g) LESSOR'S OBLIGATION TO PROMPTLY REMEDIATE. If the presence of
undisclosed Hazardous Materials on or beneath the Project before the
Commencement Date or after Hazardous Materials on or beneath the Project has
resulted or results from an act or omission of Lessor, its agents, employees,
invitees, vendors or contractors (but not from an act or omission of any other
person, including, without limitation, a tenant of or licensee of the Project or
its agents, employees, invitees, vendors, contractors, agents or visitors)
results in contamination or deterioration of the Project or the Premises or any
water or soil beneath the Project, Lessee shall promptly take all action
necessary or appropriate to investigate and remedy that contamination, at its
sole cost and expense. In no event shall Lessor be responsible for remediation
of Hazardous

                                       41

<PAGE>

materials that were identified in Exhibit "I" (including approximate amounts of
concentrations thereof) as being at the Project prior to the Commencement Date.

     (h) NOTIFICATION. Lessor and Lessee each agree to promptly notify the other
of any communication received from any governmental entity concerning Hazardous
Materials or the violation of Environmental Laws that relate to the Project.

     SECTION 17.23. MODIFICATIONS REQUIRED BY LESSOR'S LENDER. If any lender of
Lessor requests a modification of this Lease that will not increase Lessee's
cost or expense or materially and adversely change Lessee's rights and
obligations hereunder, this Lease shall be so modified and Lessee shall execute
whatever documents are required by such lender and deliver them to Lessor within
ten (10) days after the request.

     SECTION 17.24. BROKERS. Lessor and Lessee each represents to the other that
it has had no dealings with any real estate broker or agent in connection with
the negotiation of this Lease, except for the real estate brokers or agents
identified on the signature page hereof ("Brokers") and that they know of no
other real estate broker or agent who is entitled to a commission or finder's
fee in connection with this Lease. Each party shall indemnify, protect, defend,
and hold harmless the other party against all claims, demands, losses,
liabilities, lawsuits, judgments, and costs and expenses (including reasonable
attorney fees) for any leasing commission, finder's fee, or equivalent
compensation alleged to be owning on account of the indemnifying party's
dealings with any real estate broker or agent other than the Brokers. The terms
of this Section 17.24 shall survive the expiration or earlier termination of the
Lease Term.

     SECTION 17.25. [Intentionally Omitted]

     SECTION 17.26. ACKNOWLEDGMENT OF NOTICES. Lessor has provided and Lessee
hereby acknowledges receipt of the Notices attached as Exhibits J and K hereto,
concerning the presence of certain uses and operations of neighboring parcels of
land.

                                       42

<PAGE>

     SECTION 17.27. LIST OF EXHIBITS.

                                                                       REF. PAGE

EXHIBIT A:   Real Property Legal Description,
                    Site Plan, and Building Elevations

EXHIBIT B:   Plans and Specifications for Shell Building
             [Intentionally Omitted]

EXHIBIT C:   Work Letter Agreement for Tenant
                    Improvements and Interior Specification Standards

EXHIBIT D:   Cost Responsibilities of Lessor and Lessee
             [Intentionally Omitted]

EXHIBIT E:   Memorandum of Commencement of Lease
                    Term and Schedule of Base Rent

EXHIBIT F:   SNDA

EXHIBIT G:   Signage Exhibit

EXHIBIT H:   Guaranty of Lease [Intentionally Omitted]

EXHIBIT I:   Hazardous Materials Disclosure

EXHIBIT J:   Notice to Tenants

EXHIBIT K:   Notice to Tenants

EXHIBIT L:   Rules and Regulations

                                       43

<PAGE>

LESSOR AND LESSEE EACH HAS CAREFULLY READ AND HAS REVIEWED THIS LEASE AND BEEN
ADVISED BY LEGAL COUNSEL OF ITS OWN CHOOSING AS TO EACH TERM AND PROVISION
CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOWS ITS INFORMED AND
VOLUNTARY CONSENT THERETO. EACH PARTY HEREBY AGREE THAT, AT THE TIME THIS LEASE
IS EXECUTED, THE TERMS AND CONDITIONS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.

     Executed at San Jose, California, as of the reference date.

LESSOR:                                     ADDRESS:

Pacific Shores Development, LLC,            c/o Jay Paul Company
a Delaware limited liability company        350 California Street, Suite 1905
                                            San Francisco, California 94104-1432
By: Technology Land, LLC,
    a California limited liability
    company
                                            With a copy to:

By:                                         Thomas G. Perkins, Esq.
    ------------------------------          99 Almaden Blvd., 8th Floor
    Jay Paul, Sole Member                   San Jose, CA 95113
                                            Telephone: 408- 993-9911
                                            Facsimile: 408-286.3312

LESSEE:                                     ADDRESS:

Arqule, Inc.,
a Delaware corporation                      ------------------------------

                                            ------------------------------
By:                                         (Before Commencement Date)
    ------------------------------
          (Type or print name)
                                            Pacific Shores Center
Its:                                        Building 8, 5th Floor
    ------------------------------          1300 Seaport Boulevard
                                            Redwood City, CA 94063
                                            (After Commencement Date)

                                       44

<PAGE>

                                BROKER EXECUTION

     By signing below, the indicated real estate broker or agent is not being
made a party hereto, but is signifying its agreement with the provisions hereof
concerning brokerage.

LESSOR'S BROKER:                            ADDRESS:

Cornish & Carey Commercial                  2804 Mission College Boulevard
                                            Suite 120
                                            Santa Clara, California 95054
By:
    ------------------------------

    ------------------------------
          (Type or print name)

Its:
    ------------------------------

LESSEE'S BROKER:                            ADDRESS:

Cornish & Carey Commercial
                                            ------------------------------
By:
    ------------------------------
          (Type or print name)

Its:
    ------------------------------

                                       45

<PAGE>

                                    EXHIBIT A
                                       TO
                         PACIFIC SHORES DEVELOPMENT, LLC
                                      LEASE
                                       TO
                                  ARQULE, INC.,
                             a Delaware corporation
                                       as
                                     LESSEE
                                       for
                                    PREMISES
                                       at
                              PACIFIC SHORES CENTER
                             FIFTH FLOOR, BUILDING 8
                         REDWOOD CITY, CALIFORNIA 94063

                        REAL PROPERTY LEGAL DESCRIPTION,
                        SITE PLAN AND BUILDING ELEVATIONS

          (See Building Description and Depiction of Property attached)

                                       46

<PAGE>

Graphic representation [floor plan] of 5th floor, 1300 Seaport Boulevard,
Redwood City, CA.

                                       47

<PAGE>

Promotional photograph of typical Pacific Shores Center building elevation.

                                       48

<PAGE>

Site plan of Pacific Shores Center showing locations of office buildings and
other facilities.

                                       49

<PAGE>

                                    EXHIBIT B
                                       TO
                         PACIFIC SHORES DEVELOPMENT, LLC
                                      LEASE
                                       TO
                                  ARQULE, INC.,
                             a Delaware corporation
                                       as
                                     LESSEE
                                       for
                                    PREMISES
                                       at
                              PACIFIC SHORES CENTER
                             FIFTH FLOOR, BUILDING 8
                         REDWOOD CITY, CALIFORNIA 94063

                     SHELL BUILDING PLANS AND SPECIFICATIONS

                             (INTENTIONALLY OMITTED)

                                       50

<PAGE>

                                    EXHIBIT C
                                       TO
                         PACIFIC SHORES DEVELOPMENT, LLC
                                      LEASE
                                       TO
                               ARQULE CORPORATION,
                             a Delaware corporation
                                       as
                                     LESSEE
                                       for
                                    PREMISES
                                       at
                              PACIFIC SHORES CENTER
                             FIFTH FLOOR, BUILDING 8
                             1300 SEAPORT BOULEVARD
                         REDWOOD CITY, CALIFORNIA 94063

                  WORK LETTER AGREEMENT FOR TENANT IMPROVEMENTS
                      AND INTERIOR SPECIFICATION STANDARDS

     This Work Letter Agreement ("WORK LETTER") shall set forth the terms and
conditions relating to the construction of Tenant Improvements within the
Premises. This Work Letter is essentially organized chronologically and is
intended to address the issues of the construction of Tenant Improvements at the
Premises, in sequence, as such issues will arise during the actual construction
of the Premises. All references in this Work Letter to Articles or Sections of
"the Lease" shall mean the relevant portions of the above referenced Lease to
which this Work Letter is attached as Exhibit "C," and all references in this
Work Letter to Sections of "this Work Letter" shall mean the relevant portions
of Sections 1 through 5 of this Work Letter. "Landlord" herein shall have the
same meaning as "Lessor" in the Lease and "Tenant" herein shall have the same
meaning as "Lessee" in the Lease.

                                    SECTION I
                            DELIVERY OF THE PREMISES

1.1 DELIVERY BY LANDLORD. On the Lease Commencement Date, following the full
execution and delivery of the Lease and this Work Letter by Landlord and Tenant,
Landlord shall deliver the Premises to Tenant, and Tenant shall accept the
Premises from Landlord "As-Is," subject to all the terms and conditions of the
Lease, provided, that Tenant acknowledges that certain work involving the
closure of a stairway between the Premises and the floor beneath the Premises
will be conducted by Landlord during Tenant's construction in the Premises.

                                       51

<PAGE>

                                    SECTION 2
                               TENANT IMPROVEMENTS

2.1 TENANT TO CONSTRUCT. At Tenant's sole cost and expense, including payment to
Landlord of (i) an amount equal to one percent (1%) of all costs of actual
construction (and excluding costs of design and construction management paid by
Tenant to third parties) as an oversight fee, (ii) all related out-of-pocket
costs incurred by Landlord, and (iii) all related costs to which Landlord is
entitled under, the Lease. Tenant shall construct certain interior improvements
in conformance with the Approved Working Drawings described below ("TENANT
IMPROVEMENTS") and subject to all the terms and conditions of the Lease and this
Agreement. A failure, for any reason, to complete the construction of the Tenant
Improvements by July 30, 2002, shall have no impact on the date for commencement
of payment of Base Rent, which shall remain unchanged.

2.2 TENANT IMPROVEMENT ALLOWANCE. None

2.3 TENANT IMPROVEMENT SPECIFICATIONS. Landlord has established specifications
(the "SPECIFICATIONS") for the Building standard components to be used in the
construction of the Tenant Improvements in the Premises. The Specifications are
set forth on Schedule One hereto. The quality of Tenant Improvements shall be
equal to or of greater quality than the quality of the Specifications, provided
that the Tenant Improvements shall comply with certain Specifications as
designated by Landlord. Landlord may make changes to the Specifications from
time to time which changes shall not be retroactive or require retrofitting by
Tenant.

