Document:

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                                                                   EXHIBIT 10.12

             AMENDMENT NUMBER 1 TO RESEARCH AND LICENSE AGREEMENT BY
                 AND BETWEEN KOSAN BIOSCIENCES AND R.W. JOHNSON
                        PHARMACEUTICAL RESEARCH INSTITUTE

This Amendment dated MAR 17, 2000 is made to the RESEARCH AND LICENSE AGREEMENT
(hereinafter called the "AGREEMENT"), made as of September 28, 1998 by and
between KOSAN BIOSCIENCES, INC., a corporation organized under California law
having its principal office at 3832 Bay Center Place, Hayward, California 94545
(hereinafter called "KOSAN");

         ON THE ONE HAND, AND:

         ORTHO MCNEIL PHARMACEUTICAL, INCORPORATED (hereinafter called
"ORTHO"), a company organized under Delaware law, having its principal office at
U.S. Route 202, Raritan, New Jersey 08869; and

         the R.W. JOHNSON PHARMACEUTICAL RESEARCH INSTITUTE (hereinafter called
"RWJPRI"), a division of Ortho McNeil Pharmaceutical, Incorporated, having its
principal office at U.S. Route 202, Raritan, New Jersey 08869 (ORTHO and RWJPRI
hereinafter collectively called "LICENSEE")

                                                              ON THE OTHER HAND,

WITNESSETH:

         A. WHEREAS, KOSAN and LICENSEE have entered into the AGREEMENT
providing for a collaborative research drug discovery program as generally
described in the RESEARCH PLAN attached thereto as Appendix A;

         B. WHEREAS, the RESEARCH PLAN provided for two projects to be conducted
by the parties, a Fast Track Project to be conducted over the first twelve
months, and an SAR Project to be conducted over the first twenty-four months,
each with a provision for additional CONTINGENT WORK, to be performed in the
event a GO DECISION was made for the Project;

         C. WHEREAS, having completed the first twelve months of the RESEARCH
PROGRAM, the parties wish to fund the CONTINGENT WORK on the Fast Track PROJECT
and to reserve the rights to RWJ-351055 under provisions of the AGREEMENT:

         NOW, THEREFORE, in consideration of the premises and the performance of
covenants herein contained, the parties agree to amend the AGREEMENT as follows:

1. Unless otherwise defined herein, all capitalized terms used herein shall have
the same meaning as set forth in the AGREEMENT.

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2. In accordance with the terms of the AGREEMENT, for Year 2 of the RESEARCH
PROGRAM, RWJPRI shall fund 4 FTE's for the CONTINGENT WORK on the Fast Track
Project and 12 FTE's for the SAR PROJECT. RWJPRI acknowledges that one of the 4
FTE's has already been provided in Year 1 with payment therefor deferred until
Year 2. Thus, RWJPRI shall provide funding for 16 FTE's for the combined
programs for Year 2 in accordance with the terms of the AGREEMENT.

3. RWJ-351055 shall be deemed an FTE and RWJPRI has made the $250,000 (Two
Hundred Fifty Thousand Dollar) payment due under Section 6.2.1. RWJ-351055 shall
be a reserved Compound under the provisions Section 3.5.6 until such time as it
is designated a Licensed Compound under the Agreement or the end of the
NON-EXCLUSIVE SCREENING PERIOD, whichever shall first occur.
4. Except as amended herein, all of the terms and conditions of the AGREEMENT
shall remain in full force and effect.

         IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and duly executed this Amendment AGREEMENT on the date(s) indicated below, to be
effective the day and year first above written.

For and on Behalf of KOSAN BIOSCIENCES, INC.

By:      /s/ Daniel V. Sant
   -----------------------------------------

Name: DANIEL V. SANT
     ---------------------------------------

Title:   Chief Executive

Date:    17 MARCH 2000
     ---------------------------------------

For and on Behalf of THE R.W. JOHNSON PHARMACEUTICAL RESEARCH INSTITUTE

By:      /s/ P.A. Peterson
   -----------------------------------------

Name: P.A. PETERSON, MD, PhD
     ---------------------------------------

Title:   President

Date:    17 MARCH 2000
     ---------------------------------------<PAGE>

                                                                   EXHIBIT 10.13

                                    SUBLEASE

               THIS SUBLEASE ("Sublease"), dated January 6, 1999, for reference
purposes only, is entered into by and between LYNX THERAPEUTICS, INC., a
Delaware corporation ("Sublessor") and KOSAN BIOSCIENCES INCORPORATED, a
California corporation ("Sublessee").

                                    RECITALS

        A.      Sublessor leases certain premises consisting of approximately
44,280 square feet in a building commonly known as 3832 Bay Center Place,
Hayward, California 94545 (the "Building"), pursuant to a certain Lease
Agreement dated June 28, 1993, between Spieker-Singleton #87, Limited
Partnership as landlord (hereinafter "Master Lessor"), and Sublessor, as tenant,
(as amended or otherwise modified from time to time, the "Master Lease"), a copy
of which is attached hereto as EXHIBIT A, together with certain improvements
therein and appurtenances thereto as described in the Master Lease (said
premises, together with said improvements and appurtenances, hereinafter the
"Premises"). Capitalized terms herein not otherwise defined herein shall have
the same meanings as provided in the Master Lease.

        B.      Sublessor desires to sublease to Sublessee, and Sublessee
desires to sublease from Sublessor a portion of the Premises consisting of
37,982 square feet, and more particularly shown on the layout attached at
EXHIBIT B hereto ("Sublease Premises") upon the terms and conditions provided
for herein.

        NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, Sublessor and Sublessee covenant and agree as follows:

                                    AGREEMENT

        1.      SUBLEASE PREMISES. Sublessor hereby leases to Sublessee, and
Sublessee hereby leases from Sublessor, the Sublease Premises, upon and subject
to the terms and conditions set forth herein. In connection with its use of the
Sublease Premises, and to the extent Sublessor has the right under the Master
Lease, Sublessee shall have the right to use in common with Sublessor and any
other occupant of the Building the common areas outside the Building, including
the walkways, parking areas, loading and unloading areas, driveways and
entrances, as well as the common areas within the Building, including, the
hallways, stairways, common areas, restrooms, and other areas that may be
reasonably necessary for Sublessee's use of the Sublease Premises; provided,
however that Sublessee shall only have the nonexclusive right to use 152 of the
parking spaces leased to Sublessor pursuant to the Master Lease.

        2.      TERM.

                (a)     The term of this Lease shall commence on the later of
(i) February 1, 1999 or (ii) the date when the Sublessor has delivered
possession of the Sublease Premises to Sublessee (the "Commencement Date").
Sublessor shall use commercially reasonable efforts to cause the Commencement
Date to occur on February 1, 1999.

                                       1.

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                (b)     Notwithstanding said Commencement Date, if for any
reason Sublessor cannot deliver possession of the Sublease Premises to Sublessee
on said date, Sublessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Sublease or the obligations of
Sublessee hereunder or extend the term hereof, but in such case Sublessee shall
not be obligated to pay Rent until possession of the Sublease Premises is
tendered to Sublessee. If the Commencement Date shall not have occurred by April
1, 1999, Sublessee shall have the right, until May 1, 1999, to terminate this
Sublease upon written notice to Sublessor, whereupon, any monies previously paid
or deposited by Sublessee to Sublessor shall promptly be refunded to Sublessee.

                (c)     The term of this Lease shall end on July 31, 2003;
PROVIDED, HOWEVER, that the term of this Sublease shall earlier terminate in the
event of the earlier termination of the Master Lease.

                (d)     If at any time during the term of this Sublease,
Sublessor determines to sublease all or any part of the remainder of the
Premises (the "Remaining Premises") other than the current sublease for the
Remaining Premises (the "Inex Sublease") with Inex Pharmaceuticals (U.S.A.),
Inc. ("Inex"), which includes a right to extend, then Sublessor shall notify
Sublessee in writing and Sublessee shall have ten (10) business days after
receipt of Sublessor's written notice to notify Sublessor in writing its
intention to sublease such Remaining Premises. The terms of any such subletting
of the Remaining Premises shall be on the same terms and conditions as this
Sublease, except that the rent shall be the greater of (i) fair market rent or
(ii) the rent payable during the previous period for the Sublease Premises. The
term "fair market rent" shall mean the rental rate for comparable space
(including all tenant improvements), in comparable business parks within a ten
(10) mile radius of the Building's perimeter, excluding San Mateo County. If
Sublessee timely provides Sublessor with notice of its election to sublease the
Remaining Premises within said ten (10)-business day period then the parties
shall consummate the sublease of such space by the preparation and execution of
any amendment to this Sublease within thirty (30) days after Sublessor's receipt
of Sublessee's notice. If Sublessee does not indicate in writing its election to
sublease such Remaining Premises within said ten (10)-business day period, then
Sublessor shall have the right to sublease such premises to a third party.
Nothing contained in this section shall be construed to give Sublessee the right
to sublease the Remaining Premises if Sublessor uses the Remaining Premises for
its own occupancy. If the parties are unable to agree upon the fair market rent
for the Remaining Premises within fifteen (15) days after Sublessee's exercise
of its right of first offer to sublease the Remaining Premises, then the fair
market rent shall be determined as follows: Sublessor and Sublessee shall each
appoint one (1) real estate appraiser, which appraisers together shall determine
the fair market rent for the Remaining Premises within fifteen (15) days of
their appointment. Sublessor and Sublessee agree to make their appointments
promptly. In the event the two appraisers selected by Sublessor and Sublessee
shall be unable to agree on the amount of fair market rent, they shall promptly
select a third appraiser and within fifteen (15) days after the third appraiser
is selected, the third appraiser shall submit his or her determination of the
then prevailing fair market rent. The fair market rent shall be the mean of the
two closest rental determinations. Each party shall bear the fees and expenses
of the appraiser it selects and one-half of the fees and expenses of the third
appraiser (if one is appointed pursuant to the terms hereof). All real
appraisers appointed shall be members of the American Institute of Real Estate
Appraisers and have at least five (5)

                                       2.

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years experience appraising similar space located in commercial projects in the
vicinity of the Remaining Premises.

        3.      USE. Sublessee shall be permitted to use the Sublease Premises
consistent with the Permitted Use set forth in the Master Lease, and consistent
with the applicable requirements of the City of Hayward.

        4.      RENT.

                (a)     BASE RENT. Starting on the Commencement Date, Sublessee
shall pay as base rent ("Base Rent") for the Sublease Premises in advance, on or
before the first day of each month, without deduction or offset, monthly rent in
the amounts set forth below. Base Rent and Additional Rent (defined below) shall
be payable to Sublessor at the address stated herein for Sublessor. Base Rent
and Additional Rent shall collectively be referred to herein as "Rent." Rent for
any period during the term hereof which is for less than one month shall be a
pro rata portion of the monthly installment based on the number of days in the
month at issue.

<TABLE>
<CAPTION>

                    PERIOD                          MONTHLY RENT (EXCLUSIVE
                                                    OF BASIC OPERATING COST)
               <S>                                  <C>
               02/01/99 - 01/31/00                           $70,646.52
               02/01/00 - 01/31/01                           $72,545.62
               02/01/01 - 01/31/02                           $74,444.72
               02/01/02 - 01/31/03                           $76,343.82
               02/01/03 - 07/31/03                           $78,242.92
</TABLE>

                (b)     ADDITIONAL RENT. Sublessee shall pay to Sublessor, as
additional rent ("Additional Rent"), its pro rata share of the additional
amounts which Sublessor is required to pay under the Master Lease with respect
to the Premises, which are allocable to the term hereof, including, but not
limited to, Sublessor's Pro Rata share of Basic Operating Costs. In addition,
Sublessee shall pay to Sublessor as Additional Rent any costs and expenses
applicable to the Sublease Premises which are paid directly by Sublessor,
including, but limited to, personal property taxes and real property taxes on
tenant improvements.

        5.      SECURITY DEPOSIT. Upon mutual execution of this Sublease,
Sublessee shall deposit with Sublessor the amount of $156,485.84 as a security
deposit, which sum shall be held by Sublessor, without obligation for interest,
as security for the performance of Sublessee's covenants and obligations under
this Sublease, it being expressly understood and agreed that such deposit is not
an advance rental deposit or a measure of damages incurred by Sublessor in case
of Sublessee's default. Upon the occurrence of any event of default by Sublessee
beyond the applicable notice and cure period, Sublessor may, without prejudice
to any other remedy provided herein or provided by law, use such fund to the
extent necessary to cure such defaults hereunder, and any other damage, injury,
expense or liability caused by such event of default, and Sublessee shall pay to
Sublessor, within ten (10) days after Sublessee's receipt of written demand, the
amount so applied in order to restore the Security Deposit to its original
amount. Although the Security Deposit shall be deemed the property of Sublessor,
any remaining balance of such deposit shall be returned by Sublessor to
Sublessee at such time after termination of this

                                       3.

<PAGE>

Sublease less any amounts that are needed to perform any of Sublessee's
obligations under this Sublease that have been unfulfilled by Sublessee.

        6.      AS-IS. Subject to Master Lessor's service, maintenance or repair
obligations under the Master Lease, the Sublease Premises and all improvements
will be taken over on an "as is" basis, provided Sublessor represents, warrants
and covenants (now and as of the Commencement Date) that all improvements to the
Sublease Premises made by the Sublessor shall remain on the Sublease Premises
(except the improvements and equipment listed on EXHIBIT E) and (I) have been
constructed, installed, operated and maintained in accordance with all
applicable laws, by-laws, rules, regulations, orders, permits and licenses and
(II) all plumbing, HVAC, electrical and other building systems within the
Sublease Premises are in good working order and repair. The improvements to the
Sublease Premises which shall remain at the Sublease Premises shall include the
existing de-ionized water system, lab benches and fume hoods installed by
Sublessor. Notwithstanding anything to the contrary contained herein, all
improvements to the Sublease Premises made by Sublessor (the "Sublessor
Improvements") shall at all times remain the property of Sublessor, subject only
to Sublessee's rights to use such improvements as part of the Sublease Premises
pursuant to this Sublease. Upon the expiration or sooner termination of this
Sublease, Sublessee shall vacate and surrender the Sublease Premises, in the
same condition, broom clean, and with all systems and improvements in good
working order as existed at the Commencement Date ordinary wear and tear
excepted; provided, however, that Sublessee's obligations to vacate and
surrender the Sublease Premises as provided herein shall be subject to Sections
23 and 24 of the Master Lease as incorporated herein.

        7.      MASTER LEASE. This Sublease shall be subject and subordinate to
all of the terms and provisions of the Master Lease, and Master Lessor shall
have all rights in respect of the Master Lease and the Premises as set forth
therein. Except for payments of Rent and Basic Operating Costs under Sections 6
and 7 of the Master Lease (which payments shall be made by Sublessor), and,
except as otherwise provided herein, Sublessee hereby agrees to perform for
Sublessor's benefit, during the term of this Sublease, all of Sublessor's
obligations under the Master Lease but only to the extent they relate to the
Sublease Premises which accrue during the term of this Sublease.

        8.      INCORPORATION OF MASTER LEASE.

                (a)     Except as otherwise provided in this Sublease, all of
the terms and provisions of the Master Lease are incorporated into and made a
part of this Sublease, and the rights and obligations of the parties under the
Master Lease are hereby imposed upon the parties hereto with respect to the
Sublease Premises, the Sublessor being substituted for the Landlord in the
Master Lease, the Sublessee being substituted for the Tenant in the Master Lease
and the Sublease Premises being substituted for the Premises in the Master Lease
provided, however, that the term "Landlord" in the following sections of the
Master Lease (i) shall mean Master Lessor, not Sublessor: 7.A, 7.B, 8.A, 10, 16,
17, 18, 23.C, 24, 29, and 44, and (ii) shall mean both Master Lessor and
Sublessor: 7E.