                                    SECTION 3
                              CONSTRUCTION DRAWINGS

3.1 PREPARATION OF DRAWINGS. Tenant shall retain an architect/space planner
approved by Landlord (the "ARCHITECT") and engineering consultants approved by
Landlord (the "ENGINEERS") to prepare all plans and engineering working drawings
relating to the structural, mechanical, electrical, plumbing, HVAC, lifesafety,
and sprinkler work to be conducted in the Premises. The plans and drawings to be
prepared by Architect and the Engineers hereunder shall be referenced
collectively as the "CONSTRUCTION DRAWINGS." All Construction Drawings shall
comply with drawing format and specifications determined by Landlord, and shall
be subject to Landlord's approval, which Construction Drawings shall contain the
information listed on Schedule Two attached hereto. Tenant and Architect shall
verify, in the field, the dimensions and conditions as shown on the relevant
portions of the base building plans, and Tenant and Architect shall be solely
responsible for the same, and Landlord shall have no responsibility in
connection therewith. Landlord's review of the Construction Drawings as set
forth in this Section 3, shall be for its sole purpose and shall not imply
Landlord's review of the same, or obligate Landlord to review the same, for
quality, design, Code compliance or other like matters. Accordingly,
notwithstanding that any Construction Drawings are reviewed by Landlord or its
space planner, architect, engineers and consultants, and notwithstanding any
advice or assistance which may be rendered to Tenant by Landlord or Landlord's
space planner, architect, engineers, and consultants, Landlord shall have no
liability whatsoever in connection therewith and shall not be responsible for
any omissions or errors contained in the Construction Drawings, and Tenant's
waiver and indemnity set forth in Section 7.07(a) of the Lease shall
specifically apply to the

                                       52

<PAGE>

Construction Drawings.

3.2 FINAL SPACE PLAN. On or before April 30, 2002, Tenant shall supply Landlord
with four (4) copies signed by Tenant of its final space plan for the Premises
before any architectural working drawings or engineering drawings have been
commenced. The final space plan (the "FINAL SPACE PLAN") shall include a layout
and designation of all offices, rooms and other partitioning, their intended
use, and equipment to be contained therein. Landlord may request clarification
or more specific drawings for special use items not included in the Final Space
Plan. Landlord shall advise Tenant within five (5) business days after
Landlord's receipt of the Final Space Plan for the Premises if the same is
unsatisfactory or incomplete in any respect. If Tenant is so advised, Tenant
shall cause the Final Space Plan to be revised to correct any deficiencies or
other matters Landlord may reasonably require and submit the revised Final Space
Plan to Landlord for its approval no later than five (5) business days after
Landlord delivers its advice. Landlord's failure to advise timely shall be
deemed approval.

3.3 FINAL WORKING DRAWINGS. After the Final Space Plan has been approved by
Landlord, Tenant shall supply the Engineers with a complete listing of standard
and non-standard equipment and specifications, including, without limitation,
B.T.U. calculations, electrical requirements and special electrical receptacle
requirements for the Premises, to enable the Engineers and the Architect to
complete the "Final Working Drawings" (as that term is defined below) in the
manner as set forth below. Upon the approval of the Final Space Plan by Landlord
and Tenant, Tenant shall promptly cause the Architect and the Engineers to
complete the architectural and engineering drawings for the Premises, and
Architect shall compile a fully coordinated set of architectural, structural,
mechanical, electrical and plumbing working drawings with complete
specifications in a form which is complete to allow subcontractors to bid on all
of the work and to obtain all applicable permits (collectively, the "FINAL
WORKING DRAWINGS") and shall submit to Landlord for Landlord's approval, on or
before May 30, 2002, four (4) copies signed by Tenant of such Final Working
Drawings. Landlord shall advise Tenant within ten (10) business days after
Landlord's receipt of the Final Working Drawings for the Premises if the same is
unsatisfactory or incomplete in any respect. If Tenant is so advised, Tenant
shall immediately revise the Final Working Drawings in accordance with such
review and any disapproval of Landlord in connection therewith and submit the
revised Final Working Drawings to Landlord no later than ten (10) business days
after Landlord delivers its advice. Landlord's failure to advise timely shall be
deemed approval.

3.4 APPROVED WORKING DRAWINGS. The Final Working Drawings shall be approved by
Landlord (the "APPROVED WORKING DRAWINGS") prior to the commencement of
construction of the Premises by Tenant. After approval by Landlord of the Final
Working Drawings, Tenant shall submit the same to the City of Redwood City for
all applicable building permits. Tenant hereby agrees that neither Landlord nor
Landlord's consultants shall be responsible for obtaining any building permit or
certificate of occupancy for the Premises and that obtaining the same shall be
Tenant's responsibility; provided, however, that Landlord shall cooperate with
Tenant in executing permit applications and performing other ministerial acts
reasonably necessary to enable Tenant to obtain any such permit or certificate
of occupancy. No changes, modifications

                                       53

<PAGE>

or alterations in the Approved Working Drawings other than to reflect changes
which are within the discretion of Tenant hereunder may be made without the
prior written consent of Landlord, which consent may not be unreasonably
withheld, delayed or conditioned.

                                    SECTION 4
                     CONSTRUCTION OF THE TENANT IMPROVEMENTS

4.1  Tenant's Selection of Contractors.

     4.1.1 THE CONTRACTOR. A general contractor shall be retained by Tenant to
construct the Tenant Improvements pursuant to a written construction contract
("CONSTRUCTION CONTRACT"). Such general contractor ("CONTRACTOR") shall be
selected by Tenant subject to Landlord's consent, which consent shall not be
unreasonably withheld or delayed provided that such contractor is a California
licensed contractor with a successful track record of constructing first class
tenant improvements in first class office buildings and has never been involved
in a material dispute with Landlord.

     4.1.2 TENANT'S AGENTS. All subcontractors and laborers used by Tenant (such
subcontractors and laborers, to be referred to collectively with the Contractor
as "TENANT'S AGENTS") must be approved in writing by Landlord, which approval
shall not be unreasonably withheld or delayed. If Landlord does not approve any
of Tenant's proposed subcontractors, laborers, materialmen or suppliers, Tenant
shall submit other proposed subcontractors and laborers for Landlord's written
approval.

4.2  CONSTRUCTION OF TENANT IMPROVEMENTS BY TENANT'S AGENTS.

     4.2.1 CONSTRUCTION CONTRACT, COST BUDGET. Within two (2) business days of
its execution by Tenant and Contractor, Tenant shall deliver a copy of the
Construction Contract and the budget for the construction of the Tenant
Improvements and a check payable to Landlord in an amount equal to one percent
(1%) the construction price for the cost of construction of the Tenant
Improvements.

     4.2.2      TENANT'S AGENTS.

                4.2.2.1 LANDLORD'S GENERAL CONDITIONS FOR TENANT'S AGENTS AND
TENANT IMPROVEMENT WORK. Tenant's and Tenant's Agent's construction of the
Tenant Improvements shall comply with the following: (i) the Tenant Improvements
shall be constructed in accordance with the Approved Working Drawings and a
construction schedule to be created on or before May 30, 2002 by contractor and
approved by Landlord which approval shall not be unreasonably withheld, delayed
or conditioned ("APPROVED CONSTRUCTION SCHEDULE"); (ii) Tenant shall take such
action as is necessary to cause Tenant's Agents to adhere to the Approved
Construction Schedule; and (iii) Tenant shall abide by and cause all of Tenant's
Agents to abide by all rules made by Landlord's Building manager with respect to
the use of freight, loading dock and service elevators, storage of materials,
coordination of work with the contractors of other tenants, and

                                       54

<PAGE>

any other matter in connection with this Work Letter, including, without
limitation, the construction of the Tenant Improvements. Tenant shall reimburse
landlord within ten (10) business days after demand, for all costs of repair and
cleanup incurred by Landlord for damage to the Premises, Building 8 or Project
caused by Tenant or Tenant's Agents or debris, litter or other materials or
matter left within the premises at any time.

                4.2.2.2 INDEMNITY. Tenant's indemnity of Landlord as set forth
in Section 7.07(a) of the Lease shall also apply with respect to any and all
costs, losses, damages, injuries and liabilities related in any way to any act
or omission of Tenant or Tenant's Agents, or anyone directly or indirectly
employed by any of them, or in connection with Tenant's non-payment of any
amount arising out of the Tenant Improvements and/or Tenant's disapproval of all
or any portion of any request for payment. Such indemnity by Tenant, as set
forth in Section 7.07(a) of the Lease, shall also apply with respect to any and
all costs, losses, damages, injuries and liabilities related in any way to
Landlord's performance of any ministerial acts reasonably necessary (i) to
permit Tenant to complete the Tenant Improvements, and (ii) to enable Tenant to
obtain any building permit or certificate of occupancy for the Premises.

                4.2.2.3 REQUIREMENTS OF TENANT'S AGENTS. Each of Tenant's Agents
shall guarantee to Tenant and for the benefit of Landlord that the portion of
the Tenant Improvements for which it is responsible shall be free from any
defects in workmanship and materials for a period of not less than one (1) year
from the date of completion thereof. Each of Tenant's Agents shall be
responsible for the replacement or repair, without additional charge, of all
work done or furnished in accordance with its contract that shall become
defective within one (1) year after the completion of the work performed by such
contractor or subcontractors. The correction of such work shall include, without
additional charge, all additional expenses and damages incurred in connection
with such removal or replacement of all or any part of the Tenant Improvements,
and/or Building 8 and/or Common Areas that may be damaged or disturbed thereby.
All such warranties or guarantees as to materials or workmanship of or with
respect to the Tenant Improvements shall be contained in the Contract or
subcontract and shall be written such that such guarantees or warranties shall
inure to the benefit of both Landlord and Tenant, as their respective interests
may appear, and can be directly enforced by either. Tenant covenants to give to
Landlord any assignment or other assurances which may be necessary to effect
such right of direct enforcement.

                4.2.2.4 INSURANCE REQUIREMENTS.

                        4.2.2.4.1 GENERAL COVERAGES. Tenant's Contractor shall
carry worker's compensation insurance covering all of their respective
employees, and shall also carry commercial general liability insurance,
including property damage, all with limits, in form and with companies as are
required to be carried by Tenant as set forth in Section 7.04 of the Lease.

                        4.2.2.4.2 SPECIAL COVERAGES. Tenant shall carry
"Builder's All Risk" insurance in an amount approved by Landlord covering the
construction of the Tenant Improvements, and such other insurance as Landlord
may require, it being understood and agreed

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<PAGE>

that the Tenant Improvements shall be insured by Tenant pursuant to Section 7.02
of the Lease immediately upon completion thereof. Such insurance shall be in
amounts and shall include such extended coverage endorsements as may be
reasonably required by Landlord including, but not limited to, the requirement
that all of Tenant's Agents shall carry excess liability and Products and
Completed Operation Coverage insurance, each in amounts not less than $1,000,000
per incident, $2,000,000 in aggregate, and in form and with companies as are
required to be carried by Tenant as set forth in Section 7.05 of the Lease.