                (b)     Notwithstanding the foregoing:

                                       4.

<PAGE>

                (i)     the following Paragraphs of the Master Lease are not
incorporated herein: Basic Lease Information (Lease Date, Tenant, Landlord,
Address of Landlord, Scheduled Term Commencement Date, Length of Term, Estimated
First Year Operating Cost, Tenant's Proportionate Share, Rent, Security Deposit)
1,2, 3, 19, 20, 37, 38, 39, 41, 42, 43 and Exhibits B, C, and D.

                (ii)    Each of the parties hereto shall fully perform all of
their respective obligations hereunder, and shall indemnify, defend, protect,
and hold harmless the other party from any and all liability, damages,
liabilities, claims proceedings, actions, demands and costs (including
reasonable attorneys' fees) resulting, directly or indirectly, from their
failure to perform their respective obligations.

                (iii)   Upon any termination of the Master Lease, this Sublease
shall also terminate. If Master Lessor seeks to terminate the Master Lease
because of a default or alleged default by Sublessor under the Master Lease
(other than a default or alleged default caused by the default by Sublessee
under this Sublease), Sublessor shall take all action required to reinstate the
Master Lease. Further, if Rent is abated under the Master Lease, Rent hereunder
shall also be abated in the same proportion.

                (iv)    Sublessor shall have no service, maintenance or repair
obligations with respect to the Sublease Premises except for its obligation to
use commercially reasonable efforts to enforce the obligations of Master Lessor
under the Master Lease. Sublessee hereby expressly waives the provisions of
subsection 1 of Section 1932 and Sections 1941 of the Civil Code of California.
Sublessor shall use commercially reasonable efforts to enforce Master Lessor's
service, maintenance or repair obligations under the Master Lease.

                (v)     Sublessee shall indemnify, defend, protect, and hold
Sublessor harmless from and against all actions, claims, demands, costs,
liabilities, losses, reasonable attorneys' fees, damages, penalties, and
expenses (collectively "Claims") which may be brought or made against Sublessor
or which Sublessor may pay or incur to the extent caused by (i) a breach of this
Sublease by Sublessee, (ii) any violation of law by Sublessee or its employees,
agents, contractors or invitees ("Agents") relating to the use or occupancy of
the Sublease Premises, or (iii) the negligence or willful misconduct of
Sublessee or its Agents. Sublessor shall indemnify, defend, protect, and hold
Sublessee harmless from and against all actions, claims, demands, costs,
liabilities, losses, reasonable attorneys' fees, damages, penalties and expenses
which may be brought or made against Sublessee or which Sublessee may pay or
incur to the extent caused by (i) the negligence or willful misconduct of
Sublessor or its Agents occurring on or about the Premises or Sublease Premises;
(ii) the failure by Sublessor to comply with or perform its obligations under
the Master Lease and/or this Sublease, and (iii) a breach by Sublessor of any of
its representations or warranties to Sublessee under this Sublease. As used
herein, "Hazardous Materials" means any substance or material which is
classified or considered to be hazardous or toxic under any present or future
federal, state, regional or local law relating to the use, storage, treatment,
existence, release, emission, discharge, generation, manufacture, disposal or
transportation of any such substances.

                (vi)    Sublessee shall indemnify, defend and hold harmless
Sublessor and Master Lessor from and against all claims, suits, judgments,
losses, costs, personal injuries,

                                       5.

<PAGE>

damages, and expenses of every type and nature, to the extent caused by the
storage, use, release or disposal of Hazardous Materials on or about the
Premises by Sublessee or Sublessee's employees, contractors, agents or
licensees, except to the extent that any of the foregoing results from (i) the
willful misconduct or negligent acts or omissions of Sublessor, or any of its
agents, employees, contractors or licensees, or (ii) the willful misconduct or
negligent acts or omissions of Master Lessor, or any of its agents, employees,
contractors or licensees. Notwithstanding anything to the contrary in this
Sublease or Master Lease, Sublessee shall have no obligation to clean up or to
comply with any law regarding, or to reimburse, indemnify, defend or hold
harmless Sublessor or Master Lessor with respect to, any Hazardous Materials
discovered on the Sublease Premises which existed prior to the Commencement Date
of this Sublease.

                (vii)   Sublessor shall indemnify, defend and hold harmless
Sublessee from and against all claims, suits, judgments, losses, costs, personal
injuries, damages, and expenses of every type and nature, to the extent caused
by storage, use, release or disposal of Hazardous Materials on or about the
Sublease Premises or Premises by Sublessor or Sublessor's employees,
contractors, agents or licensees, except to the extent that any of the foregoing
results from the willful misconduct or negligent acts or omissions of the
Sublessee or Sublessee's employees or agents. Notwithstanding anything to the
contrary in this Sublease, Sublessor shall have no obligation to clean up or to
comply with any law regarding, or to reimburse, indemnify, defend or hold
harmless Sublessee with respect to, any Hazardous Materials which come to be
located on the Sublease Premises or Premises after the Commencement Date (except
if such Hazardous Materials are brought onto the Sublease Premises or Premises
by Sublessor).

                (viii)  Sublessor represents to Sublessee that (A) the Master
Lease is in full force and effect, (B) the copy of the Master Lease which is
attached to this Sublease as EXHIBIT A is a true, correct and complete copy of
the Master Lease, (C) to Sublessor's best knowledge, no default exists on the
part of Sublessor, or has there occurred any event which, with the giving of
notice or passage of time or both, could constitute such a default or event of
default, (D) to Sublessor's best knowledge, there are no pending or threatened
actions, suits or proceedings before any court or administrative agency against
Sublessor which could, in the aggregate, adversely affect the Sublease Premises
or of Sublessor to perform its obligations under the Sublease, and Sublessor is
not aware of any facts which might result in any actions, suits or proceedings,
and (E) to Sublessor's best knowledge (x) Sublessor has not discharged, disposed
of or released any Hazardous Materials in or about the Sublease Premises or
Premises except in compliance with applicable laws and no action, proceeding, or
claim is pending, or threatened concerning any Hazardous Materials arising in
connection with Sublessor's use of the Sublease Premises or Premises, and (y)
Sublessor has not transported, stored, used, manufactured, emitted, disposed of
or released, or exposed to its employees or others to, Hazardous Materials on or
about the Sublease Premises or Premises in violation of any law, rule,
regulation, treaty or statute promulgated by any governmental authority.
Sublessor shall immediately notify Sublessee of any release, emission or spill
of any Hazardous Materials on or about the Sublease Premises or Premises of
which it is aware which may in any way pose a material threat to the health or
safety of any person located in or about the Sublease Premises. Sublessor shall
deliver to Sublessee on the Commencement Date a hazardous waste certificate in
the form attached to the Master Lease as Exhibit C completely filled-out and
duly executed by Sublessor for the benefit of Sublessee and made effective as of
the Commencement Date. Sublessee shall immediately notify Sublessor of any
release, emission or spill of any Hazardous

                                       6.

<PAGE>

Materials on or about the Sublease Premises of which it is aware which may in
any way pose a material threat to the health or safety of any person located in
or about the Sublease Premises. Sublessee shall deliver to Sublessor on the
Commencement Date a hazardous waste certificate in the form attached to the
Master Lease as Exhibit C completely filled-out and duly executed by Sublessee
for the benefit of Sublessor and made effective as of the Commencement Date.

                (ix)    The provisions and obligations of the foregoing Section
8(b)(v),(vi), and (vii) shall survive the termination of this Sublease.

        (c)     For the purposes of incorporating the terms and provisions of
the Master Lease into this Sublease, the Master Lease is hereby amended as
follows (references are to Sections of the Master Lease):

                (i)     Section 21B. of the Master Lease is deleted and replaced
with the following: Any Rent or other consideration realized by Sublessee under
any such sublease or assignment in excess of the Rent payable hereunder, after
amortization of (1) the reasonable cost of any improvements which Sublessee has
made to the Premises and (2) reasonable subletting and assignment costs, shall
be divided and paid, fifty percent (50%) to Sublessee, fifty percent (50%) to
Sublessor, after Master Lessor has been paid its share of such excess rent
pursuant to Section 21.B of the Master Lease.

        9.      BROKERAGE. Each party warrants and represents to the other that
other than Cornish & Carey Commercial, such party has not retained any other
real estate broker, finder or any other person whose services would form the
basis for any claim for any commission or fee in connection with this Sublease
or the transactions contemplated hereby. Each party agrees to save, defend,
indemnify and hold the other party free and harmless from any breach of its
warranty and representation as set forth in the preceding sentence, including
the other party's attorneys' fees.

        10.     SUBLESSOR'S OBLIGATIONS. Except as expressly otherwise provided
herein Sublessor shall have no obligation to Sublessee with respect to the
Premises or the performance by Master Lessor of any obligations of Master Lessor
under the Master Lease.

        11.     EARLY TERMINATION OF MASTER LEASE. If, without the fault of
Sublessor hereunder the Master Lease should terminate prior to the expiration of
this Sublease, Sublessor shall have no liability to Sublessee. To the extent
that the Master Lease grants Sublessor any discretionary right to terminate the
Master Lease, whether due to casualty, condemnation, or otherwise, Sublessor
shall not exercise such right at any time during the first forty two (42) months
of the term of this Sublease without the prior written consent of the Sublessee.
Commencing with the forty third (43rd) month, Sublessor shall be entitled to
exercise or not exercise any such discretionary right to terminate the Master
Lease in its complete and absolute discretion. In the event of a termination of
this Sublease due to casualty or condemnation, Sublessor shall be entitled to
all insurance proceeds for the Sublessor Improvements regardless of whether the
insurance covering the Sublessor Improvements is maintained by Sublessor or
Sublessee. In the event of a casualty or condemnation which does not result in a
termination of this Sublease, Sublessee shall receive all insurance proceeds for
the Sublessor Improvements (regardless of whether the insurance covering the
Sublessor Improvements is maintained by

                                       7.

<PAGE>

Sublessor or Sublessee) and shall use such insurance proceeds to promptly
repair, restore or rebuild the Sublessor Improvements, subject to the
supervision and approval of Sublessor during the construction process.

        12.     QUIET ENJOYMENT. Sublessee shall peacefully have, hold and enjoy
the Subleased Premises, subject to the terms and conditions of this Sublease and
subject to the Master Lease, provided that Sublessee pays all rent and performs
all of Sublessee's covenants and agreements contained herein. In the event,
however, that Sublessor defaults in the performance or observance of any of
Sublessor's obligations under this Sublease or receives a notice of default from
Master Lessor under the Master Lease, then Sublessee shall give written notice
to Sublessor specifying in what manner Sublessor has defaulted. If such default
shall not be cured within a reasonable time, but in no event later than thirty
(30) days after Sublessor's receipt of such written notice from Sublessee
(except that if such default cannot be cured within said thirty (30) day period,
this period shall be extended for an additional reasonable time, provided that
Sublessor commences to cure such default within such thirty (30) day period and
proceeds diligently thereafter to effect such cure as quickly as possible), then
Sublessee shall be entitled, at Sublessee's option, to cure such default and
promptly collect from Sublessor Sublessee's reasonable expenses in so doing
(including, without limitation, reasonable attorneys' fees and court costs)
unless such default by Sublessor is caused by a default of Sublessee hereunder
(in which case Sublessor shall not be liable for Sublessee's costs to cure the
default). Sublessee shall not be required to wait the entire cure period
provided for herein if earlier action is required to prevent a termination by
Master Lessor of the Master Lease and Sublessor has failed to take such earlier
action. Nothing contained herein shall entitle Sublessee to act on behalf of
Sublessor or in Sublessor's name.

        13.     CONSENT OF MASTER LESSOR. If Sublessee desires to take any
action which requires the consent of Master Lessor pursuant to the terms of the
Master Lease, including, without limitation, the making of any alterations,
then, notwithstanding anything to the contrary herein, (a) Sublessor,
independently, shall have the same rights of approval or disapproval as Master
Lessor has under the Master Lease, (b) Sublessee shall not take any such action
until it obtains the consent of both Sublessor and Master Lessor, and (c)
Sublessee shall request that Sublessor obtain Master Lessor's consent on
Sublessee's behalf and Sublessor shall use commercially reasonable efforts to
obtain such consent, unless Sublessor and Master Lessor agree that Sublessee may
contact Master Lessor directly with respect to the specific action for which
Master Lessor's consent is required. Any consent required of Sublessor
conclusively shall be deemed reasonably withheld, if consent also is required of
the Master Lessor, and Master Lessor withholds Master Lessor's consent.

        14.     NO THIRD PARTY RIGHTS. The benefit of the provisions of this
Sublease is expressly limited to Sublessor and Sublessee and their permitted
successors and assigns. Under no circumstances will any third party be construed
to have any rights as a third party beneficiary with respect to any of said
provisions; PROVIDED, HOWEVER, that Master Lessor shall be entitled to the
benefit of Sublessee's assumption of Sublessor's obligations, as "Tenant" under
the Master Lease, pursuant to Section 5 above.

        15.     BOARD APPROVAL. This Sublease is subject to both the approval of
the Board of Directors of the Sublessor and the Board of Directors of the
Sublessee.

                                       8.

<PAGE>

        16.     MASTER LESSOR CONSENT. This Sublease and Sublessor's and
Sublessee's obligations hereunder are conditioned upon having obtained the
written consent of the Master Lessor to this Sublease. If such consent has not
been obtained by Sublessor within thirty (30) days after the date of Sublessor's
execution of this Sublease, Sublessee may, within ten (10) days thereafter,
terminate this Sublease by written notice to Sublessor whereupon Sublessor shall
return to Sublessee all sums paid by Sublessee to Sublessor in connection with
its execution of this Sublease. Sublessor shall use commercially reasonable
efforts to obtain Master Lessor's consent to this Sublease as soon as
practicable.

        17.     COUNTERPARTS. This Sublease may be executed in any number of
counterparts, each of which counterparts shall be deemed to be an original, and
all of which together shall constitute one and the same instrument.

        18.     SECURITY SERVICES. Sublessee, at its sole cost and expense,
shall maintain security services for the Sublease Premises. Such services shall
be provided on a 24-hour basis by a security company acceptable to Sublessor in
its reasonable discretion.

        19.     SURRENDER. Sublessee's obligation to surrender the Sublease
Premises shall be fulfilled if Sublessee surrenders possession of the Sublease
Premises in the condition existing at the Commencement Date, ordinary wear and
tear, Hazardous Materials existing at Commencement Date, and interior
improvements made by Sublessee which Sublessor states in writing may be
surrendered at the termination of the Sublease excepted; provided, however, that
Sublessee's obligations to vacate and surrender the Sublease Premises as
provided herein shall be subject to Sections 23 and 24 of the Master Lease as
incorporated herein.

        20.     ADDITIONAL AGREEMENT. Sublessee and Sublessor agree to use
commercially reasonable efforts to execute (and to cause Inex to execute), prior
to the Commencement Date, an Assignment and Assumption Agreement in the exact
form as EXHIBIT C attached hereto and incorporated herein by reference.

        21.     INITIAL SUBLESSEE IMPROVEMENTS. Subject to the consent and
approval of Master Lessor, and the requirements of Section 12 of the Master
Lease, Sublessor hereby consents to the construction by Sublessee of those
certain improvements to the Sublease Premises (the "Sublessee Improvements")
generally described in EXHIBIT D attached hereto and incorporated herein by
reference. Sublessor's consent as set forth herein is subject to approval by
Sublessor and Master Lessor of final plans and specifications for the Sublessee
Improvements.

        22.     MUTUAL WAIVER OF SUBROGATION. The waiver of subrogation
provision set forth in Section 9 of the Master Lease shall be deemed a three
party agreement binding among and inuring to the benefit of Sublessor, Sublessee
and Master Lessor (by reason of its consent to hereto).

                                       9.

<PAGE>

        IN WITNESS WHEREOF, the parties have executed this Sublease as of the
date first written above.

ADDRESS:                                SUBLESSOR:

3832 Bay Place                          LYNX THERAPEUTICS, INC.
Hayward, CA  94545
Attn: Edward C. Albini

                                        By: /s/ [ILLEGIBLE]
                                           --------------------------------

                                        Its:  Chief Financial Officer
                                            -------------------------------

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

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

ADDRESS:                                SUBLESSEE:

                                        KOSAN BIOSCIENCES INCORPORATED

                                        By: /s/ Daniel V. Santi
                                            --------------------------------

                                        Its:          CEO
                                            -------------------------------

                                        By: /s/ Michael S. Ostrach
                                            --------------------------------

                                        Its:  VP and Asst Secretary
                                             -------------------------------

<PAGE>

                                    EXHIBIT A

                          [ATTACH COPY OF MASTER LEASE]

<PAGE>

                             BASIC LEASE INFORMATION

LEASE DATE:                             June 28, 1993

TENANT:                                 Lynx Therapeutics, Inc.

ADDRESS OF TENANT:                      3832 Bay Center Place
                                        Hayward, CA 94545

LANDLORD:                               Spieker-Singleton #87, Limited
                                        Partnership

ADDRESS OF LANDLORD:                    6000 Stoneridge Mall Road, Suite 270
                                        Pleasanton, CA 94588

PROJECT DESCRIPTION:                    An approximately 128,700 square foot
                                        project consisting of four building
                                        located at Breakwater Avenue and Bay
                                        Center Place in Hayward, California,
                                        known as BayCenter Business Park.

BUILDING DESCRIPTION:                   An approximately 44,280 square foot
                                        building located at 3832 Bay Center
                                        Place, Hayward, California

PREMISES:                               Approximately 44,280 square feet, more
                                        or less, of office space located in
                                        BayCenter Business Center, and more
                                        commonly known as 3832 Bay Center Place
                                        Hayward, California as outlined in red
                                        on Exhibit "A" attached hereto.

PERMITTED USES:                         General office and research and
                                        development, and manufacturing of
                                        certain biotechnical and chemical
                                        products.

OCCUPANCY DENSITY:                      4 people per 1000 square feet of
                                        occupied space

SCHEDULED TERM COMMENCEMENT DATE:       August 1, 1993

LENGTH OF TERM:                         One Hundred Twenty (120) months

RENT:

<TABLE>
<CAPTION>

                                                Occupancy
                                        Month     Level          Base Rent
                                        -----     -----          ---------
<S>                                     <C>       <C>            <C>

Base Rent:                              1-2       15,000 sf      Free of Base Rent
                                        3-12      15,000 sf      $.67/sf/mo NNN
                                        13-24     30,000 sf      $.67/sf/mo NNN
                                        25-36     44,280 sf      $.67/sf/mo NNN
                                        37-60     44,280 sf      $.72/sf/mo NNN
                                        61-96     44,280 sf      $.82/sf/mo NNN
                                        97-120    44,280 sf      $.90/sf/mo NNN
</TABLE>

Estimated First Year Basic Operating
Cost:                                   $.14/sf/mo of occupied space

SECURITY DEPOSIT:                       $29,700.00

TENANTS PROPORTIONATE SHARE:            Months 1-12       11.66% of Project
                                        Months 13-24      23.31% of Project
                                        Months 25-120     34.41% of Project
                                        (Unless occupancy is adjusted as
                                        described herein in Paragraph 1)

The foregoing Basic Lease Information is incorporated into and made a part of
this Lease. Each reference in this Lease to any of the Basic Lease Information
shall mean the respective information above and shall be construed to
incorporate all of the terms provided under the particular Lease paragraph
pertaining to such information. In the event of any conflict between the Basic
Lease Information and the Lease, the latter shall control.

<PAGE>

                                TABLE OF CONTENTS

                                                               Page

         BASIC LEASE INFORMATION                                1
         Table of Contents                                      2
1.       Premises                                               3
2.       Possession and Lease Commencement                      3
3.       Term                                                   3
4.       Use                                                    3
5.       Rules and Regulations                                  3
6.       Rent                                                   3
7.       Basic Operating Cost                                   4
8.       Insurance and Indemnification                          5
9.       Waiver of Subrogation                                  5
10.      Landlord's Repairs and Services                        5
11.      Tenant's Repairs                                       5
12.      Alterations                                            5
13.      Signs                                                  6
14.      Inspection/Posting Notices                             6
15.      Utilities                                              6
16.      Subordination                                          6
17.      Financial Statements                                   6
18.      Estoppel Certificate                                   6
19.      Security Deposit                                       7
20.      Tenant's Remedies                                      7
21.      Assignment and Subletting                              7
22.      Quiet Enjoyment                                        7
23.      Condemnation                                           7
24.      Casualty Damage                                        7
25.      Holding Over                                           8
26.      Default                                                8
27.      Liens                                                  9
28.      Substitution                                           9
29.      Transfers by Landlord                                  9
30.      Right of Landlord to Perform Tenant's Covenants        9
31.      Waiver                                                 9
32.      Notices                                               10
33.      Attorneys' Fees                                       10
34.      Successors and Assigns                                10
35.      Force Majeure                                         10
36.      Miscellaneous                                         10
37.      Additional Provisions                                 10

         EXHIBIT "A"                     Site Plan, Legal Description
         EXHIBIT "B"                     Tenant Improvement Specifications
         EXHIBIT "C"                     Hazardous Waste Certificate
         EXHIBIT "D"                     First Right of Refusal
         EXHIBIT "E"                     Exceltech Report dated March 1, 1988

<PAGE>

                                      LEASE

               THIS LEASE is made as of the 28TH day of JUNE, 1993, between
               SPIEKER-SINGLETON #87, LIMITED PARTNERSHIP (herein after called
               "Landlord") and LYNX THERAPEUTICS, INC. (hereinafter called
               "Tenant").

PREMISES       1.   Landlord leases to Tenant and Tenant leases from Landlord,
                    upon the terms and conditions hereinafter set forth, those
                    premises (the "Premises") cross-hatched outlined-in red on
                    Exhibit "A" and described in the Basic Lease Information.
                    The Premises may be all or part of the building (the
                    "Building") or of the project (the "Project") which may
                    consist of more than one building. The Building and Project
                    are outlined in blue and green respectively on Exhibit "A".
                    Notwithstanding the foregoing during the first two (2) years
                    of this Lease, in the event Tenant is actually occupying
                    more than the occupied space referred to in Basic Lease
                    Information, then Tenant shall pay for such additional
                    space on the same square footage cost as outlined.

POSSESSION
AND LEASE
COMMENCEMENT

                    C.   This Lease shall commence August 1, 1993.

TERM           3.   The Term of this Lease shall commence on the Term
                    Commencement Date and continue in full force and effect for
                    the number of months specified as the Length of and Term in
                    the Basic Lease Information or until this Lease is
                    terminated as otherwise provided herein. If the Term
                    Commencement Date is a date other than the first day of the
                    calendar month the Term shall be the number of months of the
                    Length of the Term in addition to the remainder of the
                    calendar month following the Term Commencement Date.

USE            4.   A. Tenant shall use the Premises for the Permitted Use and
                    for no other use or purpose without prior written consent of
                    Landlord. No increase in the Occupant Density of the
                    Premises shall be made without the prior written consent of
                    Landlord. Tenant and it employees, customers, visitors, and
                    licensees shall have the nonexclusive right to use, in
                    common with other parties occupying the Buildings or
                    Project, the parking areas and driveways of the Project,
                    including without limitation to non-exclusive use of four
                    parking stalls per 1,000 square feet occupied hereunder,
                    subject to such reasonable rules and regulations as Landlord
                    may from time to time prescribe.

                    B. Tenant shall not permit any odors, smoke, dust, gas,
                    substances, noise or vibration to emanate from the Premises,
                    nor take any action which would constitute a nuisance or
                    would disturb, obstruct or endanger any other tenants of the
                    Building or Project in which the Premises are situated or
                    unreasonably interfere with their use of their respective
                    premises. Tenant shall not receive, store or otherwise
                    handle any product, material or merchandise which is toxic,
                    harmful, explosive, highly inflammable or combustible unless
                    such is done in accordance with applicable rules and
                    regulations as determined by local, state and federal
                    authorities. Storage outside the Premises of materials,
                    vehicles or any other items Landlord deems objectionable is
                    prohibited without Landlord's prior written consent. Tenant
                    shall not use or allow the Premises to be used for any
                    improper, immoral, unlawful or objectionable purposes, nor
                    shall Tenant cause or maintain or permit any nuisance in, on
                    or about the Premises. Tenant shall not commit or suffer the
                    commission of any waste in, on or about the Premises. Tenant
                    shall not allow any sale by auction upon the Premises, or
                    place any loads upon the floors, walls, or ceilings which
                    endanger the structure, or place any harmful liquids in the
                    drainage system of the Building or Project. No waste,
                    materials or refuse shall be dumped upon or permitted to
                    remain outside the Premises except in trash containers
                    placed inside exterior enclosures designated for that
                    purpose by Landlord.

                    C. Tenant shall not use the Premises or permit anything to
                    be done in or about the Premises which will in any way
                    conflict with any law, stature, ordinance or governmental
                    rule or regulation now in force or which may hereafter be
                    enacted or promulgated. Tenant shall at its sole cost and
                    expense obtain any and all licenses or permits necessary for
                    Tenant's use of the Premises. Tenant shall promptly comply
                    with the requirements of any board of fire underwriters or
                    other similar body now or hereafter constituted relating to
                    or affecting the condition, use or occupancy of the
                    Premises. The judgement of any court of competent
                    jurisdiction or the admission of Tenant in any actions
                    against Tenant, whether Landlord by a party thereto or not,
                    that Tenant has so violated any such law, statute,
                    ordinance, rule, regulation or requirement, shall be
                    conclusive of such violation as between Landlord and Tenant.
                    Tenant shall not do or permit anything to be done in, on or
                    about the Premises, Building or Project, or upon any
                    contents therein or cause a cancellation of said insurance
                    or otherwise affect said insurance in any manner. Tenant
                    shall indemnify Landlord and hold Landlord harmless against
                    any loss, expense, damage, attorneys' fees or liability
                    arising out of the failure of Tenant to comply with any
                    applicable law or comply with the requirements as set forth
                    herein.

RULES AND      5.   Tenant and Tenant's agents, employees, and invitees shall
REGULATIONS         faithfully observe and comply with any reasonable rules and
                    regulations Landlord may from time to time prescribe in
                    writing for the purpose of maintaining the proper care,
                    cleanliness, safety, traffic flow and general order of the
                    Premises or Project. Landlord shall not be responsible to
                    Tenant for the non-compliance by any other tenant or
                    occupant of the Building or Project with any of the rules
                    and regulations.

RENT           6.   Tenant shall pay to Landlord, without demand throughout the
                    term, Rent as specified in the Basic Lease Information,
                    payable in monthly installments in advance on or before the
                    first day of each calendar month, in lawful money of the
                    United States, without deduction or offset whatsoever to
                    Landlord at the address

                                      -3-

<PAGE>

                    specified in the Basic Lease Information or to such other
                    firm or to such other place as the Landlord may from time to
                    time designate in writing. Rent for the first full month of
                    the Term shall be paid by Tenant upon Tenant's execution of
                    this Lease. If the obligation for payment of Rent commences
                    on other than the first day of a month, then Rent shall be
                    prorated and the prorated installment shall be paid on the
                    first day of the calendar month succeeding the Term
                    Commencement Date.

BASIC          7.   A. BASIC OPERATING COST. In addition to the Base Rent
OPERATING           required to be paid hereunder, Tenant shall pay as
COSTS               additional Rent, Tenant's Proportionate Share, as defined in
                    the Basic Lease Information, of Basic Operating Cost in the
                    manner set forth below. Basic Operating Cost shall mean all
                    expenses and costs of every kind and nature which Landlord
                    shall pay or become obligated to pay, or would be required
                    to pay if the Project were fully occupied, because of or in
                    connection with management, maintenance, preservation and
                    operation of the Project and its supporting facilities
                    servicing the Project (determined in accordance with
                    generally accepted accounting principles, consistently
                    applied) including but not limited to the following:

                        (1) All real estate taxes, possessory interest taxes,
                    business or license taxes of fees, service payment in lieu
                    of such taxes or fees, annual or periodic license or use
                    fees, excises, transit charges, housing fund assessments,
                    open space charge, assessments, levies, fees or charges,
                    general and special, ordinary and extraordinary, unforeseen
                    as well as foreseen, of any kind (including fees "in-lieu"
                    of any such tax or assessment) which are assessed, levied,
                    charged, confirmed, or imposed by any public authority upon
                    the Project, its operations or the rent (or any proportion
                    or component thereof), except (a) inheritance or estate
                    taxes imposed upon or assessed against the Project, or any
                    part thereof or interest therein, and (b) taxes computed
                    upon the basis of the net income of Landlord or the owner of
                    any interest therein.

                        (2) All insurance premiums and costs, including but not
                    limited to, any deductible amounts, premiums and cost of
                    fire, casualty and liability coverage which Landlord is
                    required to carry pursuant to Section 8.A below, rental
                    abatement and special hazard insurance applicable to the
                    Project and Landlord's personal property used in connection
                    therewith; provided, however, that Landlord may, but shall
                    not be obligated to, carry special hazard insurance covering
                    losses caused by casualty not insured under standard fire
                    and extended coverage insurance, excluding earthquake
                    insurance obtained without Tenant's prior consent.

                        (3) Repairs, replacements and general maintenance for
                    the Premises, Building and project (except for those repairs
                    expressly the responsibility of Landlord, those repairs paid
                    for by proceeds of insurance or by Tenant or other third
                    parties, and alterations attribute solely to tenants of the
                    Project other than Tenant).

                        (4) All maintenance, janitorial and service agreements
                    and cost or supplies and equipment used in maintaining the
                    Premises, Building and Project and the equipment therein and
                    the adjacent sidewalks, driveways, parking and service
                    areas, including with out limitations to alarm service,
                    window cleaning, elevator maintenance, Building exterior
                    maintenance and landscaping.

                        (5) Utilities which benefit all or a portion of the
                    Premises.

                        (6) a management and accounting cost recovery equal to
                    ten percent (10%) of Basic Operating Cost.

                    In the event that the Project is not fully occupied during
                    any fiscal year of the Term as determined by Landlord, and
                    adjustment shall be made in computing the Basic Operating
                    Cost for such year so that Basic Operating Cost shall be
                    computed as though the building had bee one hundred percent
                    (100%) occupied; provided, however, that in no event shall
                    Landlord be entitled to collect in excess of one hundred
                    percent (100%) if the total Basic Operating Cost from all of
                    the tenants in the Project including Tenant.