                        4.2.2.4.3 GENERAL TERMS. Certificates for all insurance
carried pursuant to this Section 4.2.2.4 shall be delivered to Landlord before
the commencement of construction of the Tenant Improvements and before the
Contractor's equipment is moved onto the Project. All such policies of insurance
must contain a provision that the company writing said policy will give Landlord
thirty (30) days prior written notice of any cancellation or lapse of the
effective date or any reduction in the amounts of such insurance. In the event
that the Tenant Improvements are damaged by any cause during the course of the
construction thereof, Tenant shall immediately repair the same at Tenant's sole
cost and expense. Tenant's Agents shall maintain all of the foregoing insurance
coverage in force until the Tenant Improvements are fully completed and accepted
by Landlord, except for any Products and Completed Operation Coverage insurance
required by Landlord, which is to be maintained for ten (10) years following
completion of the work and acceptance by Landlord and Tenant. All policies
carried under this Section 4.2.2.4 shall insure Landlord and Tenant, as their
interests may appear, as well as Contractor and Tenant's Agents. All insurance,
except Workers' Compensation, maintained by Tenant's Agents shall preclude
subrogation claims by the insurer against anyone insured thereunder. Such
insurance shall provide that it is primary insurance as respects the Landlord
and that any other insurance maintained by Landlord is excess and
noncontributing with the insurance required hereunder. The requirements for the
foregoing insurance shall not derogate from the provisions for indemnification
of Landlord by Tenant under Section 4.2.2.2 of this Work Letter. Landlord may,
in its discretion, require Tenant to obtain a lien and completion bond or some
alternate form of security satisfactory to Landlord in an amount sufficient to
ensure the lien- free completion of the Tenant Improvements and naming Landlord
as a co-obligee, upon ten (10) days advance written notice.

     4.2.3 GOVERNMENTAL COMPLIANCE. The Tenant Improvements shall comply in all
respects with the following: (i) the Code and other state, federal, city or
quasi-governmental laws, codes, ordinances and regulations, as each may apply
according to the rulings of the controlling public official, agent or other
person; (ii) applicable standards of the American Insurance Association
(formerly, the National Board of Fire Underwriters) and the National Electrical
Code; and (iii) building material manufacturer's specifications.

     4.2.4 INSPECTION BY LANDLORD. Landlord shall have the right to inspect the
Tenant Improvements at all times, provided however, that Landlord's failure to
inspect the Tenant Improvements shall in no event constitute a waiver of any of
Landlord's rights hereunder nor shall Landlord's inspection of the Tenant
Improvements constitute Landlord's approval of the same. Should Landlord
disapprove any portion of the Tenant Improvements, Landlord shall

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<PAGE>

notify Tenant in writing of such disapproval and shall specify the items
disapproved. Any defects or deviations in, and/or disapproval by Landlord of,
the Tenant Improvements shall be rectified by Tenant at no expense to Landlord,
provided however, that in the event Landlord determines that a defect or
deviation exists or disapproves of any matter in connection with any portion of
the Tenant Improvements and such defect, deviation or matter might adversely
affect the mechanical, electrical, plumbing, heating, ventilating and
air-conditioning or life-safety systems of the Building, the structure or
exterior appearance of the Building or any other tenant's use of such other
tenant's leased premises, Landlord may take such action as Landlord deems
necessary, at Tenant's expense and without incurring any liability on Landlord's
part, to correct any such defect, deviation and/or matter, including, without
limitation, causing the cessation of performance of the construction of the
Tenant Improvements until such time as the defect, deviation and/or matter is
corrected to Landlord's satisfaction.

     4.2.5 MEETINGS. Commencing upon the execution of this Lease, Tenant shall
hold periodic meetings at a reasonable time with the Architect and the
Contractor regarding the progress of the preparation of Construction Drawings
and the construction of the Tenant Improvements. Tenant shall provide Landlord
with reasonable advance written notice of all such meetings to enable landlord's
representative to attend and participate.

4.3 NOTICE OF COMPLETION; COPY OF RECORD SET OF PLANS. Within ten (10) days
after completion of construction of the Tenant Improvements, Tenant shall cause
a Notice of Completion to be recorded in the office of the Recorder of the
County of San Mateo in accordance with Section 3093 of the Civil Code of the
State of California or any successor statute, and shall furnish a copy thereof
to Landlord upon such recordation. If Tenant fails to do so, Landlord may
execute and file the same on behalf of Tenant as Tenant's agent for such
purpose, at Tenant's sole cost and expense. At the conclusion of construction,
(i) Tenant shall cause the Architect and Contractor (A) to update the Approved
Working Drawings as necessary to reflect all changes made to the Approved
Working Drawings during the course of construction, (B) to certify to the best
of their knowledge that the "record-set" of mylar "as-built" drawings are true
and correct, which certification shall survive the expiration or termination of
this Lease, and (C) to deliver to Landlord two (2) sets of copies of such record
set of drawings within sixty (60) days following issuance of a certificate of
occupancy for the Premises, and (ii) Tenant shall deliver to Landlord a copy of
all warranties, guaranties, and operating manuals and information relating to
the improvements, equipment, and systems in the Premises.

                                    SECTION 5
                                  MISCELLANEOUS

5.1 TENANT'S REPRESENTATIVE. Tenant has designated Steve Lacerte, Director of
Facilities as its sole representative with respect to the matters set forth in
this Work Letter, who shall have full authority and responsibility to act on
behalf of the Tenant as required in this Work Letter.

5.2 LANDLORD'S REPRESENTATIVE. Landlord has designated Janette Sammartino of
the Jay Paul Company as its sole representatives with respect to the matters set
forth in this Work Letter, who,

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<PAGE>

until further notice to Tenant, shall have full authority and responsibility to
act on behalf of the Landlord as required in this Work Letter.

5.3 TIME OF THE ESSENCE IN THIS TENANT WORK LETTER. Unless otherwise indicated,
all references herein to a "number of days" shall mean and refer to calendar
days. If any item requiring approval is timely disapproved by Landlord, the
procedure for preparation of the document and approval thereof shall be repeated
until the document is approved by Landlord.

5.4 TENANT'S LEASE DEFAULT. Notwithstanding any provision to the contrary
contained in this Lease, if any material default as described in Section 12.01
of Lease or failure by Tenant to timely observe or perform an obligation under
this Work Letter has occurred at any time on or before the substantial
completion of the Premises, then (i) in addition to all other rights and
remedies granted to Landlord pursuant to this Lease, Landlord shall have the
right to cause Contractor to cease the construction of the Premises (in which
case, Tenant shall be responsible for any delay in the substantial completion of
the Premises caused by such work stoppage), and (ii) all other obligations of
Landlord under the terms of this Work Letter shall be forgiven until such time
as such default is cured pursuant to the terms of this Lease (in which case,
Tenant shall be responsible for any delay in the substantial completion of the
Tenant Improvements caused by such inaction by Landlord), and (iii) the date on
which payment of Base Rent is to commence under the Lease shall not be affected.

5.5 TENANT'S AGENTS. All subcontractors, laborers, materialmen, and suppliers
retained directly by Tenant shall conduct their activities in and around the
Premises, Buildings and the Project in a harmonious relationship with all other
subcontractors, laborers, materialmen and suppliers at the Premises, Buildings
and Project.

5.6 CHANGE ORDERS. No material changes, modifications or alterations in the
Approved Working Drawings or in the Tenant Improvement work pursuant thereto
(collectively referred to as "CHANGE ORDERS") shall be made by Tenant without
the prior written consent of Landlord, which consent shall not be unreasonably
withheld, delayed or conditioned. Landlord will respond to Tenant's submission
of all requests for Change Orders for Landlord approval within three (3)
business days from Landlord's actual receipt. All requests for Change Orders
shall be made in writing. Once approved in writing, such Change Orders shall
become a part of the Approved Working Drawings. A Change Order shall be deemed
"material" only if such Change Order exceeds Five Thousand Dollars ($5,000) in
cost (either additive or deductive) or if it could affect any of the Building 8
systems or structure. Tenant may make changes, modifications or alterations in
the Approved Working Drawings and in the Tenant Improvement work pursuant
thereto if the cost (or savings) of same is less than Five Thousand dollars
($5,000) and they do not adversely affect any of the Building 8 systems or
structure.

5.7 ASSUMPTION OF THE RISK. Tenant accepts, assumes and shall be solely
responsible for all risks for the construction and installation of the Tenant
Improvements other than for risks resulting from the gross negligence or willful
misconduct of Landlord or Landlord's employees, agents, contractors or
subcontractors.

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5.8 NO PARTNERSHIP. Nothing in this Agreement shall cause Landlord and Tenant
to be partners or joint venturers.

5.9 HAZARDOUS MATERIALS. If the construction of the Tenant Improvements or
Tenant's move into the Premises will involve the use of Hazardous Materials,
Tenant shall comply with Landlord's rules and regulations concerning such
Hazardous Materials.

5.10 SCHEDULES. Attached hereto and incorporated herein by reference are the
following schedules:

     Schedule One to Exhibit "C" - B Abbreviated Specifications
     Schedule Two to Exhibit "C" - B Construction Drawing Requirements

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<PAGE>

                                  SCHEDULE ONE
                                       TO
                                    EXHIBIT C
                                       TO
                         PACIFIC SHORES DEVELOPMENT, LLC
                                      LEASE
                                       TO
                               ARQULE CORPORATION
                                       FOR
                              Pacific Shores Center
                             Fifth Floor, Building 8
                             1300 Seaport Boulevard
                            Redwood City, California

                        INTERIOR SPECIFICATION STANDARDS

                         ABBREVIATED BUILDING STANDARDS

                               FOR PACIFIC SHORES

NOTE: THE TENANT IMPROVEMENTS SHALL BE CLASS "A" AND, THEIR QUALITY MUST BE AT A
MINIMUM, PER THE FOLLOWING STANDARDS:

GENERAL OFFICE

CUSTOM CABINETRY

     SCOPE: All materials and labor for the construction and installation of
     Cabinetry and all related accessories per WIC Standards.

A.   Trade Standards: Woodworking Institute of California (WIC) latest edition
     Section 15 and 16 for plastic laminated casework and plastic laminated
     countertops. Color of plastic laminate to be selected by Architect
B.   All cabinetry to be constructed to "Custom-Grade" Specifications. Cabinetry
     to be flush overlay construction.
C.      Plastic Laminate: High Pressure thermoset laminated plastic surfacing
     material to equal or surpass NEMA LD3, Nevamar, WilsonArt or approved
     equal.
     1. Countertops, shelf-tops, splashes, and edges: Grade GP 50, 0.050 inches
        thick.
     2. All other exposed vertical surfaces: Grade GP 28, 0.028 inches thick
     3. Semi-exposed backing sheet: Grade CL 20, 0.020 inches thick
     4. Concealed backing sheet: Grade BK 20, 0.020 inches thick
D.      Adhesives: Bond surfaces to Type 11 as recommend by Plastic Laminate
     Manufacturer.
E.      Hinges: Heavy-duty concealed self-closing hinges. Amount of hinges per
     Door per WIC. Stanley or approved equal
F.      Door and Drawer Pulls: Wire-pull with 4-inch centers; Dull Chrome
     finish; Stanley 4483 or approved equal.
G.      Drawer slides: Heavy-duty grade with ball-bearings. Stanley, Klein, or
     approved equal

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H.      Door Catches: Heavy-duty commercial friction type.
     1. Recessed Adjustable Shelf Standards: Aluminum or zinc-plated recessed
          type; Knape & Vogt with clips or approved equal.
J.      Base and Wall Cabinets including doors: 3/4-inch thick medium density
     particleboard:
     1. Conceal all fastenings.
     2. Provide clear spaces as required for mechanical and electrical fittings
     3. Plastic laminate and self-edge all shelves.
     4. Provide 3/4-inch thick doors and drawer faces.
     5. Unless indicated otherwise, all shelving to be adjustable.
     6. Provide back and ends on all cabinets.
     7. All exposed cabinet faces to be plastic-laminated.
K.      Countertops and Shelving: 3/4-inch thick medium density particleboard.
     Backsplash to be 3/4 inches thick, glued and screwed into top with scribed
     `edges. Joints in countertop to be not closer than 24 inches from sinks.
     Joints shall be shop fitted, splined, glued and mechanically fastened.
L.      Installation of Cabinetry shall be per WIC instructions, Custom Grade.

WOOD DOORS

SCOPE: All materials and labor necessary for the installation of Wood Doors,
     required accessories and preparations for hardware.

A.      Non-rated Wood Doors: 1-3/4 inch thick, flush, solid core, plain sliced
     Birch veneer with Birch edge. Cores may be either of the following: Glued
     block Hardwood Core per NWMA or Particleboard Core per NWMA. Manufacturer:
     Algoma, Weyerhaeuser, or approved equal.
B.      Fire-rated Wood Doors: 1-3/4 inch thick, flush, solid core, plain sliced
     Birch face veneer with Birch Edge with mineral core per rating.
     Manufacturer: Algoma, Weyerhaeuser, or approved equal. Doors shall have a
     permanent UL label.
C.      Vision Panels (where applies): Fire rated vision panel where required.
     Set in square metal stop to match metal doorstops as provided by doorframe
     manufacturer.
D.      Doors shall be 8'- 0" X 3'-0" leafs typical.

ALUMINUM DOOR AND WINDOW FRAMES

SCOPE: All materials and labor necessary for the installation of Aluminum Door
     Frames.

A.      Frame Manufacturers:  Raco, or Ragland Manufacturing Company, Inc.
B.      Door Frames: Non-rated and 20-minute label, Raco "Trimstyle" frame with
     Trim 700 (3/8 inch by 1- 1/2 inch) with no exposed fasteners.
C.      Finish, Door and Window Frame Extrusions, Wall Trim:
     1. Painted and oven-cured with "Duralaq" finish.
     2. Color: Clear.
     3. Finish shall meet or exceed requirements of AAMA Specifications 603.
     4. Coat inside of frame profile with bituminous coating to a thickness of
        1/16 inch where in contact with dissimilar materials.

DOOR HARDWARE

SCOPE: All materials and labor for the installation of all Door Hardware,
locksets, closers, hinges, miscellaneous door hardware.

A.      Swinging Door Lockset and Cylinder: Schlage "L" series with lever handle
     with 6 pin cylinder.
B.      Keyway: Furnish blank keyways to match existing master-key system. Match
     existing

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     keyways.
C.      Finishes: Satin Chrome, 626 finish. Paint closers to match.
D.      Kickplates: 16 gauge stainless steel; 10 inches high: width to equal
     door width less 2 inches.

                                HARDWARE SCHEDULE

HARDWARE GROUP A (Typical, rated, single door)

     1                Lockset           Schlage        L9050PD
     1-1/2 pair       Butt Hinges       Hager          BB1279
     1                Closer            Norton         700 Series
     1                Stop              Quality        (332 @ carpet)
     1                Smoke Seal        Pemko

HARDWARE GROUP B (Typical, rated, closet/service door)

     1                Lockset           Schlage        L9080PD
     1-1/2 pair       Butt Hinges       Hager          BB1279
     1                Closer            Norton         700 Series w/ hold-open
     1                Stop              Quality        (332 @ carpet)
     1                Smoke Seal        Pemko

HARDWARE GROUP C (Typical, non-rated door)

     1                Lockset           Schlage        L9050PD
     1-1/2 pair       Butt Hinges       Hager          BB1279
     1                Stop              Quality        (332 @ carpet)

HARDWARE GROUP D (Typical, non-rated, closet/service door)

     1                Lockset           Schlage        L9080PD
     1-1/2 pair       Butt Hinges       Hager          BB1279
     1                Stop              Quality        (332 @ carpet)

HARDWARE GROUP E (Card-access door)

     1                Electric Lockset  Schlage        L9080PDGU
     1-1/2 pair       Butt Hinges       Hager          BB1279 - NRP
     (2 pr @ 8' door)
     1                Electric Butt     Hager          ETW
     1                Closer            Norton         700 Series w/ hold-open
     1                Stop              Quality        (332 @ carpet)

HARDWARE GROUP F (Typical, double door)

     1                Electric Lockset  Schlage        L9050PD
     3 pair           Butt Hinges       Hager          BB1270
     1                Auto Flush Bolt   Glyn Johnson   FB-8
     1                Dustproof Strike  Glyn Johnson   DP2
     2                Closer            Norton         7700 Series
     2                Stop              Quality        (332 @ carpet)
     1                Astragal          Pemko
     1                Coordinator       Glyn Johnson
     1                Smoke Seal        Pemko

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<PAGE>

GLAZING

SCOPE: All materials and labor for the installation of Glass.

A.      Manufacturers: PPG Industries, or Viracon, Inc. See glazing schedule
        below.
B.      Shop prepares all glazing. Edges to have no chips or fissures.
C.      Glazing Materials:
     1. Safety Glass: ASTM C1048, fully tempered with horizontal tempering,
          Condition A uncoated, Type 1 transparent flat, Class 1 clear, Quality
          q3 glazing select, conforming to ANSI Z97.1
     2. Mirror Glass: Clear float type with copper and silver coating, organic
          overcoating, square polished edges, 1/4-inch thick,
     3. Wire Glass: Clear, polished both sides, square wire mesh of woven
          stainless steel wire 1/2 inch X 1/2 inch grid; 1/4 inch thick.
     4. Tempered Glass: 1/4 inch thick, no tong marks. UL rated for 1 -hour
          rating.
     5. Spacers: Neoprene.
     6. Tape to be poly-iso-butylene.

D. Schedule:
     1  Type A: 1/4-inch thick mirror, annealed, heat strengthened, or full
          tempered as required.
     2. Type B: 1/4 inch thick clear float glass, annealed, heat strengthened,
          or full tempered as required.
     3. Type C: 1/4-inch thick wire glass plate, square pattern "Baroque"

LIGHT GAUGE METAL FRAMING

SCOPE: All materials and labor necessary for the installation of metal framing
     and related accessories.

A. Structural Studs: 14 gauge punched channel studs with knurled screw-type
     flanges, prime-coated steel. Manufacturer: United States Gypsum SJ or
     approved equal. Submit cut-sheet of material.
B. Partition Studs: 20 gauge studs with key-hole shaped punch-outs at 24
     inches on center. Manufacturer: United States Gypsum ST or approved equal.
C. Fasteners for Structural Studs: Metal screws as recommended by metal system
     manufacturer. Weld at all structural connection points.
D.   Reinforce framed door and window openings with double studs at each jamb
     (flange-to-flange and weld) and fasten to runners with screws and weld.
     Reinforce head with 14 gauge double stud same width as wall. Screw and
     weld.
E. Provide all accessories as required to fasten metal-framing per
     manufacturers recommendations.
F. Provide and install flat-strapping at all structural walls (walls with
     concrete footings beneath the walls). Minimum bracing shall be 25 % of
     structural walls shall be braced with flat-strapping per Manufacturers
     recommendations. Weld at all strap ends and at all intermediate studs.
G. Provide foundation clips at 4'-0" on center at structural walls. Anchor
     with 1/2 inch diameter by 10 inch long anchor bolts.
H. Non-structural interior partitions shall be anchored with power-driven
     fasteners at 4'-0" on center at the concrete slab.

ACOUSTIC CEILING SYSTEM

SCOPE: All materials and labor for the installation of the Acoustic Ceiling
     System including T-Bar system, Acoustic Ceiling Panels, Suspension
     wiring and fastening devices and Glued-down

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     Ceiling Panels.

A. Manufacturer: Armstrong, or approved equal. Exposed T-bar system; factory
     painted; steel construction; rated for intermediate duty.
D. Acoustical Tile: "Second Look", conforming to the following:
     1. Size: 24 X 48 inches.
     2. Thickness: 3/4 inches.
     3. Composition: Mineral.
     4. NRC Range: .55 to .60.
     5. STC Range: 35 to 39.
     6. Flame Spread: ASTME84,0-25. UL Label, 25 or under.
     7. Edge: Tegular, Lay-in.
     8. Surface Color: White.
     9. Surface Finish: Factory-applied washable vinyl latex paint.

G.   Installation to be per ASTM C636 structural testing. Lateral support for
     each 96 square feet of ceiling flared at 45 degrees in 4 directions.
H.   Provide clips for panel uplift restraints at all panels, 2 per panel.

GYPSUM WALLBOARD

SCOPE: Provide all materials and labor for the installation of Gypsum Wallboard
     including all accessories and finishes.

A. Standard Gypsum Wallboard: ASTM C36;. Ends square cut, tapered edges.
B. Fire Resistant Gypsum Wallboard: ASTM C36, 5/8 inches thick Type X. Ends
   square cut, tapered edges. See Drawings for locations.
C. Moisture-resistant gypsum wallboard: ASTM C630-90.
D. Joint-reinforcing Tape and Joint Compound: ASTM C475, as manufactured by
   or recommended by wallboard manufacturer. Minimum 3 coat application for a
   smooth finish.
E. Corner Bead: Provide at all exposed outside corners;
F. L-shaped edge trim: Provide at all exposed intersections with different
   materials.
G. All work shall be done in accordance with the USG recommended method of
   installation.
   1. Finish: smooth.

PAINTING

A. Paint Manufacturers: ICI,  Dunn-Edwards Corporation, Kelly Moore.
B. Paint colors shall be selected by the Architect.
C. Painting Schedule: Provide for 4 different color applications
     1. P-1:  "Field".  Color to be selected.
     2. P-2:  "Accent".  Color to be selected.
     3. P-3:  "Accent".  Color to be selected.
     4. P-4:  "Accent".  Color to be selected.
D. Interior Gypsum Wallboard:
     1. Primer: Vinyl Wall Primer/Sealer.
     2. 1 stand 2nd Coat:  Eggshell Acrylic Latex.
E. Metal Framing:
     1. Primer:  Red Oxide, shop-primed (for non-galvanized) if exposed.
F. Wood Work, Wood Doors:
     1. Two coats of transparent finish. Sand lightly between coats with steel
        wool.

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INSULATION

A. R-15 in exterior walls.
B. R-25 on Roof.
C. Sound batts in conference, restroom and lobby walls.

ROOF EQUIPMENT

A. Stainless steel mechanical platform and associated access stairs and guard
   rail system
B. EIFS roof screen to match detail of exterior GFRC Panel.

FULL HEIGHT GLAZED PARTITION

A. 1/4" glazed partition, in building standard aluminum frame

FINISHES

A. Vinyl Composite Tile:  Armstrong stonetex, 12" X 12"
B. Resilient Base:  Burke rubber wall base, 4" top set or cove, as appropriate
   for VCT or carpet.
C. Window Coverings:  Miniblinds, Levelor, color: TBD
D. Carpet:
            Option 1:                 Designweave, Windswept Classic 30 oz.
                                      (Direct glue installation) or equal

            Option 2: (cut pile)      Designweave, Tempest Classic 32 oz.
            UPGRADE                   (Direct glue installation) or equal.