                    To the extent commercially reasonable, Landlord will use
                    third party contractors to perform maintenance, repairs, and
                    other functions under this Paragraph. Landlord will
                    negotiate at arms length with these contractors, suppliers
                    and/or vendors to obtain competitive prices and Landlord
                    will use its effort during this lease to obtain competitive
                    pricing for services and products for which Tenant is
                    financially responsible under this Paragraph 7.

                    Notwithstanding the foregoing, Operating Costs shall not
                    include (i) depreciation on the Building, (ii) real estate
                    broker's commissions, (iii) interest, loan fees and other
                    carrying costs relating to any mortgage or deed of trust on
                    the Building or Project, (iv) costs, fines or penalties for
                    violations by Landlord of any governmental rule, (v) any
                    obligations of Landlord with respect to Hazardous Materials,
                    (vi) any amounts for services paid to entities related to
                    Landlord to the extent said amounts exceed the amounts that
                    would have been paid to unaffiliated entities for the same
                    services; (vii) any cost incurred to remedy any defects in
                    construction of the Building, (viii) any amounts for the
                    acquisition or maintenance of art work located in the
                    Building or Project or the cost of insurance thereon. If any
                    capital expense borne under Paragraph 7 is above ten
                    thousand dollars ($10,000) then the expense will be
                    amortized over the useful life with a ten percent (10%)
                    interest rate.

                    All costs and expenses shall be determined in accordance
                    with generally accepted accounting principles which shall be
                    consistently applied. Basic Operating Cost shall not include
                    specific costs incurred for the account of, separately
                    billed to and paid by specific tenants. Notwithstanding
                    anything herein to the contrary and instance wherein
                    Landlord, at Landlord's sole reasonable discretion, deems
                    Tenant to be responsible for any amounts greater than its
                    Proportionate Share, Landlord shall have the right to
                    allocate cost in any manner Landlord deems reasonably
                    appropriate.

                    B. PAYMENT OF ESTIMATED BASIC OPERATING COST. "Estimated
                    Basic Operating Cost" for any particular year shall mean
                    Landlord's estimate of the Basic Operating Cost for such
                    fiscal year made prior to commencement of such fiscal year
                    as hereinafter provided. Landlord shall have the right from
                    time to time to revise its fiscal year and interim
                    accounting periods so long as the periods as so revised are
                    reconciled with prior periods in accordance with generally
                    accepted accounting principles applied in a consistent
                    manner. During the last month of each fiscal year during the
                    Term, or as soon thereafter as practicable, Landlord shall
                    give Tenant written notice of the Estimate Basic Operating
                    Cost for ensuing fiscal year. Tenant shall pay Tenant's
                    Proportionate Share of the Estimated Basic Operating Costs
                    with installments on the first day of each calendar month
                    during such year, in advance. If at any time during the
                    course of the fiscal year, Landlord determines that Basic
                    Operating Cost will apparently vary from the then Estimated
                    Basic Operating Cost by more than ten percent (10%),
                    Landlord may, by written notice to Tenant, revise the
                    Estimate Basic Operating Cost for the balance of such fiscal
                    year and Tenant shall pay Tenant's Proportionate Share of
                    the Estimated Basic Operating Cost as so revised for the
                    balance of the then current fiscal year on the first of each
                    calendar month and there after.

                    C. COMPUTATION OF BASIC OPERATING COST ADJUSTMENT. "Basic
                    Operating Cost Adjustment" shall mean the difference between
                    Estimated Basic Operating Cost and Basic Operating Cost for
                    any fiscal year determined as hereinafter provided. Within
                    ninety (90) days after the end of each fiscal year, as
                    determined by Landlord, or as soon thereafter as possible,
                    Landlord shall deliver to Tenant a statement of Basic
                    Operating Cost for the fiscal year just ended accompanied by
                    a computation of Basic Operating Cost Adjustment. If such
                    statement shows that Tenant's payment based upon Estimated
                    Basic Operating Cost is less than Tenant's Proportionate
                    Share of Basic Operating Cost, then Tenant shall pay to
                    Landlord the difference within twenty (20) days after
                    receipt of such statement. If such statement shows that
                    Tenant's payments of Estimated Basic Operating Cost exceed
                    Tenant's Proportionate Share of Basic Operating Cost is less
                    than Tenant's Proportionate Share of Basic Operating Cost,
                    then Tenant shall pay to Landlord the difference within
                    twenty (20) days after receipt of such statement. If such
                    statement shows that Tenant's payments of Estimated Basic
                    Operating Cost exceed Tenant's Proportionate Share of Basic

                                      -4-

<PAGE>

                    Operating Costs, then (provided that Tenant is not in
                    default under this Lease), Landlord shall pay to Tenant the
                    difference within Twenty (20) days of such statement. If
                    this Lease has been terminated or the Term hereof has
                    expired prior to the date of such statement. If this Lease
                    has been terminated or the Term hereof has expired prior to
                    the date of such statement, then the Basic Operating Cot
                    Adjustment shall be paid by the appropriate party within
                    twenty (20) days after the date of delivery of the
                    statement.  Should this Lease commence or terminate at any
                    time other than the first day of the fiscal year, Tenant's
                    Proportionate Share of the Basic Operating Cost adjustment
                    shall be prorated by reference to the exact number of
                    calendar days during such fiscal year for which the Tenant
                    is obligated to pay Base Rent.

                    D. NET LEASE. This shall be net Lease and Base Rent shall be
                    paid to Landlord absolutely net of all costs and expenses
                    except as herein provided. The provisions for payment of
                    Basic Operating Cost and the Basic Operating Cost Adjustment
                    are intended to pass on to Tenant and reimburse Landlord for
                    all costs and expenses of the nature described in paragraph
                    7A incurred in connection with ownership and operation of
                    the Building or Project and such additional facilities now
                    and in subsequent years as may be determined by Landlord to
                    be necessary to the Building or Project.

                    E. TENANT AUDIT. Tenant shall have the right, at Tenant's
                    expense and upon not less than five(5) days prior written
                    notice to Landlord, to review at reasonable times, in
                    Landlord's office, Landlord's books and records applicable
                    to Tenant's Lease for purposes of verifying Landlord's
                    calculation of the Basic Operating Cost and Basic Operating
                    Cost Adjustment.

                    In the event that Tenant shall dispute the amount set fort
                    in any statement provided by Landlord under Paragraph 7B or
                    7C above, Tenant shall have the right, not later than twenty
                    (20) days following the receipt of such statement and upon
                    condition that Tenant shall first deposit with Landlord the
                    full amount in dispute, to cause Landlord's books and record
                    with respect to such fiscal year to be audited by certified
                    public accountants selected by Tenant and subject to
                    Landlord's reasonable right of approval. The Basic Operating
                    Cost Adjustment shall be appropriately adjusted on the basis
                    of such audit. If such audit discloses a liability for a
                    refund in excess of ten percent (10%) of Tenant's
                    Proportionate Share of the Basic Operating Cost Adjustment
                    previously reported, the cost of such audit shall be borne
                    by Landlord; otherwise the cost of such audit shall be paid
                    by Tenant. If Tenant shall not request an audit in
                    accordance with the provisions of this paragraph 7B within
                    twenty (20) days of receipt of Landlord's statement provided
                    pursuant to paragraph 7B or 7C, such statement shall be
                    final and binding for all purposes hereof.

INSURANCE AND  8.   A. CASUALTY INSURANCE. Landlord agrees to maintain insurance
INDEMNIFI-          insuring the Buildings of the Project of which the Premises
CATIONS             are a part, against fire, lightning, extended coverage,
                    vandalism and malicious mischief in an amount not less then
                    eighty percent (80%) of the replacement cost thereof. Such
                    insurance shall be for the sole benefit of Landlord and
                    under its sole control. Landlord shall not be obligated to
                    insure any furniture, equipment, machinery, goods or
                    supplies not covered by this Lease which Tenant may keep or
                    maintain in the premises or any leasehold improvements,
                    additions or alterations which Tenant may make upon the
                    Premises.

                    B. LIABILITY INSURANCE. Tenant shall purchase at its own
                    expense and keep in force during this Lease a policy or
                    policies of comprehensive liability insurance, including
                    personal injury and property damage, in the amount of not
                    less than Five Hundred Thousand dollars ($500,000.00) for
                    property damage and Two Million Dollars ($2,00,000.00) per
                    occurrence for personal injuries or deaths of persons
                    occurring in or about the Premises and Project. Said
                    policies shall (1) name Landlord and if applicable, its
                    agent, and any party holding an interest to which this Lease
                    may be subordinated as additional insureds, (2) be issued by
                    an insurance company acceptable to Landlord and licenses to
                    do business in the State of California, and (3) provide that
                    said insurance shall not be cancelled unless thirty (30)
                    days prior written notice shall have been given to landlord.
                    Said policy or policies or certificates thereof shall be
                    delivered to Landlord by Tenant upon commencement of the
                    lease and upon each renewal of said insurance.

                    C. INDEMNIFICATION. Landlord shall not be liable to Tenant
                    for any loss or damage to person or property caused by
                    theft, fire, act of God, acts of a public enemy, riot,
                    strike, insurrection, war, court order, requisition or order
                    of governmental body or authority or for any damage or
                    inconvenience which may arise through repair or alteration
                    of any part of the Building or Project or failure to make
                    any such repair except to the extent caused by the
                    negligence or willful misconduct of Landlord and except as
                    expressly otherwise provided in paragraph 10 and 12. Tenant
                    shall indemnify Landlord and hold Landlord harmless from any
                    and all loss, cost, damage, injury or expense arising out of
                    or related to (1) claims of injury to or death of persons or
                    damage to property occurring or resulting directly or
                    indirectly from the use of occupancy of the Premises, or
                    from any activities of Tenant, its agents, servants,
                    employees or anyone in or about the Premises or Project, or
                    form any cause whatsoever, (2) claims for work or labor
                    performed, or for materials or supplies furnished to or at
                    the request of Tenant or in connection with performance of
                    any work done for the account of Tenant within the Premises
                    or Project, and (3) claims arising from any breach or
                    default on the part of Tenant in the performance of any
                    covenant contained in this Lease. Such indemnity shall
                    include without limitation the obligation to provide all
                    costs of defense against any such claims including any
                    action or proceeding brought against Landlord. The foregoing
                    indemnity shall not be applicable to claims arising from the
                    active negligence or willful misconduct of Landlord.
                    Landlord shall defend, indemnify and hold harmless Tenant,
                    its agents, and any and all affiliates of Tenant including
                    without limitation, any corporations, or other entities
                    controlling, controlled by or under common control with
                    Tenant, from and against any and all claims or liabilities
                    arising from (i) the negligence or willful misconduct of
                    Landlord, its officers, employees, agents, visitors,
                    invitees or licenses, or (ii) any breach or default in any
                    material warranty or material representation of Landlord
                    hereunder or the performance of any material covenant on
                    Landlord's part to be performed hereunder. The provisions of
                    this paragraph shall survive the expiration or termination
                    of this Lease with respect to any claims or liability
                    occurring prior to such expiration or termination.

WAIVER OF      9.   To the extent permitted by law and without affecting the
SUBROGATION         coverage provided by insurance required to be maintained
                    hereunder, but subject to the approval of each insurance
                    carrier affected thereby. Landlord and Tenant each waive any
                    right to recover against the owner (a) damages for injury to
                    or death of persons, (b) damages to property, (c) damages to
                    the Premises or any part thereof, or (d) claims arising by
                    reason of the foregoing to the extent such damages or claims
                    are covered by insurance. This provision is intended to
                    waive fully, and for the benefit of each party, any rights
                    and/or claims which might give rise to a right of
                    subrogation on any insurance carrier. The coverage obtained
                    by each party pursuant to this Lease shall include, without
                    limitation, a waiver of subrogation by the carrier which
                    conforms to the revisions of this paragraph, but subject to
                    the approval of each insurance carrier affected thereby.

LANDLORD'S     10.  Landlord shall at Landlord's expense maintain the structural
REPAIR AND          soundness of the roof, foundations and exterior walls of the
SERVICES            building in good repair, reasonable ware and tear excepted.
                    The term wall as used herein shall not include windows,
                    glass or plate glass, exterior doors, special store fronts
                    or office entries. The term roof as used herein shall not
                    include skylights, smoke hatches or roof vents. Landlord
                    shall perform on behalf of Tenant and other tenants of the
                    Project the maintenance of the public an common areas of the
                    Project including but not limited to the landscaped areas,
                    parking areas, driveways, the truck staging areas, rail spur
                    areas, fire sprinkler systems, sanitary and storm sewer
                    lines, utility services, electric and telephone
                    equipment servicing the Building(s), exterior lighting, and
                    anything which affects the operation and exterior appearance
                    of the Project.

                                      -5-

<PAGE>

                    Tenant shall reimburse Landlord for all such costs in
                    accordance with Paragraph 7. Any damage caused by or repairs
                    necessitated by any act of Tenant may be repaired by
                    Landlord at Landlord's option and at Tenant's expense.
                    Tenant shall immediately give Landlord written notice of any
                    defect or need of repairs after which Landlord shall have
                    reasonable opportunity to repair same. Landlord in the
                    course of its maintenance and repairs shall use its best
                    efforts too minimize any interference with Tenant's
                    operations. Landlord's liability with respect to any
                    defects, repairs, or maintenance for which Landlord is
                    responsible under any of the provisions of this Lease shall
                    be limited to the cost of such repairs or maintenance.
                    Landlord in the course of its maintenance and repairs shall
                    use its best efforts to minimize any interference with
                    Tenant's operations. If Landlord fails to timely perform its
                    maintenance and repair obligations hereunder and, as a
                    consequence, Tenant's use of the Premises is substantially
                    impaired, Tenant, in addition to all other remedies
                    available hereunder and, as a consequence, Tenant's use of
                    the Premises is substantially impaired, Tenant, in addition
                    to all other remedies available hereunder or by law shall
                    have the right to cause such repair or maintenance to be
                    performed by Landlord.

TENANT'S       11.  Tenant shall at Tenant's expense maintain all parts of the
REPAIRS             Premises in a good clean and secure condition promptly
                    making all necessary repairs and replacements including but
                    not limited to all windows, glass, doors and any special
                    office entries, walls and wall finishes, floor covering,
                    heating, ventilating and air conditioning systems, truck
                    doors, dock bumpers, dock plates and levelers, roofing,
                    plumbing work and fixtures, downspouts, skylights, smoke
                    hatches and roof vents. Tenant shall at Tenant's expense
                    also perform regular removal of trash and debris. Tenant
                    shall, at its own expense, enter into a regularly scheduled
                    preventative maintenance/service contract with a maintenance
                    contractor for servicing all hot water, heating and air
                    conditioning systems and equipment within or serving the
                    Premises. The maintenance contractor and the contract must
                    be approved by Landlord. The service contract must include
                    all services suggested by the equipment manufacturer within
                    the operation/maintenance manual and must become effective
                    and a copy thereof delivered to Landlord within thirty (30)
                    days of the Term Commencement Date. Tenant shall not damage
                    any demising wall or disturb the integrity and support
                    provided by any demising wall and shall, at its sole
                    expense, immediately repair any damage to any demising wall
                    caused by Tenant or its employees, agents or invitees.