            Option 3: (cut pile)      Designweave, Sabre Classic, 38 oz. (Direct
            UPGRADE                   glue installation) or equal.

KITCHEN FIXTURES

A. Sink: Ekkay stainless steel, GECR-2521-L&R, 20 gauge, 25"w X 21 1/4" D X 5
   3/8" D, ADA compliant.
B. Kitchen Faucet: American Standard, Silhouette Single control, #4205 series,
   spout 9 3/4".

KITCHEN APPLIANCES

A.   Dishwasher:
            Option 1:  GE GSD463DZWW, 24'W X 24 3/4" D X 34-35" H, 9
                       gallons/wash
            Option 2:  Bosch, SHU5300 series, 5.4 gallons/wash-with water heater

B.   Refrigerator:
            Full Size: GE, "S" series top-mount, TBX16SYZ, 16.4 cubic feet,
                       recessed, recessed handles, 28" W X 29 1/8" D X
                       66 3/4" H, white, optional factory installed ice-maker.

            Under-counter:
                   Option 1:     U-Line, #29R, 3.5 cubic feet, white
                   Option 2:     U-Line, Combo 29FF, Frost Free with
                                 factory installed icemaker, 2.1 cubic
                                 feet, white

C.   Microwave:    GE, Spacemaker II JEM25WY, Midsize, 9 cubic feet, 800 watts,

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            23 13/16" W X 11 13/16"D X 12 5/16" H

            Option 1:                 Under counter Mounting Kit, #4AD19-4
            Option 2:                 Accessory Trim Kit # JXB37WN,
                                      26 1/8" W X 18 1/4" H
                                      (built-in application)

D.   Garbage Disposal:  ISE #77, 3/4" horsepower

E.   Water Heater: To be selected by DES.

PUBLIC SPACES

FRONT BUILDING LOBBY

  Walk Off Matts:     Design Materials, Sisel, Calcetta #68. Natural, 100% coir

  Floor Tile:         3/8" X 18" X 18" Stone or Marble  set in mortar bed in
                      recessed slab as approved by Owner

  Transition Strips:  5/16" X 1 1/2" X random length strips, cherry wood
                      flooring

  Corridor Carpeting: Carpet over pad, Atlas, New Vista or as approved by Owner

  Lobby Ceiling:      Suspended gypsum board ceiling, Painted

  Building Lobby:     Akarl shades hanging #J1-9 3/4" X 5'-2" or equal as
  Pendant Fixture     approved by owner.

  Stairs &            P & P Railing, Modesto with custom cherry guard rail
  Mezzanine Railing:  Rep: Oliver Capp (805) 241-8810.  Hand and guard railing
                      P & P Railings, Modesto stainless steel railing with
                      horizontal spirals and custom cherry guard rail cap by
                      others, fittings dark gray metallic or equal as approved
                      by Owner.

BACK BUILDING LOBBY & EMERGENCY STAIRS

  Walk Off Matts:     Design Materials, Sisal, Calcutta #68, Natural, 100% coir.

  Treads & Landings:  Carpet covered concrete, as approved by Owner

  Stringers, Risers   Painted steel stringer, eggshell finish enamel.
  & Handrails

  Ceiling:            Suspended gypsum board ceiling.

ELEVATORS

  Cars:               (1) 3800 lb, (1) 3500 lb 150 ft/min by Otis

  Elevator Doors:     Stainless Steel

  Elevator

                                       66

<PAGE>

  Interior Paneling:  Cherry veneer with stainless steel reveals and railing

  Elevator Floor:     Slate 3/8" X 18" X 18" tile as approved by Owner.

RESTROOMS

  Counter tops:       Stone/marble or equal as approved by Owner

  Walls at            Eggshell finish, latex paint, Benjamin Moore
  Lavatories:

  Floor at Toilets:   2" X 2" matte porcelain ceramic floor tiles, thin set,
                      Dal-tile.

  Walls at Toilets:   2" X 2" matte porcelain ceramic floor tiles, thin set,
                      Dal-tile.

  Ceiling:            Suspended gypsum board ceiling.

  Toilet compartments:

        A.  Manufactured floor-anchored metal toilet compartments and wall-hung
            urinal screens.
        B.  Approved Manufacturer, Global Steel Products Corp, or approved
            equal.
        C.  Toilet Partitions: Stainless Steel finish.
        D.  Hardware: Hinges: Manufacturer's standard self-closing type that can
            be adjusted to hold door open at any angle up to 90 degrees. Latch
            and Keeper: Surface-mounted latch unit, designed for emergency
            access, with combination rubber-faced door strike and keeper. Coat
            Hook: Combination hook and rubber-tipped bumper. Door Pull:
            Manufacturer's standard.

  Ceramic Tile

        A.  Manufacturer: Dal-Tile or approved equal.
        B.  Size: 4-1/4" X 4-1/4" for walls, 8 X 8 for floors, 3/4" liner strip
            as accent.
        C.  Glaze: Satin glaze for walls, unglazed tile for floors.
        D.  Color: As selected by Architect.
        E.  Accessories: Base, corners, coved cap and glazed to match
        F.  Wall and floor installation: per applicable TCA
        G.  Waterproof Membrane: Chloraloy or approved equal.
        H.  Tile Backer Board: 1/2 inch thick wonderboard
        I.  Grout: Commercial Portland Cement Grout; Custom Building Products or
            approved equal
        J.  Mortar: Latex-Portland cement mortar; Custom Building Products or
            approved equal.

RESTROOM:

  Toilet:             Kohler/American Standard, commercial quality.

  Urinal:             Kohler/American Standard, commercial quality.

  Lavatory:           Kohler/American Standard, undercounter.

                                       67

<PAGE>

  Lavatory Faucet:    Kroin handicap lavatory faucet #HV1LH, polished chrome.

  Soap Dispenser      Bobrick, 8226, Lavatory mounted for soaps, 34 fl oz.
  Counter:

  Toilet accessories:

        A.  Manufacturer: Bobrick Washroom Equipment, or approved equal.
        B.  Schedule: Model numbers used in this schedule are Bobrick (134)
            unless otherwise noted.
        C.  Combination Paper Towel Dispenser/Waste Receptacle: Recessed, Model
            B-3944, one per restroom #7151 and 7152, and two per restroom #7050
            and 7061.
        D.  Feminine Napkin Vendor: Recessed, combination napkin/tampon vendor,
            Model B-3500, with 25 cent operation, one per each women's toilet
            room.
        E.  Soap Dispenser: Lavatory mounted dispenser, Model B-822, one per
            each lavatory.
        F.  Toilet Paper Dispenser: Surface-mounted, Model JRT, JR Escort,
            "In-Sight" by Scott Paper Company, one per stall.
        G.  Toilet Seat Cover Dispenser: Recessed, wall-mounted, Model B-301,
            one per stall.
        H.  Sanitary Napkin Disposal: Recessed, wall-mounted, Model B-353, one
            per each women's handicapped and odd stall.
        I.  Sanitary Napkin Disposal: Partition-mounted, Model B-354 (serves two
            stalls).
        J.  Grab Bars: Horizontal 36", B6206-36: 42", B62-6-42: one per each
            handicapped stall.
        K.  Mop/Broom Holders: B223-24 (one per janitor closet).
        L.  Paper Towel Dispensers: Recessed mounted, Model B-359, one at side
            wall adjacent to sink.

TENANT CORRIDORS

  Walls:              Eggshell finish, latex paint, Benjamin Moore.

  Floors:             Level loop carpet over pad with 4" resilient base as
                      approved by Owner.

  Ceiling:            24" X 24" X 3/4" thick fine fissured type mineral fiber,
                      Armstrong Cirus acoustical tile (beveled regular edge) in
                      a 24" X 24" Donn Fineline suspended grid, white finish.

  Water Fountain:     Haws Model #1114 Stainless Steel #4.

  Cross Corridor      3'-6" X full height, 20 minute rated, pocket assembly,
  Smoke Detector:     on magnetic hold opens.

  Corridor            Carpyen "Berta" 35cm X 33 cm, engraved curved opaque
  Wall Sconce         glass,2 X 7-9W, #G-23.or equal as approved by owner

ELECTRICAL

A. 50 foot candles at working surface.

                                       68

<PAGE>

B. 3 Bulb 2X4 parbolic fixtures
C. 1/2 20 Amp circuit for each hard wall office
D. Electrical Devices: Recessed wall mounted devices with plastic cover
      plate. Color: white, multi-gang plate 80400 Series duplex wall outlets.
E. Telephone/Data Outlets: Recessed wall mounted, Standard 2X4 wall box
      with 3/4" EMT conduit from box to sub out above ceiling walls pull
      string, cabling, terminations and cover-plates, color: white, provided
      by tenant's vendor. Tenant shall furnish telephone backboard.
F. Light Switches: Dual level rocker type, mounted at standard locations,
      with plastic cover plate, 5325-W cover plate single switch B0401-W,
      double switch B0409-W. Decors by Leviton, colors: white, and will comply
      with Title 24 Energy Codes. Decors by Leviton.

MECHANICAL

A.    VAV Reheat system - design/build. Each floor to have a minimum of thirty
      zones. Provide reheat boxes on all zones on top floor and at all
      exterior zones on lower floor. System shall meet T-24 for ventilation..
      Design shall be for 73 deg. Ambient interior temperature and 2 1/2 watts
      per sq. ft. min.

FIRE SPRINKLER SYSTEM

As required by NFPA & factory mutual standard hazard, seismically braced.

                                       END

                                       69

<PAGE>

                                  SCHEDULE TWO
                                       TO
                                    EXHIBIT C
                                       TO
                         PACIFIC SHORES DEVELOPMENT, LLC
                                      LEASE
                                       TO
                               ARQULE CORPORATION
                                       FOR
                              Pacific Shores Center
                             Fifth Floor, Building 8
                             1300 Seaport Boulevard
                            Redwood City, California

                       CONSTRUCTION DRAWINGS REQUIREMENTS

I.   Floor Plans Showing:
     1.   Location and type of all partitions.
     2.   Location and type of all doors. Indicate hardware and provide keying
          schedule.
     3.   Location and type of glass partitions, windows, and doors. Indicate
          framing and reference full-height partitions.
     4.   Locations of telephone equipment room.
     5.   Critical dimensions necessary for construction, with indication of
          required clearances.
     6.   Location and types of all electrical items: outlets, switches,
          telephone outlets and lighting.
     7.   Location and type of equipment that will require special electrical
          requirements. Provide manufacturers' specifications for use and
          operation, including heat output.
     8.   Location, weight per square foot, and description of any heavy
          equipment or filing system.
     9.   Requirements for special air-conditioning or ventilation.
     10.  Location and type of plumbing.
     11.  Location and type of kitchen equipment.
     12.  Location, type and color of floor covering, wall covering, paint and
          finishes.

II.  Details Showing
     1.   All millwork with verified dimensions of all equipment to be built in.
     2.   Corridor entrance.
     3.   Bracing or support of special walls, glass partitions, etc., if
          desired. If not included with the plans, Tenant's engineer will design
          all support or bracing required at Tenant's expense.

III.                           Additional Information
     1.   Provide Landlord with Title 24 energy calculations.

                                       70

<PAGE>

                                    EXHIBIT D
                                       TO
                         PACIFIC SHORES DEVELOPMENT, LLC
                                      LEASE
                                       TO
                                  ARQULE, INC.,
                             a Delaware corporation
                                       as
                                     LESSEE
                                       for
                                    PREMISES
                                       at
                              PACIFIC SHORES CENTER
                             FIFTH FLOOR, BUILDING 8
                         REDWOOD CITY, CALIFORNIA 94063

                   COST RESPONSIBILITIES OF LESSOR AND LESSEE
                        FOR SHELL AND TENANT IMPROVEMENTS

                             [Intentionally Omitted]

                                       71

<PAGE>

                                    EXHIBIT E
                                       TO
                         PACIFIC SHORES DEVELOPMENT LLC
                                      LEASE
                                       TO
                                  ARQULE, INC.
                                       FOR
                                    PREMISES
                                       AT
                              Pacific Shores Center
                             Fifth Floor, Building 8
                         Redwood City, California 94063

                                   MEMORANDUM
                                       OF
                           COMMENCEMENT OF LEASE TERM

     Pursuant to Article III, Section 3.01, paragraph (a) of the
above-referenced Lease, the parties to said Lease agree to the following:

     1.   The Commencement Date of the Lease is MARCH 1, 2002 and the Lease Term
          commenced on said date. The Expiration Date for the initial Lease Term
          is FEBRUARY 28, 2010.
     2.   The date for commencement of Base Rent for the Premises is AUGUST 1,
          2002.
     3.   Attached hereto as a part hereof is a true and correct schedule of
          Base Rent.
     4.   The total Rentable Area of the Premises is an agreed THIRTY-THREE
          THOUSAND SIX HUNDRED NINETY-NINE (33,699) rentable square feet.

     Each person executing this Memorandum certifies that he or she is
authorized to do so on behalf of and as the act of the entity indicated.
Executed as of March _____, 2002, at Redwood City (San Mateo County),
California.

PACIFIC SHORES DEVELOPMENT, LLC             ArQule, Inc.,
a Delaware limited liability company        a Delaware corporation

By:  Technology Land, LLC                   By:
                                               ---------------------------------
Its: Operating Member
                                               ---------------------------------
                                                   (Type or print name)
                                            Its:
                                               ---------------------------------

     By: --------------------------
               Jay Paul                     By:
                                               ---------------------------------
     Its:      Sole Member
                                               ---------------------------------
                                                   (Type or print name)

                                       72

<PAGE>

                                            Its:
                                                ---------------------------

                              SCHEDULE TO EXHIBIT E

                     PACIFIC SHORES CENTER, REDWOOD CITY, CA
                       MEMORANDUM AND COMMENCEMENT OF RENT
                         TERM AND SCHEDULE OF BASE RENT

BUILDING 8 - 5TH FLOOR

-------------------------------------------------------------------------
 BEGINNING  RENTAL RATE      SQ. FT.           MONTHLY           ANNUALLY
-------------------------------------------------------------------------
   3/1/02      $2.25       33,699           $75,822.75      $  909,873.00(1),(2)
   3/1/03      $2.34       33,699           $78,855.66      $  946,267.92
   3/1/04      $2.43       33,699           $82,009.89      $  984,118.68
   3/1/05      $2.53       33,699           $85,290.28      $1,023,483.36
   3/1/06      $2.63       33,699           $88,701.89      $1,064,422.68
   3/1/07      $2.74       33,699           $92,249.97      $1,106,999.64
   3/1/08      $2.85       33,699           $95,939.97      $1,151,279.64
   3/1/09      $2.96       33,699           $99,777.57      $1,197,330.84

----------
(1) Subject, however, to the advance payment of first month's Base Rent.
(2) Subject, however, to free Base Rent according to the lease.

                                       73

<PAGE>

                                    EXHIBIT F
                                       TO
                         PACIFIC SHORES DEVELOPMENT, LLC
                                      LEASE
                                       TO
                                  ARQULE, INC.,
                             a Delaware corporation
                                       as
                                     LESSEE
                                       for
                                    PREMISES
                                       at
                              PACIFIC SHORES CENTER
                             FIFTH FLOOR, BUILDING 8
                         Redwood City, California 94063

                                      SNDA

                      (See Permanent SNDA Sample Attached)

                                       74

<PAGE>

                         SUBORDINATION, NON-DISTURBANCE
                            AND ATTORNMENT AGREEMENT

     THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT (this
"Agreement") made as of the ______ day of ________, 2002, by and among Nomura
Asset Capital Corporation ("Lender"), ______________ ("Tenant") and
_______________ ("Landlord").

                                   WITNESSETH:

     WHEREAS, Lender has agreed to make a loan (the "Loan") of up to
__________________ to Landlord;

     WHEREAS, the Loan will be evidenced by a deed of trust note (the "Note") of
even date herewith made by Landlord to order of Lender and will be secured by,
among other things, a deed of trust, assignment of leases and rents and security
agreement (the "Deed of Trust") of even date herewith made by Landlord to Lender
covering the land (the "Land") described on Exhibit A attached hereto and all
improvements (the "Improvements") now or hereafter located on the land (the Land
and the Improvements hereinafter collectively referred to as the "Property");
and

     WHEREAS, by a lease dated as of ___________ (which lease, as the same may
have been amended and supplemented, is hereinafter called the "Lease"), Landlord
leased to Tenant approximately _____ square feet of space located in the
Improvements (the "Premises"); and

     WHEREAS, the parties hereto desire to make the Lease subject and
subordinate to the Deed of Trust.

     NOW, THEREFORE, the parties hereto, in consideration of the covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, hereby agree as follows:

     1. The Lease, as the same may hereafter be modified, amended or extended,
and all of Tenant's right, title and interest in and to the Premises and all
rights, remedies and options of Tenant under the Lease, are and shall be
unconditionally subject and subordinate to the Deed of Trust and the lien
thereof, to all the terms, conditions and provisions of the Deed of Trust, to
each and every advance made or hereafter made under the Deed of Trust, and to
all renewals, modifications, consolidations, replacements, substitutions and
extensions of the Deed of Trust, so that at all times the Deed of Trust shall be
and remain a lien on the Property prior and superior to the Lease for all
purposes; provided, however, and Lender agrees, that so long as (A) no event has
occurred and no condition exists, which would entitle Landlord to terminate the
Lease or would cause, without further action of Landlord, the termination of the
Lease or would entitle Landlord to dispossess Tenant from the Premises, (B) the
term of the Lease has commenced and

                                       75

<PAGE>

Tenant is in possession of the Premises, (C) the Lease shall be in full force
and effect and shall not have been otherwise modified or supplemented in any way
without Lender's prior written consent, (D) Tenant shall duly confirm its
attornment to Lender or its successor or assign by written instrument as set
forth in Paragraph 3 hereof, (E) neither Lender nor its successors or assigns
shall be liable under any warranty of construction contained in the Lease or any
implied warranty of construction, and (F) all representations and warranties
made herein by Tenant shall be true and correct as of the date of such
attornment; then, and in such event Tenant's leasehold estate under the Lease
shall not be terminated, Tenant's possession of the Premises shall not be
disturbed by Lender and Lender will accept the attornment of Tenant.

     2. Notwithstanding anything to the contrary contained in the Lease, Tenant
hereby agrees that in the event of any act, omission or default by Landlord or
Landlord's agents, employees, contractors, licensees or invitees which would
give Tenant the right, either immediately or after the lapse of a period of
time, to terminate the Lease, or to claim a partial or total eviction, or to
reduce the rent payable thereunder or credit or offset any amounts against
future rents payable thereunder, Tenant will not exercise any such right (i)
until it has given written notice of such act, omission or default to Lender by
delivering notice of such act, omission or default, in accordance with Paragraph
8 hereof, and (ii) until a period of not less than thirty (30) days for
remedying such act, omission or default shall have elapsed following the later
of (i) the giving of such notice, and (ii) the date on which the Landlord's time
to cure (under Section 12.03 of this Lease) has expired. Notwithstanding the
foregoing, in the case of any default of Landlord which cannot be cured within
such thirty (30) day period, if Lender shall within such period proceed promptly
to cure the same (including such time as may be necessary to acquire possession
of the Premises if possession is necessary to effect such cure) and thereafter
shall prosecute the curing of such default with diligence, then the time within
which such default may be cured by Lender shall be extended for such period as
may be necessary to complete the curing of the same with diligence. Lender's
cure of Landlord's default shall not be considered an assumption by Lender of
Landlord's other obligations under the Lease. Unless Lender otherwise agrees in
writing, Landlord shall remain solely liable to perform Landlord's obligations
under the Lease (but only to the extent required by and subject to the
limitation included with the Lease), both before and after Lender's exercise of
any right or remedy under this Agreement. If Lender or any successor or assign
becomes obligated to perform as Landlord under the Lease, such person or entity
will be released from those obligations when such person or entity assigns,
sells or otherwise transfers its interest in the Premises or the Property.
Nothing in this paragraph 2 shall be deemed to affect tenant's rights under
Section 12.03 of this Lease

     3. Without limitation of any of the provisions of the Lease, in the event
that Lender succeeds to the interest of Landlord or any successor to Landlord,
then subject to the provisions of this Agreement including, without limitation,
Paragraph 1 above, the Lease shall nevertheless continue in full force and
effect and Tenant shall and does hereby agree to attorn to and accept Lender and
to recognize Lender as its Landlord under the Lease for the then remaining
balance of the term thereof, and upon request of Lender, Tenant shall execute
and deliver to Lender an agreement of attornment reasonably satisfactory to
Lender.

                                       76

<PAGE>

     4. If Lender succeeds to the interest of Landlord or any successor to
Landlord, in no event shall Lender have any liability for any act or omission of
any prior landlord under the Lease which occurs prior to the date Lender
succeeds to the rights of Landlord under the Lease, nor any liability for
claims, offsets or defenses which Tenant might have had against Landlord. In no
event shall Lender have any personal liability as successor to Landlord and
Tenant shall look only to the estate and property of Lender in the Land and the
Improvements for the satisfaction of Tenant's remedies for the collection of a
judgment (or other judicial process) requiring the payment of money in the event
of any default by Lender as Landlord under the Lease, and no other property or
assets of Lender shall be subject to levy, execution or other enforcement
procedure for the satisfaction of Tenant's remedies under or with respect to the
Lease.

     5. Tenant agrees that no prepayment of rent or additional rent due under
the Lease of more than one month in advance, and no amendment, modification,
surrender or cancellation of the Lease, and no waiver or consent by Landlord
under the terms of the Lease, shall be binding upon or as against Lender, as
holder of the Deed of Trust, and as Landlord under the Lease if it succeeds to
that position, unless consented to in writing by Lender. In addition, and
notwithstanding anything to the contrary set forth in this Agreement, Tenant
agrees that Lender, as holder of the Deed of Trust, and as Landlord under the
Lease if it succeeds to that position, shall in no event have any liability for
the performance or completion of any initial work or installations or for any
loan or contribution or rent concession towards initial work, which are required
to be made by Landlord (A) under the Lease or under any related Lease documents
or (B) for any space which may hereafter become part of said Premises, and any
such requirement shall be inoperative in the event Lender succeeds to the
position of Landlord prior to the completion or performance thereof. Tenant
further agrees with Lender that Tenant will not voluntarily subordinate the
Lease to any lien or encumbrance without Lender's prior written consent.