ALTERATIONS    12.  Except with respect to the initial Tenant improvements
                    described in Exhibit B attached hereto, which improvements
                    Landlord by execution hereof hereby approves, Tenant shall
                    not make, or allow to be made, any structural alterations or
                    physical additions in, about or to the premises costing more
                    than Five Thousand Dollars ($5,000.00) in each instance and
                    cumulatively no more than Ten Thousand Dollars ($10,000.00)
                    each year without obtaining the prior written consent of
                    Landlord which consent of Landlord which consent shall not
                    be unreasonably withheld with respect to proposed
                    alterations and additions which (a) comply with all
                    applicable laws, ordinances, rules and regulations, (b) are
                    in Landlord's reasonable opinion compatible with the Project
                    and its mechanical, plumbing, electrical, and
                    heating/ventilation/air conditioning systems, and in
                    Landlord's reasonable opinion will not interfere with the
                    use and occupancy of any other portion of the Building or
                    Project by any other Tenant or its invitees. Specifically,
                    but without limiting the generality of the foregoing,
                    Landlord shall have the right of consent for all plans and
                    specifications for the alterations or additions subject to
                    this Section 12, construction means and methods, any
                    contractor or subcontractor to be employed on the work of
                    alterations or additions, and the time for performance of
                    such work. Tenant shall also supply to Landlord any
                    documents and information reasonably requested by Landlord
                    in connection with its consideration of a request for
                    approval hereunder. Tenant must have Landlord's written
                    approval and all appropriate permits and licenses prior to
                    the commencement of said alterations and additions. All
                    alterations and additions permitted hereunder other than the
                    initial Tenant improvements described in Exhibit "B" hereto
                    shall be made and performed by Tenant without cost or
                    expense to Landlord including any costs or expenses which
                    Landlord may incur in electing to have an outside agency
                    review said plans and specifications provided the cost to
                    Tenant of any such review shall not exceed Five Hundred
                    Dollars ($500.00). Landlord, by written notice at the time
                    it approves any such alterations, shall have the right to
                    required Tenant to remove any or all alterations, additions,
                    improvements and partitions made by Tenant and restore the
                    Premises to their original condition by the termination of
                    this Lease, by lapse of time or otherwise, all at Tenant's
                    expense provided Tenant shall have no obligation to remove
                    the initial tenant improvements described in Exhibit "B"
                    hereto. All such removals and restoration shall be
                    accomplished in a good workmanlike manner so as not to cause
                    any damage to the Premises or Project whatsoever. If
                    Landlord so elects, such alterations, physical additions or
                    improvements shall become the property of Landlord and
                    surrendered to Landlord upon the termination of this Lease
                    by lapse of time or otherwise; provided, however that this
                    clause shall not apply to trade fixtures or furniture owned
                    by Tenant. In addition to and wholly apart from its
                    obligation to pay Tenant's Proportionate Share of Basic
                    Operating Costs, Tenant shall be responsible for and shall
                    pay prior to delinquency any taxes or governmental service
                    fees, possessory interest taxes, fees or charges in lieu of
                    any such taxes, capital levies, or other chargers imposed
                    upon, levied with respect to or assessed against its
                    personal property, on the value of its alterations,
                    additions or improvements and on its interest pursuant to
                    this Lease. To the extent that any such taxes are not
                    separately assessed or billed to Tenant, Tenant shall pay
                    the amount thereof as invoiced to Tenant by Landlord.

SIGNS          13.  All signs, notices and graphics of every kind or character,
                    visible in or from public view or corridors, the common
                    areas or the exterior of the Premises, shall be subject to
                    Landlord's prior written approval, which Landlord shall have
                    the right to withhold in its absolute and sole discretion.
                    Tenant shall not place or maintain any banners whatsoever or
                    any window decor in or on any exterior window or window
                    fronting upon any common areas or service area or upon any
                    truck doors or man doors without Landlord's prior written
                    approval which Landlord shall have the right to grant or
                    withhold in its absolute and sole discretion. Any
                    installation of signs or graphics on or about the Premises
                    and Project shall be subject to any applicable governmental
                    laws, ordinances, regulations and to any other requirements
                    imposed by Landlord. Tenant shall remove all such signs and
                    graphics by the termination of this Lease. Such
                    installations and removals shall be made in such manner as
                    to avoid injury to or defacement of the Premises, Building
                    or Project and any other improvements contained therein, and
                    Tenant shall repair any injury or defacement including
                    without limitation discoloration caused by such installation
                    or removal.

INSPECTION/    14.  After reasonable notice, except in the emergencies where no
POSTING             such notice shall be required, Landlord, it's agents and
NOTICES             representatives, shall have the right to enter the Premises
                    to inspect the same, to lean, to perform such work as may be
                    permitted or required hereunder, to make repairs or
                    alterations to the Premises or Project or to other tenant
                    spaces therein, to deal with emergencies, to post such
                    notices as may be permitted or required by law to prevent
                    the perfection of liens against Landlord's interest in the
                    Project or to exhibit the Premises to prospective tenants,
                    purchasers, encumbrances or others, or for any other purpose
                    as Landlord may deem necessary or desirable; provided,
                    however, that Landlord shall not unreasonably interfere with
                    Tenant's business operations. Tenant shall not be entitled
                    to any abatement of Rent by reason of the exercise of any
                    such right of entry. Six months prior to the end of the
                    lease, Landlord shall have the right to erect on the
                    Premises and/or Project a suitable sign indicating that the
                    Premises are available for lease. Tenant shall give written
                    notice to Landlord at least thirty (30) days prior to
                    vacating the premises and shall meet with Landlord for a
                    joint inspection of the Premises at the time of vacating the
                    Premises shall conclusively be deemed correct for purposes
                    of determining Tenant's responsibility for repairs and
                    restoration.

UTILITIES      15.  Tenant shall pay for all water, gas, heat, air conditioning,
                    light, power, telephone, sewer, sprinkler charges and other
                    utilities and services used on or from the Premises,
                    together with any taxes, penalties, surcharges or the like
                    pertaining thereto, and maintenance charges for utilities
                    and shall furnish all electric light bulbs, ballasts and
                    tubes used within the Premises. If any such services are not
                    separately

                                      -6-

<PAGE>

                    metered to Tenant, Tenant shall pay a reasonable proportion,
                    as determined by Landlord, of all charges jointly serving
                    other premises, Landlord shall not be liable for any damages
                    directly or indirectly resulting from nor shall the Rent or
                    any monies owed Landlord under this Lease herein reserved be
                    abated by reason of (a) the installation, use or
                    interruption of use of any equipment used in connection with
                    the furnishing of any of the foregoing utilities and
                    services, (b) failure to furnish or delay in furnishing any
                    of the foregoing utilities and services, when such failure
                    or delay is caused by acts of God or the elements, labor
                    disturbances of any character, any other accidents or other
                    conditions beyond the reasonable control of Landlord, or (c)
                    the limitation, curtailment, rationing or restriction on use
                    of water, electricity, gas or any other form of energy or
                    any other service or utility whatsoever serving the Premises
                    or Project. Landlord shall be entitled to cooperate
                    voluntarily and in a reasonable manner in the efforts of
                    national, state or local government agencies or utility
                    suppliers in reducing energy or other resource consumption.
                    The obligation to make services available hereunder shall be
                    subject to the limitations of any such voluntary, reasonable
                    program.

SUBORDINATION  16.  Without the necessity of any additional document being
                    executed by Tenant for the purpose of effecting a
                    subordination, this Lease shall be subject and subordinate
                    at all times to (a) all ground leases or underlying leases
                    which may now exist or hereafter be executed affecting the
                    Premises and/or the land upon which the Premises and Project
                    are situated, or both, and (b) any mortgage or deed of trust
                    which may now exist or be placed upon said Project, land,
                    ground leases or underlying leases, or Landlord's interest
                    or estate in any of the said items, which is specified as
                    security. Notwithstanding the foregoing, Landlord shall have
                    the right to subordinate or cause to be subordinated any
                    such ground leases or underlying leases or any such liens to
                    this Lease. In the event that any ground lease or underlying
                    lease terminates for any reason or any mortgage or deed of
                    trust is foreclosed or a conveyance in lieu of foreclosure
                    is made for any reason. Tenant shall execute and deliver,
                    upon demand by Landlord and in the form requested by
                    Landlord, any additional documents evidencing the priority
                    of subordination of this Lease with respect to any such
                    ground leases or underlying leases or any such mortgage or
                    deed of trust. Landlord will attempt to get a
                    non-disturbance agreement from any subsequent mortgagor on
                    the property.

FINANCIAL      17.  At the request of Landlord, but not more than twice in any
STATEMENTS          twelve (12) month period, Tenant shall provide to Landlord
                    its current financial statement or other information
                    discussing financial worth which Landlord shall use solely
                    for purposes of this Lease and in connection with the
                    ownership, management and disposition of the property
                    subject hereto.

ESTOPPEL       18.  Tenant agrees from time to time within ten (10) days after
CERTIFICATES        request of Landlord, to delivery to Landlord, or Landlord's
                    designee, an estoppel certificate stating that this Lease is
                    in full force and effect, the date to which Rent has been
                    paid, the unexpired portion of this Lease and such other
                    matters pertaining to this Lease as may be reasonably
                    requested by Landlord. Failure by Tenant to execute and
                    deliver such certificate shall constitute an acceptance of
                    the Premises and acknowledgement by Tenant that the
                    statements included are true and correct without exception.
                    Landlord and Tenant intend that any statement delivered
                    pursuant to this paragraph may be relied upon by any
                    mortgagee, beneficiary, purchaser or prospective purchaser
                    of the Project or any interest therein. The parties agree
                    that Tenant's obligation to furnish such estoppel
                    certificates in a timely fashion is a material inducement
                    for Landlord's execution of the Lease.

SECURITY       19.  Tenant agrees to deposit with Landlord upon execution of
DEPOSIT             this Lease, a Security Deposit as stated in the Basic Lease
                    Information which sum shall be held by Landlord, without
                    obligation for interest, as security for the performance of
                    Tenant's covenants and obligations under this Lease, it
                    being expressly understood and agreed that such deposit is
                    not an advance rental deposit or a measure of damages
                    incurred by Landlord in case of Tenant's default. Upon the
                    occurrence of any event of default by Tenant, Landlord may,
                    from time, without prejudice to any other remedy provided
                    herein or provided by law, use such fund to the extent
                    necessary to make good any arrears of Rent or other payments
                    due to Landlord hereunder and any other damage, injury,
                    expense or liability caused by such event of default, and
                    Tenant shall pay to Landlord, on demand, the amount so
                    applied in order to restore the Security Deposit to its
                    original amount. Although the Security Deposit shall be
                    deemed the property of Landlord, any remaining balance of
                    such deposit shall be returned by Landlord to Tenant at such
                    time after termination of this Lease that all of the
                    Tenant's obligations under this Lease have been fulfilled.

TENANT'S       20.  Tenant shall look solely to Landlord's interest in the
REMEDIES            Project for recovery of any judgement from Landlord.
                    Landlord, or if Landlord is a partnership, its partners
                    whether general or limited, or if it is a corporation, its
                    directors, officers of shareholders, shall never be
                    personally liable for any such judgement. Any lien obtained
                    to enforce any such judgement and any levy of execution
                    thereon shall be subject and subordinate to any lien,
                    mortgage or deed of trust on the Project.

ASSIGNMENT     21.  A. Tenant shall not assign or sublet the Premises or any
AND                 part thereof without Landlord's prior written approval
SUBLETTING          except as provided herein. If Tenant desires to assign this
                    Lease or sublet any or all of the Premises, Tenant shall
                    give Landlord written notice sixty (60) days prior to the
                    anticipated effective date of the assignment or sublease.
                    Landlord shall then have a period of thirty (30) days
                    following receipt of such notice to notify Tenant in writing
                    that Landlord elects to permit Tenant to assign this Lease
                    or sublet such space, subject, however, to Landlord's prior
                    written approval of the proposed assignee or subtenant and
                    of any related documents or agreements associated with the
                    assignment or sublease, such consent not to be unreasonably
                    withheld so long as the use of the Premises by such proposed
                    assignee or subtenant would be a Permitted Use and would not
                    in Landlord's opinion increase Occupant Density of the
                    Project, the proposed assignee or subtenant is of sound
                    financial condition, and the proposed assignment or sublease
                    would not be likely to result in any decrease in Rent. If
                    Landlord should fail to notify after having received
                    notification of such intent to sublease, Tenant in writing
                    of such election within said period, Landlord shall be
                    deemed to have approved the proposed assignee or subtenant.

                    B. Any Rent or other reconsideration realized by Tenant
                    under any such sublease or assignment in excess of the Rent
                    payable hereunder, after amortization of (1) the reasonable
                    cost of any improvements which Tenant has made to the
                    Premises and (2) reasonable subletting and assignment costs,
                    shall be divided and paid fifty percent (50%) to Tenant,
                    fifty percent (50%) to Landlord.

                    C. In any subletting or assignment undertaken by Tenant,
                    Tenant shall diligently seek to obtain the maximum rental
                    amount available in the marketplace for such subletting or
                    assignment.

                    D. For purposes of this Lease, and assignment or subletting
                    shall not include any assignment or sublease of all or any
                    portion of the Premises made to any entity which controls,
                    is controlled by, or is under common control with Tenant; to
                    any entity which results from a merger or consolidation with
                    Tenant (including any successor corporation); to any entity
                    engaged in a joint venture with Tenant; or to any entity
                    which acquires substantially all of the stock or assets of
                    Tenant, as a going concern, with respect to the business
                    that is being conducted in the Premises (hereinafter each
                    "Permitted Transfer"). In addition, a sale or transfer of
                    capital stock of Tenant shall be deemed a Permitted Transfer
                    if (1) such sale or transfer occurs in connection with any
                    bona fide financing or capitalization for the benefit of
                    Tenant, or (2) Tenant is a publicly traded corporation,
                    provided Landlord is in no worse position with respect to

                                      -7-

<PAGE>

                    Landlord's economic security under this Lease.
                    Notwithstanding anything to the contrary contained in this
                    Lease, Landlord shall have no right of approval or consent
                    with respect to any Permitted Transfer, nor shall Landlord
                    have any right to any sums or other economic consideration
                    resulting from any Permitted Transfer.

                    Notwithstanding the foregoing, a transfer shall be a
                    "permitted transfer" only if Landlord is in no worse a
                    position with respect to Landlord's economic security under
                    this Lease (including payment of rent).

                    F. No assignment or subletting by Tenant shall relieve
                    Tenant of any obligations under this Lease. Any assignment
                    or subletting which conflicts with the provisions hereof
                    shall be void.

QUIET          22.  Landlord represents that it has full right and authority to
ENJOYMENT           enter into this Lease and that Tenant, upon paying the Rent
                    and performing its other covenants and agreements herein set
                    forth, shall peaceably and quietly have, hold and enjoy the
                    Premises for the Term hereof without hindrance or
                    molestation from Landlord, subject to the terms and
                    provisions of this Lease.

CONDEMNATION   23.  A. If the whole or any substantial portion of the Project of
                    which the Premises are a part should be taken or condemned
                    for any public use under governmental law, ordinance, or
                    regulation, or by right of eminent domain, or by private
                    purchase in lieu thereof, and the taking would prevent or
                    materially interfere with the Permitted Use of the Premises,
                    this Lease shall terminate and the Rent shall be abated
                    during the unexpired portion of this Lease, effective when
                    the physical taking of said Premises shall have occurred.

               B.   If a portion of the Project of which the Premises are a part
                    should be taken or condemned for any public use under any
                    governmental law, ordinance, or regulation, or by right of
                    eminent domain, or by private purchase in lieu thereof, and
                    this Lease is not terminated as provided in the subparagraph
                    23A above, this Lease shall not terminate, but the Rent
                    payable hereunder during the unexpired portion of the Lease
                    shall be reduced to such extent as may be fair and
                    reasonable under all of the circumstances.

               C.   Landlord shall be entitled to any and all payment, income,
                    rent, award, or any interest therein whatsoever which may be
                    paid or made in connection with such taking or conveyance
                    and Tenant shall have no claim against Landlord or otherwise
                    for the value of any unexpired portion of this Lease.
                    Notwithstanding the foregoing paragraph, any compensation
                    specifically awarded Tenant for loss of business, Tenant's
                    personal property, the unamortized cost of any tenant
                    improvements or alterations, moving cost or loss of
                    goodwill, shall be and remain the property of Tenant.

CASUALTY       24.  A. If the Premises should be damaged or destroyed by fire,
DAMAGE              tornado or other casualty, Tenant shall give immediate
                    written notice thereof to Landlord. Within thirty (30)
                    days of such notice, Landlord shall notify Tenant whether
                    in Landlord's opinion such repairs can be made either (1)
                    within ninety (90) days, (2) in more than ninety (90)
                    days but in less than one hundred eighty (180) days, or
                    (3) in more than one hundred eighty (180) days from the
                    date of such notice; Landlord's determination shall be
                    binding on Tenant. If Landlord fails to complete the
                    repairs within one hundred fifty (150) days after the
                    date upon which Landlord is notified of such damage, such
                    period of time to be extended for delays caused by the
                    fault or neglect of Tenant or because of acts of God,
                    acts of public agencies, labor disputes, strikes, fires,
                    freight embargoes, rainy or stormy weather, inability to
                    obtain materials, supplies or fuels, or delay of the
                    contractors or subcontractors due to such causes or other
                    contingencies beyond the control of Landlord, Tenant may at
                    its option terminate this Lease by delivering written notice
                    of termination to Landlord whereupon this Lease shall
                    terminate thirty (30) days thereafter.

               B.   If the Premises should be damaged by fire, tornado or other
                    casualty but only to such extent that rebuilding or repairs
                    can in Landlord's estimation be completed within ninety (90)
                    days after the date upon which Landlord is notified by
                    Tenant of such damage, this Lease shall not terminate, and
                    Landlord shall at its sole cost and expense thereupon
                    proceed with reasonable diligence to rebuild and repair the
                    Premises to substantially the condition in which they
                    existed prior to such damage, except that Landlord shall not
                    be required to rebuild, repair or replace any part of the
                    partitions, fixtures, additions and other improvements which
                    may have been placed in, on or about the Premises by Tenant.
                    If the Premises are untenantable in whole or in part
                    following such damage, the Rent payable hereunder during the
                    period in which they are untenantable shall be reduced to
                    such extent as may be fair and reasonable under all of the
                    circumstances.

               C.   If the Premises should be damaged by fire, tornado or
                    other casualty but only to such extent that rebuilding or
                    repairs can in Landlord's estimation be completed in more
                    than ninety (90) days but in less than one hundred eighty
                    (180) days, then Landlord shall have the option of either
                    (1) terminating the Lease by written notice given to
                    Tenant within thirty (30) days after the date upon which
                    Landlord is notified by Tenant of such damage, effective
                    upon the date of the occurrence of such damage, in which
                    event the Rent shall be abated during the unexpired
                    portion of the Lease, or (2) electing to rebuild or
                    repair the Premises to substantially the condition in
                    which they existed prior to such damage except that
                    Landlord shall not be required to rebuild, repair or
                    replace any part of the partitions, fixtures, additions
                    and other improvements which may have been placed in, on
                    or about the Premises by Tenant. If the Premises are
                    untenantable in whole or in part following such damage,
                    the Rent payable hereunder during the period in which
                    they are untenantable shall be reduced to such extent as
                    may be fair and reasonable under all of the
                    circumstances. In the event that Landlord should fail to
                    complete such repairs and rebuilding within one hundred
                    eighty (180) days after the date upon which Landlord is
                    notified by Tenant of such damage, such period of time to
                    be extended for delays caused by the fault or neglect of
                    Tenant or because of acts of God, acts of public
                    agencies, labor disputes, strikes, fires, freight
                    embargoes, rainy or stormy weather, inability to obtain
                    materials, supplies or fuels, or delay of the contractors
                    or subcontractors due to such causes or other
                    contingencies beyond the reasonable control of Landlord,
                    Tenant may at its option terminate this Lease by
                    delivering thirty (30) days prior written notice of
                    termination to Landlord as Tenant's exclusive remedy,
                    whereupon all rights and obligations hereunder shall
                    cease and terminate.

               D.   If the Premises should be so damaged by fire, tornado, or
                    other casualty that rebuilding or repairs cannot in
                    Landlord's estimation be completed within one hundred eighty
                    (180) days after the date upon which Landlord is notified by
                    Tenant of such damage, this Lease shall terminate and the
                    Rent shall be abated during the unexpired portion of this
                    Lease, effective upon the date of the occurrence of such
                    damage.

               E.   Notwithstanding anything herein to the contrary, in the
                    event that holder of any indebtedness secured by a mortgage
                    or deed of trust covering the Premises requires that the
                    insurance proceeds be applied to such indebtedness, then
                    Landlord shall have the right to terminate this Lease by
                    delivering written notice of termination to Tenant within
                    fifteen (15) days after such requirement is made by any such
                    holder, whereupon

                                      -8-

<PAGE>

                    all rights and obligations hereunder shall cease and
                    terminate.

                    F.  The provision of Section 1942, Subdivision 2, and
                    Section 1933, Subdivision 4, of the Civil Code of California
                    is superseded by the foregoing.

                    G.  In the event Landlord chooses to rebuild under this
                    Paragraph 24, Landlord agrees to do so without delay and
                    complete such rebuilding in as expeditious a manner as is
                    commercially reasonably given the circumstances.

HOLDING OVER   25.  If Tenant shall retain possession of the Premises or any
                    portion thereof without Landlord's consent following the
                    expiration of the Lease or sooner termination for any
                    reason, then Tenant shall pay to Landlord for each day of
                    such retention one hundred fifty percent (150%) triple-the
                    amount of the daily rental for the first month prior to the
                    date of expiration or termination. Tenant shall also
                    indemnify and hold Landlord harmless from any loss or
                    liability resulting from delay by Tenant in surrendering the
                    Premises, including, without limitation, any claims made by
                    any succeeding tenant founded on such delay. Alternatively,
                    if Landlord gives notice of Landlord's consent to Tenant's
                    holding over, such holding over shall constitute renewal of
                    the Lease on whatever terms are specified in such notice.
                    Acceptance of Rent by Landlord following expiration or
                    termination shall not constitute a renewal of this Lease,
                    and nothing contained in this paragraph shall waive
                    Landlord's right of reentry or any other right. Unless
                    Landlord exercises the option hereby given to it, Tenant
                    shall be only a Tenant at sufferance, whether or not
                    Landlord accepts any Rent from Tenant while Tenant is
                    holding over without Landlord's written consent.
                    Additionally, in the event that upon termination of the
                    Lease, Tenant has not fulfilled its obligation with respect
                    to repairs and cleanup of the Premises or any other Tenant
                    obligations as set forth in this Lease, then Landlord shall
                    have the right to perform any such obligations as it deems
                    necessary at Tenant's sole cost and expense, and any time
                    required by Landlord to complete such obligations shall be
                    considered a period of holding over and the terms of this
                    paragraph shall apply provided Landlord diligently
                    undertakes to complete such work in a timely
                    manner.

DEFAULT        26.  A. EVENTS OF DEFAULT. The occurrence of any of the following
                    shall constitute an event of default on the part of Tenant:

                       (1) ABANDONMENT. Vacation or abandonment of the premises
                    for a continuous period in excess of five (5) days. Tenant
                    waives any right of notice Tenant may have under Section
                    1951.3 of the Civil Code of the State of California, the
                    terms of this subparagraph 26A being deemed such notice to
                    Tenant as required by said Section 1951.3.

                       (2) NONPAYMENT OF RENT. Failure to pay any installment of
                    Rent or any other amount due and payable hereunder upon the
                    date when said payment is due, such failure continuing
                    without cure by payment of the delinquent Rent and late
                    charge or other obligations for a period of five (5) days
                    after written notice and demand; provided, however, that
                    except as expressly otherwise provided herein, Landlord
                    shall not be required to provide such notice more than twice
                    during any three (3) year period of the Term, the third such
                    non-payment in such period constituting default for all
                    purposes hereof without requirements of notice.

                       (3) OTHER OBLIGATIONS. Failure to perform any
                    obligations, agreement or covenant under this Lease other
                    than those matters specified in subparagraphs (1) and (2) of
                    this subparagraph 26A, such failure continuing for fifteen
                    (15) days after written notice of such failure, or such
                    longer period as Landlord reasonably determines to be
                    necessary to remedy such default, provided that Tenant shall
                    continuously and diligently pursue such remedy at all times
                    until such default is cured.

                       (4) GENERAL ASSIGNMENT. A general assignment by Tenant
                    for the benefit of creditors.

                       (5) BANKRUPTCY. The filing of any voluntary petition in
                    bankruptcy by Tenant, or the filing of an involuntary
                    petition by Tenant's creditors which involuntary petition
                    remains undischarged for a period of thirty (30) days. In
                    the event that under applicable law the trustee in
                    bankruptcy or Tenant has the right to affirm this Lease and
                    continue to perform the obligation of Tenant hereunder, such
                    trustee or Tenant shall, in such time period as may be
                    permitted by the bankruptcy court having jurisdiction, cure
                    all defaults of Tenant hereunder outstanding as of the date
                    of the affirmance of this Lease and provide to Landlord such
                    adequate assurances as may be necessary to ensure Landlord
                    of the continued performance of Tenant's obligations under
                    this Lease.

                       (6) RECEIVERSHIP. The employment of a receiver to take
                    possession of substantially all of Tenant's assets of the
                    Premises, if such attachment or other seizure remains
                    undismissed or undischarged for a period of ten (10) days
                    after the levy thereof.

                       (7) ATTACHMENT. The attachment, execution or other
                    judicial seizure of all or substantially all of Tenant's
                    assets of the Premises, if such attachment or other seizure
                    remains undismissed or undischarged for a period of twenty
                    (20) days after the levy thereof.

                    B.   REMEDIES UPON DEFAULT.

                       (1) RENT. All failures to pay any monetary obligation
                    to be paid by Tenant under this Lease shall be construed as
                    obligations for payment of Rent.

                       (2) TERMINATION. In the event of the occurrence of any
                    event of default Landlord shall have the right, with or
                    without notice or demand, to immediately terminate this
                    Lease, and at any time thereafter recover possession of the
                    Premises or any part thereof and expel and remove therefrom
                    Tenant and any other person occupying the same, by any
                    lawful means, and again repossess and enjoy the Premises
                    without prejudice to any of the remedies that Landlord may
                    have under this Lease, or at law or equity by reason of
                    Tenant's default or of such termination.

                       (3) CONTINUATION AFTER DEFAULT. Even though Tenant has
                    breached this Lease and/or abandoned the Premises, this
                    Lease shall continue in effect for so long as Landlord does
                    not terminate Tenant's right to possession under paragraph
                    26B(2) hereof, and Landlord may enforce all its rights and
                    remedies under this Lease, including but not without
                    limitation, the right to recover Rent as it becomes due, and
                    Landlord, without terminating this Lease, may exercise all
                    of the rights and remedies of a Landlord under Section
                    1951.4 of the Civil Code of the State of California or any
                    successor code section. Acts of maintenance preservation or
                    efforts to lease the Premises or the appointment of a
                    receiver upon application of Landlord to protect Landlord's
                    interest under this Lease shall not constitute an election
                    to terminate Tenant's right to possession.

                    C. DAMAGES UPON TERMINATION. Should Landlord terminate this
                    Lease pursuant to the provisions of paragraph 26B(2) hereof,
                    Landlord shall have all the rights and remedies of a
                    Landlord provided by Section 1951.2 of the Civil Code of the
                    State of California, or successor code sections. Upon such
                    termination, in addition to any other rights and remedies to
                    which Landlord may be entitled under applicable law,
                    Landlord shall be entitled to recover from Tenant: (1) the
                    worth at the time of award of the unpaid Rent and other
                    amounts which had been earned at the time of termination,
                    (2) the worth at the time of award of the amount by which
                    the unpaid Rent which would have been earned after
                    termination until the time of award exceeds the amount of
                    such Rent loss that the Tenant proves could have been
                    reasonably avoided, (3) the worth at the time of award of
                    the amount by which the unpaid Rent for the balance of the
                    term after the time of award exceeds the

                                      -9-

<PAGE>

                    amount of such Rent loss that the Tenant proves could be
                    reasonably avoided, and (4) any other amount necessary to
                    compensate Landlord for all the detriment proximately caused
                    by Tenant's failure to perform its obligations under this
                    Lease or which, in the ordinary course of things, would be
                    likely to result therefrom. The "worth at the time of award"
                    of the amounts referred to in (1) and (2) above shall be
                    computed with interest at the maximum rate allowed by law.
                    The "worth at the time of award" of the amount referred to
                    in (3) above shall be computed by discounting such amount at
                    the Federal Discount Rate of the Federal Reserve Bank of
                    San Francisco at the time of the award plus one percent
                    (1%).

                    D. LATE CHARGE. In addition to its other remedies, Landlord
                    shall have the right without notice or demand to add to the
                    amount of any payment required to be made by Tenant
                    hereunder, and which is not paid on or before the date the
                    same is due, an amount equal to five percent (5%) of the
                    delinquency for each month or portion thereof that the
                    delinquency remains outstanding to compensate Landlord for
                    the loss of the use of the amount not paid and the
                    administrative costs caused by the delinquency, the parties
                    agreeing that Landlord's damage by virtue of such
                    delinquencies would be difficult to compute and the amount
                    stated herein represents a reasonable estimate thereof.

                    E. REMEDIES CUMULATIVE. All rights, privileges and elections
                    or remedies of the parties are cumulative and not
                    alternative to the extent permitted by law and except as
                    otherwise provided herein.

LIENS          27.  Tenant shall keep the premises free from liens arising out
                    of or related to work performed, materials or supplies
                    furnished or obligations incurred by Tenant or in
                    connection with work made, suffered or done by Tenant in
                    or on the Premises or Project. In the event that Tenant
                    shall not, within ten (10) days following the imposition
                    of any such lien, cause the same to be released of record
                    by payment or posting of a proper bond, Landlord shall
                    have, in addition to all other remedies provided herein
                    and by law, the right, but not the obligation, to cause
                    the same to be released by such means as it shall deem
                    proper, including payment of the claim giving rise to
                    such lien. All sums paid by Landlord on behalf of Tenant
                    and all expenses incurred by Landlord in connection
                    therefore shall be payable to Landlord by Tenant on
                    demand with interest at the maximum rate allowable by
                    law. Landlord shall have the right at all times to post
                    and keep posted on the Premises any notices permitted or
                    required by law, or which Landlord shall deem proper, for
                    the protection of Landlord, the Premises, the Project and
                    any other party having an interest herein, from
                    mechanics' and materialmen's liens, and Tenant shall give
                    Landlord not less than ten (10) business days prior
                    written notice of the commencement of any work in the
                    Premises or Project which could lawfully give rise to a
                    claim for mechanics' or materialmen's lien.

SUBSTITUTION   28.

TRANSFERS BY   29.  In the event of a sale or conveyance by Landlord of the
LANDLORD            Project, the same shall operate to release Landlord from any
                    future liability upon any of the covenants or conditions,
                    express or implied, herein contained in favor of Tenant, and
                    in such event Tenant agrees to look solely to the
                    responsibility of the successor in interests of Landlord in
                    and to this Lease. This Lease shall not be affected by any
                    such sale and Tenant agrees to attorn to the purchaser or
                    assignee.