     6. 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 and
be construed as one and the same instrument.

     7. All remedies which Lender may have against Landlord provided herein, if
any, are cumulative and shall be in addition to any and all other rights and
remedies provided by law and by other agreements between Lender and Landlord or
others. If any party consists of multiple individuals or entities, each of same
shall be jointly and severally liable for the obligations of such party
hereunder.

     8. All notices to be given under this Agreement shall be in writing and
shall be deemed served upon receipt by the addressee if served personally or, if
mailed, upon the first to occur of receipt of the refusal of delivery as shown
on a return receipt, after deposit in the United States Postal Service certified
mail, postage prepaid, addressed to the address of Landlord, Tenant or Lender
appearing below, or, if sent by telegram, when delivered by or refused upon
attempted delivery by the telegraph office. Such addresses may be changed by
notice given in

                                       77

<PAGE>

the same manner. If any party consists of multiple individuals or entities, then
notice to any one of same shall be deemed notice to pay such party.

LENDER'S ADDRESS:

Nomura Asset Capital Corporation
Two World Financial Center, Building B
New York, New York  10281-1198
Attn:  Ms. Sheryl McAfee

TENANT'S ADDRESS:

---------------------------

---------------------------

---------------------------

---------------------------

Attn:
     --------------------

LANDLORD'S ADDRESS:

---------------------------

---------------------------

---------------------------

---------------------------

Attn:
     --------------------

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

     10. This Agreement shall apply to, bind and inure to the benefit of the
parties hereto and their respective successors and assigns. As used herein
"Lender" shall include any subsequent holder of the Deed of Trust.

     11. Tenant acknowledges that Landlord has assigned to Lender its right,
title and interest in the Lease and to the rents, issues and profits of the
Property and the Property pursuant to the Deed of Trust, and that Landlord has
been granted the license to collect such rents provided no Event of Default has
occurred under, and as defined in, the Deed of Trust. Tenant agrees to pay all
rents and other amounts due under the Lease directly to Lender upon receipt of
written demand by Lender, and Landlord hereby consents thereto. The assignment
of the Lease to Lender, or the collection of rents by Lender pursuant to such
assignment, shall not obligate Lender to perform Landlord's obligations under
the Lease.

[NO FURTHER TEXT ON THIS PAGE]

                                       78

<PAGE>

     IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.

                                            NOMURA ASSET CAPITAL CORPORATION,
                                            a Delaware corporation


                                            By:
                                               ---------------------------------
                                                  Name:
                                                  Title:

                                            [LANDLORD]


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

                                            [TENANT]


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

                                       79

<PAGE>

STATE OF CALIFORNIA  )
                     ) ss.
COUNTY OF ___________)

     On ____________, 2000, before me, __________________ the undersigned, a
notary public in and for said state, personally appeared ___________, personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
person whose name is subscribed to the within instrument and acknowledged to me
that he/she executed the same in his/her authorized capacity, and that by
his/her signature on the instrument the person, or the entity upon behalf of
which the person acted, executed the instrument.

     WITNESS my hand and official seal.

                                       80

<PAGE>

                                    EXHIBIT G
                                       TO
                         PACIFIC SHORES DEVELOPMENT, LLC
                                      LEASE
                                       TO
                                  ARQULE, INC.,
                             a Delaware corporation
                                       as
                                     LESSEE
                                       for
                                    PREMISES
                                       at
                              PACIFIC SHORES CENTER
                             FIFTH FLOOR, BUILDING 8
                         REDWOOD CITY, CALIFORNIA 94063

                                 SIGNAGE EXHIBIT

                                 SIGNAGE POLICY

                             MULTI TENANT BUILDINGS

     Each Tenant of at least one full floor in multi-tenant Buildings will be
permitted (subject to compliance with Section 17.15 of the Lease) to place one
sign on a shared monument to be located near the entrance to the parking lot
associated with the Building ("SHARED MONUMENT"). The exact size, design, color,
location and materials of the Shared Monument, and of the Tenant's sign on the
Shared Monument, will be determined by Lessor in its sole and absolute
discretion, provided that Lessor will not unreasonably withhold its consent to a
Tenant sign which employs a design and color commonly used by such Tenant for
marketing purposes so long as it fits within the space allocated by Lessor, and
so long as it is in keeping with the overall design scheme of the Project.
Lessor reserves the right, to be exercised in its sole and absolute discretion,
to permit multi-floor Tenants to place signage on the exterior surfaces of each
multi-tenant Building, as well as the right to allow different or additional
signage anywhere in the Project, provided that, so long as Lessor may lawfully
do so, Lessor will not reduce the size of space allocated to a Tenant on the
Shared Monument to a size smaller than that permitted as of the commencement
date of such Tenant's Lease, unless the size of the premises subject to such
lease decreases from its size as of the lease commencement date or unless Lessor
provides alternate signage of reasonably equivalent visibility.

                                       81

<PAGE>

                                    EXHIBIT H
                                       TO
                         PACIFIC SHORES DEVELOPMENT, LLC
                                      LEASE
                                       TO
                                  ARQULE, INC.,
                             a Delaware corporation
                                       as
                                     LESSEE
                                       for
                                    PREMISES
                                       at
                              PACIFIC SHORES CENTER
                             FIFTH FLOOR, BUILDING 8
                         REDWOOD CITY, CALIFORNIA 94063

                                GUARANTY OF LEASE

                             [Intentionally Omitted]

                                       82

<PAGE>

                                    EXHIBIT I
                                       TO
                         PACIFIC SHORES DEVELOPMENT, LLC
                                      LEASE
                                       TO
                                  ARQULE, INC.,
                             a Delaware corporation
                                       as
                                     LESSEE
                                       for
                                    PREMISES
                                       at
                              PACIFIC SHORES CENTER
                             FIFTH FLOOR, BUILDING 8
                         REDWOOD CITY, CALIFORNIA 94063

                         HAZARDOUS MATERIALS DISCLOSURE

     Lessor has provided Lessee, and Lessee acknowledges that it has received
and pursuant to Section 17.22(b) of the Lease, reviewed same, a copy of each of
those certain documents entitled: (i) PHASE I, ENVIRONMENTAL SITE ASSESSMENT,
PACIFIC SHORES CENTER, REDWOOD CITY, CALIFORNIA, Prepared for: The Jay Paul
Company, San Francisco, California, Prepared by: IRIS ENVIRONMENTAL, Oakland,
California, December 20, 1999, Job No. 99-122A; and (ii) PHASE II, ENVIRONMENTAL
SITE ASSESSMENT, PACIFIC SHORES CENTER, 1000 SEAPORT BOULEVARD, REDWOOD CITY,
CALIFORNIA, Prepared for: The Jay Paul Company, San Francisco, California,
Prepared by: IRIS ENVIRONMENTAL, Oakland, California, January 14, 1999, Job No.
99-122-B

                                    LESSEE

                                    ARQULE, INC.,
                                    A DELAWARE CORPORATION


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

                                       ---------------------------------------
                                       (Type or print name)

                                    Its:
                                       ---------------------------------------


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

                                       ---------------------------------------
                                       (Type or print name)

                                    Its:
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<PAGE>

                                    EXHIBIT J
                                       TO
                         PACIFIC SHORES DEVELOPMENT, LLC
                                      LEASE
                                       TO
                                  ARQULE, INC.,
                             a Delaware corporation
                                       as
                                     LESSEE
                                       for
                                    PREMISES
                                       at
                              PACIFIC SHORES CENTER
                             FIFTH FLOOR, BUILDING 8
                         REDWOOD CITY, CALIFORNIA 94063

                      NOTICE TO TENANTS AND TRANSFEREES OF
                CURRENT OR FUTURE USES OF ADJACENT PORT PROPERTY

Notice is hereby given to all lessees, tenants and transferees of land or
interests in land located within Pacific Shores Center of the presence or
potential future presence of Port related industrial activities on Port property
adjacent to and west of Pacific Shores Center. All recipients of this notice
should be aware of the following facts:

     1. The parcel of Port property adjacent to Pacific Shores Center to the
northwest shown on the Exhibit __A__ attached hereto (the "Port Parcel") is now
or may be developed for Port related maritime and industrial uses similar to
those occupying other properties along the west side of Seaport Boulevard and to
the west of Pacific Shores Center.

     2. Such Port related maritime and industrial activities are those which are
permitted by the general industrial zoning of the City of Redwood City and may
include heavy industrial land uses, including uses which involve the receipt,
transport, storage or management of hazardous wastes, aggregates, cement, gravel
and similar materials, including the outdoor storage and handling of such
materials.

     3. Pacific Shores Center Limited Partnership, on behalf of itself, its
successors and assigns, has recognized, accepted and approved such uses of the
Port Parcel subject to the utilization of Best Available Management Practices in
the development and use of the Port Parcel. Best Available Management Practices
are defined on Exhibit _B_ attached hereto.

     4. Despite the use of Best Available Management Practices on the Port
Parcel by the

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Port and its lessees and licensees and despite Pacific Shores Center Limited
Partnership's efforts to ensure compatibility between such uses and those in
Pacific Shores Center, it is possible that such uses will cause emissions into
the air of dust or other particulate matter, or noise or odorous substances
which may be offensive to or be perceived as a nuisance by occupants of Pacific
Shores Center.

     5. Pursuant to covenants made by Pacific Shores Center Limited Partnership
on behalf of its successors and assigns, tenants and lessees, the tenants,
lessees and transferees of Pacific Shores Center Limited Partnership have
approved and accepted such neighboring uses subject to their utilization of Best
Available Management Practices.

     6. Any actions to enjoin the continuation of such uses or to recover any
damages to persons or property related to their operations are subject to a
requirement for prior notice found in recorded covenants by Pacific Shores
Center Limited Partnership. The following language is excerpted from such
covenants:

     "In the event that either party hereto believes that the other has failed
     to perform any covenant made herein in favor of the other, at least ten
     (10) days prior to the commencement of any action to enforce the covenants
     hereunder or to recover damages for the breach thereof, that party who
     believes that a failure to perform has occurred (the "Complaining Party")
     shall give written notice (the "Notice") to the party alleged not to have
     performed the covenant (the "Non-Complaining Party") of the specific nature
     of the alleged failure and of the intent of the Complaining Party to take
     action to remedy the breach by the Non-Complaining Party. In the event that
     the nature of the alleged failure to perform is such that the same cannot
     reasonably be cured within ten (10) days after receipt of the Notice (the
     "Notice Period"), the Non-Complaining Party shall not be deemed to be in
     violation of its covenants and no action shall be commenced by the
     Complaining Party if, within the Notice Period, the Non-Complaining Party
     commences such cure and thereafter diligently and continuously prosecutes
     the same to completion within a reasonable time. Provided, however, that
     the Complaining Party shall not be precluded from recovering any actual
     damages suffered by reason of the alleged failure to perform prior to or
     after delivery of the Notice, whether or not such failure is thereafter
     cured."