RIGHT OF       30.  All covenants and agreements to be performed by Tenant under
LANDLORD TO         any of the terms of this Lease shall be performed by Tenant
PERFORM             at Tenants' sole cost and expense and without any abatement
TENANT'S            of Rent. If Tenant shall fail to pay any sum of money, other
COVENANTS           than Rent, required to be paid by it hereunder or shall fail
                    to perform any other act on its part to be performed
                    hereunder, and such failure shall continue for five (5)
                    days after notice thereof by Landlord, Landlord may, but
                    shall not be obligated to do so, and without waiving or
                    releasing Tenant from any obligations of the Tenant, make
                    any such payment or perform any such act on the Tenant's
                    part to be made or performed. All sums so paid by
                    Landlord and all necessary incidental costs together with
                    interest thereon at the maximum rate permitted by law
                    from the date of such payment by the Landlord shall be
                    payable to Landlord on demand, and Tenant covenants to
                    pay such sums, and Landlord shall have, in addition to
                    any other right or remedy of Landlord, the same right and
                    remedies in the event of the nonpayment thereof by Tenant
                    as in the case of default by Tenant in the payment of the
                    Rent.

WAIVER         31.  If either Landlord or Tenant waives the performance of any
                    term, covenant or condition contained in this Lease, such
                    waiver shall not be deemed to be a waiver of any subsequent
                    breach of the same or any other term, covenant or condition
                    contained herein. The acceptance of Rent by Landlord shall
                    not constitute a waiver of any preceding breach by Tenant of
                    any term, covenant or condition or this Lease, regardless of
                    Landlord's knowledge of such preceding breach at the time
                    Landlord accepted such Rent. Failure by either party
                    Landlord to enforce any of the terms, covenants or
                    conditions of this Lease for any length of time shall not be
                    deemed to waive or to decrease the right of said party
                    Landlord to insist thereafter upon strict performance by the
                    other Party--Tenant. Waiver of by either party Landlord-of
                    any term, covenant or condition contained in this Lease may
                    only be made by a written document signed by said party-
                    Landlord.

NOTICES        32.  Each provision of this Lease or of any applicable
                    governmental laws, ordinances, regulations and other
                    requirements with reference to the sending, mailing or
                    delivery of any notice or the making of any payment by
                    Landlord or Tenant to the other shall be deemed to be
                    complied with when and if the following steps are taken:

                    A. All Rent and other payments required to be made by Tenant
                    to Landlord hereunder shall be payable to Landlord at the
                    address set forth in the Basic Lease Information, or at such
                    other address as Landlord may specify from time to time by
                    written notice delivered in accordance herewith. Tenant's
                    obligation to pay Rent and any other amounts to Landlord
                    under the terms of this Lease shall not be deemed satisfied
                    until such Rent and other amounts have been actually
                    received by Landlord.

                    B. All notices, demands, consents and approvals which may or
                    are required to be given by either party to the other
                    hereunder shall be in writing and shall be deemed to have
                    been fully given when deposited in the United States mail,
                    certified or registered, postage prepaid, and addressed to
                    the party to be notified at the address for such party
                    specified in the Basic Lease Information or to such other
                    place as the party to be notified may from time to time
                    designate. Tenant appoints as its agent to receive the
                    service of all default notices and notice of commencement of
                    unlawful detainer proceedings the person in charge of or
                    apparently in charge of or occupying the Premises at the
                    time, and, if there is no such person, then such service may
                    be made by attaching the same on the main entrance of the
                    Premises.

                                      -10-

<PAGE>

ATTORNEYS      33.  In the event either party places the enforcement of this
FEES                Lease, or any part thereof, or the collection of any Rent
                    due, or to become due hereunder, or recovery of the
                    possession of the Premises in the hands of an attorney or
                    files suit upon the same, the prevailing party shall recover
                    its reasonable attorneys' fees and court costs.

SUCCESSORS     34.  This Lease shall be binding upon and inure to the benefit of
AND ASSIGNS         Landlord, its successors and assigns, and shall be binding
                    upon and inure to the benefit of Tenant, its successors,
                    and to the extent assignment may be approved by Landlord
                    hereunder, Tenant's assigns.

FORCE          35.  Whenever a period of time is herein prescribed for action to
MAJEURE             be taken by Landlord, Landlord shall not be liable or
                    responsible for, and there shall be excluded from the
                    computation for any such period of time, any delays due to
                    strike, riots, acts of God, shortages of labor or materials,
                    war, governmental laws, regulations or restrictions or any
                    other causes of any kind whatsoever which are beyond the
                    control of Landlord. Whenever a period of time is herein
                    prescribed for action as to non-monetary obligations to be
                    taken by Tenant, Tenant shall not be liable or responsible
                    for, and there shall be excluded from the computation for
                    any such period of time, any delays due to strike, riots,
                    acts of God, shortages of labor or materials, war,
                    governmental laws, regulations or restrictions or any other
                    causes of any kind whatsoever which are beyond the control
                    of Tenant.

MISCEL-        36.  A. The term "Tenant" or any pronoun used in place thereof
LANEOUS             shall indicate and include the masculine or feminine, the
                    singular or plural number, individuals, firms or
                    corporations, and their and each of their respective
                    successors, executors, administrators and permitted assigns,
                    according to the context hereof.

                    B. Time is of the essence regarding this Lease and all of
                    its provisions.

                    C. This Lease shall in all respects be governed by the laws
                    of the State of California.

                    D. This Lease, together with its exhibits, contains all the
                    agreements of the parties hereto and supercedes any previous
                    negotiations.

                    E. There have been no representations made by the Landlord
                    or understandings made between the parties other than those
                    set forth in this Lease and its exhibits.

                    F. This Lease may not be modified except by a written
                    instrument by the parties hereto.

                    G. If, for any reason whatsoever, any of the provisions
                    hereof shall be unenforceable or ineffective, all of the
                    other provisions shall be and remain in full force and
                    effect.

ADDITIONAL     37.  RIGHT OF FIRST REFUSAL. Provided Tenant is not, and has not
PROVISIONS          been, in default of any terms and conditions of this Lease,
                    Tenant shall have a prior right of refusal to Lease existing
                    space as it becomes available in the Project, provided no
                    other Tenant has a pre-existing prior on right on such
                    space. Upon notification by Landlord either orally or in
                    writing of the availability of space, Tenant shall have
                    seven (7) days to notify Landlord of Tenant's desire to
                    exercise Tenant's prior right of refusal on the terms and
                    conditions offered by Landlord. In the event Tenant fails to
                    give Landlord notice of Tenant's election to lease the
                    additional space within the time period, Tenant shall have
                    no further right, title or interest in the space provided
                    Landlord shall not lease said space to any other entity or
                    individual on terms and conditions that are materially more
                    favorable to the tenant under such lease than those offered
                    to Tenant without first offering the space to Tenant upon
                    the more favorable terms and conditions, whereupon Tenant
                    shall have seven (7) days to notify Landlord of Tenant's
                    desire to exercise Tenant's prior right of first refusal
                    upon the more favorable terms and conditions. In the event
                    Landlord leases said space, then Tenant shall have the same
                    prior right of first refusal, as specified in this Section
                    37, when and if said space becomes available again during
                    this lease term. If, on the other hand, Tenant exercises its
                    prior right of refusal in the manner prescribed, Tenant
                    shall immediately deliver to Landlord payment for the first
                    month's rent for the space (in the manner as provided for in
                    this Lease), and the lease for the space shall be
                    consummated without delay in accordance with the terms and
                    conditions set forth in the lease offer.

               38.  OPTION TO RELEASE. While this Lease is in full force and
                    effect, provided that Tenant is not at such time in default
                    of any of the terms, covenants and conditions hereof, and
                    Tenant has never been in material default of this lease,
                    Tenant shall have the right and option to extend the term
                    hereof on the premises for two (2) additional periods of
                    five (5) years each, except that the monthly rental and
                    terms for said release shall be at the fair market rates
                    and prevailing terms then in effect on equivalent
                    properties, of equivalent size, in equivalent areas (but in
                    no event will the rent be less than the immediately previous
                    rental rate). Notice of Tenant's intention to exercise the
                    option must be given to Landlord in writing at least one
                    hundred eighty (180) days prior to the expiration of the
                    term.

                    This option shall apply only to the primary tenant and not
                    to an assignee or subtenant of Tenant, except for those
                    parties pre-approved, if any, as assignees or sublessees.

               39.  TERMINATION OPTION. Notwithstanding anything herein to the
                    contrary, Tenant shall have one (1) option to terminate
                    this Lease effective on the last day of month thirty-six
                    (36) ("early termination date") provided that Tenant
                    notifies Landlord in writing of its intent to do so prior to
                    the last day of month twenty-four (24) and pays to
                    Landlord the cost of all unamortized costs funded by
                    Landlord including tenant improvements and commission, plus
                    all abated rent and reduced rent as a result of less than
                    the occupancy of the entire building during the first two
                    (2) years of the lease plus an additional two (2) years of
                    future rent on the entire premises.

               40.  SIGNAGE. Notwithstanding the provisions of Section 13 above,
                    Tenant shall have the right to install monument signage
                    allowed by the City of Hayward, consistent with the
                    existing signage in BayCenter Business Park, and with the
                    prior written approval of Landlord.

               41.  TENANT IMPROVEMENT ALLOWANCE. Landlord shall provide and pay
                    Tenant a tenant improvement allowance of One Hundred
                    Seventy-Seven Thousand One Hundred Twenty Dollars
                    ($177,120.00) upon completion of the tenant improvements
                    specified in Exhibit B herein and submission of a bonafide
                    invoice evidencing an obligation of Tenant to pay for such
                    completed work by a competent general contractor and receipt
                    of final lien releases.

               42.  LANDLORD WARRANTY. To the best of Landlord's knowledge,
                    Landlord represents and warrants to Tenant that as of the
                    date hereof and as of the Term Commencement Date, (a) the
                    Building and all Building systems are and shall be in good
                    working condition, structurally sound and free from latent
                    defects, (b) the Premises and the Building do not violate
                    any ordinance, rule, code (including without limitation the
                    requirements of the Americans with Disabilities Act),
                    covenants or restrictions of record as are applicable to the
                    Building or the Premises or regulation of any government
                    agency, and Landlord has not received notice of any possible
                    violation.

               43.  HAZARDOUS MATERIALS. Landlord represents and warrants that
                    the attached Exceltech report dated March 1, 1988
                    (Exhibit B) is the most recent report obtained by Landlord
                    concerning Hazardous Materials with respect to the Project.
                    To the best of Landlord's knowledge Landlord is unaware of
                    the presence of any Hazardous Materials on the Project that
                    is in violation of applicable laws. In the event of (a) any
                    breach of the foregoing representation and warranty or (b)
                    the occurrence, release or threatened release of any
                    Hazardous

                                      -11-

<PAGE>

                    Materials on or about the Premises, Building or Project that
                    is caused by Landlord, or its employees or (c) the presence
                    of any Hazardous Materials caused by any previous occupant
                    of the Building that is required by local, state or federal
                    law to be remediated, then Landlord shall protect,
                    indemnify, defend and hold Tenant harmless from and against
                    any costs of clean-up of such Hazardous Materials. The
                    provisions of this section shall survive the termination of
                    this Lease.

               44.  HAZARDOUS MATERIALS. Tenant shall (i) not cause or permit
                    any "Hazardous Material" (as hereinafter defined) to be
                    brought upon, kept, or used in or about the Premises by
                    Tenant, its agents, employees, contractors or invitees in
                    any manner which shall cause contamination of the Premises
                    or adjacent property. If Tenant breaches the obligations
                    stated in the preceding sentence, or if the presence of
                    Hazardous Material on the Premises caused or permitted by
                    Tenant results in contamination of the Premises or any
                    adjacent property, then Tenant shall indemnify, defend and
                    hold Landlord harmless from any and all claims, judgments,
                    damages, penalties, fines, costs, liabilities or losses
                    (including, without limitation, diminution in value of the
                    Premises and/or adjacent property, damages for the loss or
                    restriction on use of rentable or useable space or of any
                    amenity of the Premises and/or adjacent property, damages
                    arising from any adverse impact on marketing of the Premises
                    and/or adjacent property, and sums paid in settlement of
                    claims, attorneys' fees, consultant fees and expert fees)
                    which arise during or after the Lease Term or any Extended
                    Term as a result of such contamination. This indemnification
                    of Landlord by Tenant includes, without limitation, costs
                    incurred in connection with any investigation of site
                    conditions or any cleanup, remedial, removal, or restoration
                    work required by any federal, state or local governmental
                    agency or subdivision because of Hazardous Material present
                    in the soil or ground water on or under the Premises and/or
                    adjacent property. Without limiting the foregoing, if the
                    presence of any Hazardous Material on the Premises caused or
                    permitted by Tenant results in any contamination of the
                    Premises and/or adjacent property, Tenant shall promptly
                    take all actions at its sole expense as are necessary to
                    return the Premises and/or adjacent property to the
                    condition existing prior to the introduction of any such
                    Hazardous Material to the Premises and/or adjacent property;
                    provided that Landlord's approval of such actions shall
                    first be obtained, which approval shall not be unreasonably
                    withheld so long as such actions would not potentially have
                    any material adverse long-term or short-term effect on the
                    Premises and/or adjacent property. As used herein, the term
                    "Hazardous Material" means any hazardous or toxic substance,
                    material, or waste, or any substance, materiel or waste
                    which is or becomes regulated by any local governmental
                    authority, the State of California or the United States
                    Government. Upon expiration or earlier termination of this
                    Lease, Tenant shall duly execute and deliver to Landlord a
                    certificate (the "Hazardous Waste Certificate") in the form
                    on Exhibit C attached hereto. In the event Tenant shall fail
                    to so deliver the Hazardous Waste Certificate, such failure
                    shall, without further notice or the passage of time,
                    constitute a default under the Lease and shall entitle
                    Landlord to retain the entire security deposit held by
                    Landlord, to be applied toward payment of the cost of
                    assessing the presence of Hazardous Material on the Premises
                    and/or adjacent property, and toward payment of all loss,
                    cost, liability, damage and expense of Landlord arising as a
                    result of any such contamination and toward such other costs
                    and expenses of Landlord as Landlord may designate in its
                    sole discretion.  Nothing contained herein shall be deemed
                    or construed to limit the liability of Tenant to Landlord
                    hereunder for the breach of any covenant of Tenant under
                    this Paragraph 44.  The provisions of this Paragraph 44
                    shall survive the expiration or earlier termination of this
                    Lease and Tenant's surrender the Premises to Landlord.

               45.  LEASE EFFECTIVE DATE. Submission of this instrument for
                    examination or signature by Tenant does not constitute a
                    reservation or option for lease, and it is not effective as
                    a lease or otherwise until execution by Landlord and Tenant.

                    IN WITNESS WHEREOF, the parties hereto have executed this
                    Lease the day and year first above written.

                      "LANDLORD"

                      SPIEKER-SINGLETON #87, LIMITED PARTNERSHIP

                      BY /s/ Peter H. Schnugg
                        ------------------------------------
                       Peter H. Schnugg

                       Its  Agent for Owner
                          --------------------------------------

                      "TENANT"

                      LYNX THERAPEUTICS, INC.