                                       85

<PAGE>

                                    EXHIBIT A
                                       TO
                                    EXHIBIT J
                         PACIFIC SHORES DEVELOPMENT, LLC
                                      LEASE
                                       TO
                                  ARQULE, INC.
                             A DELAWARE CORPORATION
                                       AS
                                     LESSEE
                                       FOR
                                    PREMISES
                                       AT
                              PACIFIC SHORES CENTER
                             FIFTH FLOOR, BUILDING 8
                             1300 SEAPORT BOULEVARD
                         REDWOOD CITY, CALIFORNIA 94063

                                       86

<PAGE>

Graphic representation [map] of parcel of property adjacent to the Pacific
Shores Center located to the Northwest.

                                       87

<PAGE>

                                    EXHIBIT B
                                       TO
                                    EXHIBIT J
                         PACIFIC SHORES DEVELOPMENT, LLC
                                      LEASE
                                       TO
                                  ARQULE, INC.
                             A DELAWARE CORPORATION
                                       as
                                     LESSEE
                                       FOR
                                    PREMISES
                                       AT
                              PACIFIC SHORES CENTER
                             FIFTH FLOOR, BUILDING 8
                             1300 SEAPORT BOULEVARD
                         REDWOOD CITY, CALIFORNIA 94063

                                       88

<PAGE>

               DEFINITION OF "BEST AVAILABLE MANAGEMENT PRACTICES"
                      (Exchange Parcel and New Road Access)

     "Best Available Management Practices ("BAMP") means the following.

     1. Compliance with all laws, rules and regulations, and operating permits,
whether Federal, state or local, applicable to the uses of the Exchange Parcel
and industrial operations thereon, including without limitation all laws, rules
and regulations and operating permits applicable to emissions into the air of
gases, substances and particulate matter, the generation or release of odors or
odorous substance into the air, and the generation of noise.

     2. Initiation and maintenance of reasonable precautions to minimize
emission and transport of dust from the Exchange Parcel and the New Road Access
onto the Project Site. As used herein the term "reasonable precautions" shall
mean the use of materials, techniques and equipment reasonably available at the
time of commencement of a use or operation and designed to minimize emissions
during predictably adverse climatic conditions common in the area (collectively,
"initial measures") plus the addition of one or more of the following additional
measures if not already in use and if initial measures prove inadequate to
achieve minimization of emission and transport of dust onto the Project Site:

          (a) Paving of surfaces used for active operations where the absence of
such paving causes emission and transport of dust onto the Project Site;

          (b) Installation of wind fences to a height of not less than 20 feet
with 50% porosity around areas of open storage and areas of active
dust-generating uses causing emission and transport of dust onto the Project
Site;

          (c) Use of storage silos, open-ended enclosures or water spray
equipment for the outdoor storage and handling of materials, such as rock,
concrete, soil, mineral substances, and similar materials, causing emission and
transport of dust onto the Project Site;

          (d) Installation of enclosures or use of water or foam spray bars both
above and below the belt surface of all conveyers used for loading and unloading
materials, causing emission and transport of dust onto the Project Site; and

     3. Initiation of a reasonable, regularly scheduled sweeping program for the
New Road Access to minimize accumulation of dust and dirt and/or installation of
dust traps, wheel washers or other methods of minimizing the tracking of dust
onto the Road Access Area and resulting emission and transport of dust onto the
Project Site.

                                       89

<PAGE>

                                    EXHIBIT K
                                       TO
                         PACIFIC SHORES DEVELOPMENT, LLC
                                      LEASE
                                       TO
                                  ARQULE, INC.,
                             a Delaware corporation
                                       as
                                     LESSEE
                                       for
                                    PREMISES
                                       at
                              PACIFIC SHORES CENTER
                             FIFTH FLOOR, BUILDING 8
                         REDWOOD CITY, CALIFORNIA 94063

NOTICE TO PACIFIC SHORES TENANTS, LESSEES, SUCCESSORS, ASSIGNS AND TRANSFEREES
REGARDING CURRENT OR FUTURE USES OF ADJACENT RMC LONESTAR AND PORT PROPERTY

     Notice is hereby given to all tenants, lessees, successors, assigns and
transferees of land or interest in land located within the Pacific Shores Center
of the presence or potential future presence of maritime and industrial
activities on RMC Lonestar and Port of Redwood City property west and adjacent
to Pacific Shores Center. Recipients of this notice should be aware of the
following:

     1. The RMC Lonestar property and parcels of port property adjacent to and
west of Pacific Shores Center are shown on the map attached to this notice. The
RMC Lonestar and Port properties are now devoted to, or will be developed for,
maritime and industrial uses.

     2. These maritime and industrial uses are those which are permitted by the
"Heavy Industry" General Plan designation and general industrial zoning of the
City of Redwood City. These uses include, by way of example and not limitation,
uses involving the receipt, transport, storage, handling, processing or
management of aggregates, cement, concrete, asphalt, soil or other landscaping
materials, recyclable metals and plastics, recyclable concrete and asphalt,
chemicals, petroleum products, hazardous wastes, and similar materials,
including indoor storage, mixing and handling of these materials.

     3.   These uses may cause, on either a regular or intermittent basis, air
emissions,

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<PAGE>

including without limitation, dust and other particulates, odors, vibrations,
loud noises, and heavy truck, rail or marine vessel traffic. These uses may have
visual, aesthetic or other aspects that may be offensive or perceived as a
nuisance by occupants of Pacific Shores Center.

                                       91

<PAGE>

                                    EXHIBIT L
                                       TO
                         PACIFIC SHORES DEVELOPMENT, LLC
                                      LEASE
                                       TO
                                  ARQULE, INC.,
                             a Delaware corporation
                                       as
                                     LESSEE
                                       for
                                    PREMISES
                                       at
                              PACIFIC SHORES CENTER
                             FIFTH FLOOR, BUILDING 8
                         REDWOOD CITY, CALIFORNIA 94063

                              RULES AND REGULATIONS

1.   Lessee and Lessee's employees shall not in any way obstruct the sidewalks,
     entry passages, pedestrian passageways, driveways, entrances and exits to
     the Project or the Building, and they shall use the same only as
     passageways to and from their respective work areas.

2.   Any sash doors, sashes, windows, glass doors, lights and skylights that
     reflect or admit light into the Common Area of the Project shall not be
     covered or obstructed by the Lessee. Water closets, urinals and wash basins
     shall not be used for any purpose other than those for which they were
     constructed, and no rubbish, newspapers, food or other substance of any
     kind shall be thrown into them. Lessee shall not mark, drive nails, screw
     or drill into, paint or in any way deface the exterior walls, roof,
     foundations, bearing walls or pillars without the prior written consent of
     Lessor, which consent may be withheld in Lessor's sole discretion. The
     expense of repairing any breakage, stoppage or damage resulting from a
     violation of this rule shall be borne by Lessee.

3.   No awning or shade shall be affixed or installed over or in the windows or
     the exterior of the Premises except with the consent of Lessor, which may
     be withheld in Lessor's discretion.

4.   No boring or cutting for wires shall be allowed, except with the consent of
     Lessor, which consent may be withheld in Lessor's discretion.

5.   Lessee shall not do anything in the Premises, or bring or keep anything
     therein, which will in any way increase or tend to increase the risk of
     fire or the rate of fire insurance or which shall conflict with the
     regulations of the fire department or the law or with any

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<PAGE>

     insurance policy on the Premises or any part thereof, or with any rules or
     regulations established by any administrative body or official having
     jurisdiction, and it shall not use any machinery therein, even though its
     installation may have been permitted, which may cause any unreasonable
     noise, jar, or tremor to the floors or walls, or which by its weight might
     injure the floors of the Premises.

6.   Lessor may reasonably limit weight, size and position of all safes,
     fixtures and other equipment used in the Premises. If Lessee shall require
     extra heavy equipment, Lessee shall notify Lessor of such fact and shall
     pay the cost of structural bracing to accommodate it. All damage done to
     the Premises or Project by installing, removing or maintaining extra heavy
     equipment shall be repaired at the expense of Lessee.

7.   Lessee and Lessee's officers, agents and employees shall not make nor
     permit any loud, unusual or improper noises nor interfere in any way with
     other Lessees or those having business with them, nor bring into or keep
     within the Project any animal or bird or any bicycle or other vehicle,
     except such vehicle as Lessor may from time to time permit.

8.   No machinery of any kind will be allowed in the Premises without the
     written consent of Lessor. This shall not apply, however, to customary
     office equipment or trade fixtures or package handling equipment.

9.   All freight must be moved into, within and out of the Project only during
     such hours and according to such reasonable regulations as may be posted
     from time to time by Lessor.

10.  No aerial or satellite dish or similar device shall be erected on the roof
     or exterior walls of the Premises, or on the grounds, without in each
     instance, the written consent of Lessor. Any aerial so installed without
     such written consent shall be subject to removal without notice at any
     time. Lessor may withhold consent in its sole discretion.

11.  All garbage, including wet garbage, refuse or trash shall be placed by the
     Lessee in the receptacles appropriate for that purpose and only at
     locations prescribed by the Lessor.

12.  Lessee shall not burn any trash or garbage at any time in or about the
     Premises or any area of the Project.

13.  Lessee shall observe all security regulations issued by the Lessor and
     comply with instructions and/or directions of the duly authorized security
     personnel for the protection of the Project and all tenants therein.

14.  Any requirements of the Lessee will be considered only upon written
     application to Lessor at Lessor's address set forth in the Lease.

15.  No waiver of any rule or regulation by Lessor shall be effective unless
     expressed in writing and signed by Lessor or its authorized agent.

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<PAGE>

16.  Lessor reserves the right to exclude or expel from the Project any person
     who, in the judgment of Lessor, is intoxicated or under the influence of
     liquor or drugs, or who shall in any manner do any act in violation of the
     law or the rules and regulations of the Project.

17.  Lessor reserves the right at any time to change or rescind any one or more
     of these rules and regulations or make such other and further reasonable
     rules and regulations as in Lessor's judgment may from time to time be
     necessary for the operation, management, safety, care and cleanliness of
     the Project and the Premises, and for the preservation of good order
     therein, as well as for the convenience of other occupants and tenants of
     the Project. Lessor shall not be responsible to Lessee or the any other
     person for the non-observance or violation of the rules and regulations by
     any other tenant or other person. Lessee shall be deemed to have read these
     rules and have agreed to abide by them as a condition to its occupancy of
     the Premises.

18.  Lessee shall abide by any additional rules or regulations which are ordered
     or requested by any governmental or military authority.

19.  In the event of any conflict between these rules and regulations, or any
     further or modified rules and regulations from time to time issued by
     Lessor, and the Lease provisions, the Lease provisions shall govern and
     control.

20.  Lessor specifically reserves to itself or to any person or firm it selects,
     (i) the right to place in and upon the Project, coin-operated machines for
     the sale of cigarettes, candy and other merchandise or service, and (ii)
     the revenue resulting therefrom.

                                       94