                      BY /s/ Sam Eletr
                        ------------------------------------

                      Print Name  SAM ELETR
                                 -----------------------------

                          Its  CEO & CHAIRMAN
                              -----------------------------

<PAGE>

                                    SITE PLAN

                                  Future Phase II

                                      [MAP]

<PAGE>

                                    EXHIBIT B

I.       OPEN OFFICE

         Lynx Therapeutics' officing policy is democratic in nature, areas or
         bullpens may be defined by moveable partitions. The furniture is
         freestanding. All ranks of employees receive the same space allocation.
         There will not be any new construction related to the open office areas
         except painting of existing finishes.

II.      R&D CHEMISTRY

         R&D Chemistry will consist of organic chemistry and supporting
         instrumentation spaces. The laboratories will have on the order of
         .50-1.0 fume hoods/person. Laboratory finishes will be chemical
         resistive epoxy (walls, worksurfaces) and sheet vinyl (flooring). All
         spaces will comply with 1991 Uniform Building Code requirements for
         laboratories.

III.     MOLECULAR BIOLOGY

         Molecular Biology spaces will be less fume hood intensive (one hood/8
         persons) than Chemistry. Laboratory finishes will be similar to those
         in Chemistry. All spaces will comply with 1991 Uniform Building Code
         requirements for Laboratories.

IV.      MANUFACTURING

         Lynx's manufacturing process involves small scale chemical
         manufacturing of synthetic DNA products. Processes are bulk formation,
         synthesis, chromatography, filtration and precipitation. Finishes will
         be chemical resistant epoxy paint (walls) and sheet vinyl flooring. The
         flooring in the bulk formulation areas will be a more durable material,
         such as troweled epoxy or quarry tile.

V.       HVAC

         It is presumed, because of the fume hood intensity and air change
         requirements of laboratory and manufacturing spaces that modification
         and supplements to the existing HVAC system will be required. At this
         time the extent of this work is undetermined. The laboratory spaces
         require 100% make up air. The office HVAC systems can be recirculating
         with make up per ASHRAE standards. Structural work will occur as
         necessary to add new HVAC equipment on the roof.

<PAGE>

VI.      PLUMBING

         Existing PVC and copper process piping may be reused, however the
         systems will be expanded to reach the laboratory areas adjacent to the
         existing laboratory core. Central services include vacuum, argon and
         deionized and non potabic water. Domestic water will be supplied to
         eyewashes and safety showers per Cal OSHA standards. Existing drain
         systems will be expanded to serve new laboratory locations.
         Manufacturing process piping will include stainless steel solvent
         delivery. All chemical wastes are collected and disposed of by Lynx and
         are not part of the drainage system.

         Sinks will be provided at a ration of approximately one per four lab/
         manufacturing personnel.

VII.     ELECTRICAL

         The existing 7,000 ampere service appears sufficient to handle the
         anticipated loads. Paver requirements are low voltage, 120/208 VAC.
         Relocation of existing distribution equipment is expected. Main
         distribution panels will remain in place.

         Lighting levels in laboratory and manufacturing will be upgraded from
         existing office levels. All lighting will comply with the requirements
         of Title XXIV, the California Energy Code.

<PAGE>

                                     [IMAGE]

<PAGE>

                                     [IMAGE]

<PAGE>

                                    EXHIBIT C

                           HAZARDOUS WASTE CERTIFICATE

                                     , 1993

SPIEKER PARTNERS
6000 Stoneridge Mall Road, Suite 270
Pleasanton, CA 94588

RE:  That certain lease ("Lease") dated _______, 1993 between Spieker-Singleton
     #87, a Limited Partnership ("Landlord"), and Lynx Therapeutics, ("Tenant"),
     covering certain real property and improvements thereon located in the
     County of Alameda, State of California and more commonly known as 3832 Bay
     Center Place, Hayward, California (the "Premises"), as amended.

Gentlemen:

The undersigned, LYNX THERAPEUTICS, as Tenant under the above-captioned Lease,
hereby certifies to the best of Tenant's knowledge and after the inspection of
the Premises by a qualified third party to Landlord that, as of the date hereof,
there are no Hazardous Materials (as such term is defined in the Lease) in or
about the Premises caused by Tenant's use or occupancy or caused by any visitors
to the Building or anyone whatsoever connected to, affiliated with, or
delivering to, or working on behalf, the Tenant.

Tenant hereby acknowledges its continuing obligation under PARAGRAPH 44
(Hazardous Materials Provisions) of the lease, notwithstanding the expiration or
other termination of the Lease term, to indemnify, defend and hold Landlord
harmless from and against any and all claims, judgments, damages, penalties,
fines, costs, liabilities or losses (as more fully set forth in said PARAGRAPH
44) as a result of the presence of Hazardous Material brought upon, kept or used
in or about the Premises by Tenant, its agents, employees, contractors or
invitees.

The undersigned understands that Landlord will be relying upon the statements
of Tenant contained herein in Landlord's continued maintenance and operation
of the Premises.

Lynx Therapeutics, a
--------------------------------------------

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

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

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

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

<PAGE>

                                    EXHIBIT D

                   FIRST RIGHT OF REFUSAL ON ADJACENT PROPERTY

In consideration of that Lease Agreement between Spieker-Singleton #87,
Limited Partnership, and Lynx Therapeutics, Inc. "Lynx", the general partners
of Spieker-Singleton #115, Limited Partnership and any of its affiliated
successors, "S-S #115", does hereby grant to Lynx the following first right
of refusal on two parcels of land totalling 7.1 acres at Whitesell Road and
BayCenter Place, Hayward, California, APN #439-99-73 and APN #439-99-77 (the
"Land").

Provided Lynx is not and has not been in default of any terms and conditions
of the Lease, then Lynx will have the following option on the above
referenced land. In the event Landlord intends to offer for lease on a build
to suit basis a project on such land, S-S #115 will first offer the right to
Lynx to lease such a project on the same terms and conditions as Landlord
intends to offer to a third party. Landlord's obligation to extend such offer
to Lynx shall however be limited to only those times and situations where
Lynx's financial condition permits the financing of such build to suit on
customary and reasonable terms and conditions offered by Landlord. If Lynx is
otherwise able to secure financing for such a project reasonably acceptable
to Landlord, then Landlord shall be obligated to extend such offer to Lynx.
Lynx shall have seven (7) days to notify S-S #115 of Lynx's desire to
exercise the prior right of refusal on the terms and conditions offered by
S-S #115. In the event S-S #115 intends to offer the Land for sale, S-S #115
will first offer to sell it to Lynx. Lynx shall have seven (7) days to notify
S-S #115 of Lynx's desire to purchase the Land on the terms S-S #115 has
offered and a contract shall be entered into immediately thereafter. In the
event that Landlord intends to offer the Land for sale or lease to an
unaffiliated third party on terms fifteen percent (15%) more advantageous
than Landlord previously offered to Lynx, Landlord will first offer to sell
the Land to Lynx or lease a build to suit to on such more favorable terms and
Lynx shall have seven (7) days to notify S-S #115 of Lynx's desire to
purchase the Land or lease a build to suit on these terms and a contract
shall be entered into immediately thereafter.

By: /s/ [ILLEGIBLE]
   ---------------------

Its: Agent for Owner

<PAGE>

                                    EXHIBIT B

                      [ATTACH LAYOUT OF PREMISES SUBLEASED]

<PAGE>

                                    EXHIBIT B

                                   [Floorplan]

<PAGE>

                                    EXHIBIT C

                                     FORM OF

                            ASSIGNMENT AND ASSUMPTION

                             OF SUBLEASE OBLIGATIONS

         THIS ASSIGNMENT AND ASSUMPTION OF SUBLEASE OBLIGATIONS (this
"Assignment") is dated as of _________, 1998 by and among LYNX THERAPEUTICS,
INC., a Delaware corporation ("Assignor"), KOSAN BIOSCIENCES INCORPORATED, a
California corporation ("Assignee") and INEX PHARMACEUTICALS (U.S.A.), INC.,
a Washington corporation ("Subtenant").

         WHEREAS, Assignor is sublessor under that certain Sublease dated
__________, 1998, by and between Assignor and Subtenant (the "Inex
Sublease"), respecting certain premises (the "Premises") with a street
address of 3832 Bay Road, Hayward, California, as more particularly described
therein, whereby Assignor subleased to Subtenant approximately 6,298 square
feet of the Premises (the "Inex Premises") and agreed to provide certain
services to Subtenant pursuant to the terms of the Inex Sublease;

         WHEREAS, Assignor subleased the remainder of the Premises (the
"Remaining Premises") to Assignee pursuant to that certain Sublease between
Assignor and Assignee dated of even date herewith (the "Kosan Sublease"), such
that Assignor will no longer have possession of any part of the Premises;

         WHEREAS, Assignor desires to assign to Assignee the service obligations
accruing under the Inex Sublease for the period (referred to herein as the
"Service Period") commencing on the "Commencement Date" (as defined in the Kosan
Sublease) and ending on the date of the termination of the term of the Kosan
Sublease, and Assignee desires to assume such service obligations;

         NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Assignor, Assignee, and Subtenant
agree as follows:

         1.       ASSIGNMENT OF SERVICE OBLIGATIONS.

         Subject to the terms, conditions and limitations set forth in this
Assignment, the Inex Sublease and the underlying master lease ("Master Lease")
between Assignor, as tenant, and Spieker-Singleton #87, Limited Partnership, as
landlord ("Master Lessor"), Assignor hereby assigns and Assignee hereby assumes
all of Assignor's rights and obligations to perform the following services
("Services") during the Service Period under Section 6(c)(ii) of the Inex
Sublease: gas, electricity, HVAC and HVAC maintenance service, waste management
and recycling, house vacuum, RODI water system, and emergency power. Subtenant
agrees to reimburse Assignee for fourteen and 22/100 percent (14.22%) of the
costs incurred by Assignee with respect to the Services; provided, however that
one hundred percent (100%) of any Services performed or provided for the sole
benefit of Subtenant (as reasonably determined by Assignee)

                                      14.

<PAGE>

or as a result of any negligent act or omission of Subtenant or any of its
agents, employees, contractors or invitees, shall be reimbursed by Subtenant to
Assignee. Such reimbursement shall be made by Subtenant within ten (10) days
after its receipt of a written notice from Assignee stating the cost incurred by
Assignee for the Services. If requested, Assignee shall provide Subtenant with
reasonable, supporting back-up detail for such costs. Subtenant acknowledges
that payment to Assignee for the Services is an obligation accruing under the
Inex Sublease. Accordingly, if Subtenant fails to make a required reimbursement
payment to Assignee within the ten (10)-day time period described above, such
failure shall be deemed a default under the Inex Sublease. In the event of such
a default under the Inex Sublease, Assignor shall promptly commence and
prosecute an unlawful detainer action against Subtenant pursuant to the Sublease
for failure of Subtenant to pay rent. In addition, any reimbursement payment
which is not paid by Subtenant within the foregoing ten (10)-day period will
accrue interest at the daily rate of ten percent (10%) or the maximum rate
allowable by law, whichever is less, until paid to Assignee.

         2.       ASSUMPTION OF OBLIGATIONS.

         Assignee does hereby accept this assignment and, for the benefit of
Assignor and Subtenant, expressly assumes and agrees to provide the Services
during the Service Period to the Remaining Premises, subject to the terms and
conditions set forth in this Assignment, it being understood that (i)
Assignee shall have no obligations under this Assignment unless and until the
Commencement Date shall occur, and (ii) Assignee shall have no liability or
responsibility with respect to any Services first arising and accruing during
any time period other than the Service Period. Notwithstanding anything to
the contrary contained in this Assignment or the Inex Sublease, there shall
be no abatement of rent under the Inex Sublease or liability of Assignee or
Assignor on account of any injury or interference with Subtenant's business
(including loss of profits) with respect to any cessation of utilities or the
performance of any Services. Assignee shall not be responsible for repairs
required by an accident, fire or other peril, or for damage caused to any
part of the Inex Premises or the Remaining Premises by any act, negligence or
omission of Subtenant or its agents, contractors, employees or invitees. It
is an express condition precedent to all obligations of Assignee with respect
to the Services that Subtenant shall have notified Assignee of the need for
such Services.

         3.       WAIVER OF SUBROGATION.

         The waiver of subrogation provisions set forth in Section 9 of the
Master Lease shall be deemed a four-party agreement binding among and inuring to
the benefit of Assignor, Assignee, Subtenant and Master Lessor (by reason of its
consent to the Kosan Sublease).

         4.       MISCELLANEOUS.

         This Assignment shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, successors and assigns. If either
party brings an action or legal proceeding with respect to this Assignment, the
prevailing party shall be entitled to recover its reasonable attorneys' fees and
costs. All captions contained in this Assignment are for convenience of
reference only and shall not affect the construction of this Assignment. This
Assignment shall be governed by California law. If any one or more of the
provisions of this Assignment shall be invalid, illegal or unenforceable in any
respect, the validity, legality and

                                      15.

<PAGE>

enforceability or the remaining provisions contained herein shall not in any way
be affected or impaired thereby.

         Executed as of the date first above written.

                                         ASSIGNOR:

                                         LYNX THERAPEUTICS, INC.

                                         By:
                                            -----------------------------------
                                         Its:
                                            -----------------------------------

                                         By:
                                            -----------------------------------
                                         Its:
                                            -----------------------------------

                                         ASSIGNEE:

                                         KOSAN BIOSCIENCES INCORPORATED

                                         By:
                                            -----------------------------------
                                         Its:
                                            -----------------------------------

                                         By:
                                            -----------------------------------
                                         Its:
                                            -----------------------------------

                                         SUBTENANT:

                                         INEX PHARMACEUTICALS (U.S.A.) INC.

                                         By:
                                            -----------------------------------
                                         Its:
                                            -----------------------------------

                                         By:
                                            -----------------------------------
                                         Its:
                                            -----------------------------------

                                      16.

<PAGE>

                                    EXHIBIT D

                 [GENERAL DESCRIPTION OF SUBLESSEE IMPROVEMENTS]

                                      17

<PAGE>

                                    EXHIBIT D

1.       OFFICE

         Kosan Biosciences intends to improve the existing open office space
         with the addition of approximately 14+ hard-walled executive offices
         and one to two executive conference rooms. The office improvements may
         also require a partitioning wall, which will subdivide the now existing
         open office space. An additional access door between the office and R &
         D areas may also be required.

2.       R & D CHEMISTRY

         The Chemistry laboratories will have approximately 1 fume hood per
         person. Maintaining this ratio may require the addition of
         approximately 10 fume hoods and corresponding HVAC improvements.

3.       FERMENTATION

         Kosan expects to improve the now existing engineering space and
         possibly an additional 1000 sq. ft. to accommodate fermentation
         equipment for the production of research and/or GMP grade products.
         This improvement will require, but is not limited to, the installation
         of central steam generating equipment and associated plumbing, drainage
         plumbing and channels, waste disposal equipment, HVAC improvements and
         ducting, plumbed central gases, routing of electrical and water lines,
         alteration to the existing drop ceiling, and upgrade of flooring to
         epoxy resin.

<PAGE>

                                    EXHIBIT E

              IMPROVEMENTS AND EQUIPMENT TO BE REMOVED BY SUBLESSOR

Bio safety Cabinets

Portable Equipment

Un-interruptible Power Supplies

Dehumidification Units/Condensers

Autoclave

Glassware Washer

Glassware Dryer

Warehouse Racks

Data Networking Equipment, less cabling

Critical equipment monitoring system

Laminar Flow Hoods

Library racks

De-ionized water system purification bottles

                                      18.

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