Document:

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                                                                    EXHIBIT 10.6
                                      LEASE

                                 BY AND BETWEEN

                           ARE - 6166 NANCY RIDGE, LLC

                                   as Landlord

                                       and

                           ARENA PHARMACEUTICALS, INC.

                                    as Tenant

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                                      LEASE

        THIS LEASE is dated as of March ____, 1998 for reference purposes only
("Effective Date"), by and between ARE - 6166 NANCY RIDGE, LLC, a Delaware
limited liability company ("Landlord") and ARENA PHARMACEUTICALS, INC., a
Delaware corporation ("Tenant").

1.      Lease of Premises

        Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
upon the terms and conditions hereof, that certain real property (the "Demised
Premises"), including all buildings and improvements thereon (the "Building"),
commonly known as 6166 Nancy Ridge Drive, San Diego, California 92121, generally
described as approximately 29,333 rentable square foot industrial, scientific,
research & development, and laboratory facility, together with all of Landlord's
rights, privileges, easements and appurtenances belonging or in any way
pertaining to the Demised Premises; provided, however that Landlord reserves to
itself the right to grant easements, licenses and other rights in the future
over, under, on and across the Demised Premises to the extent not inconsistent
with the terms of this Lease and Tenant's enjoyment of the Demised Premises. The
site plan and legal description for the Demised Premises are attached hereto as
Exhibit "A".

2.      Basic Lease Provisions

        2.1. For convenience of the parties, certain basic provisions of this
Lease are set forth herein. The provisions set forth herein are subject to the
remaining terms and conditions of this Lease and are to be interpreted in light
of such remaining terms and conditions.

               2.1.1  Address of the Building:

                      6166 Nancy Ridge Drive,
                      San Diego, California 92121

               2.1.2  (a)  Rentable Area of  Building:  29,333 sq. ft.

               2.1.3  Initial Basic Annual Rent:
                      (29,333 sq.ft). x ($0.969 per sq.ft.) x (12 months)
                      = $341,084.04

               2.1.4  Initial Monthly Rental Installments of Basic Annual Rent:
                      (29,333 sq.ft). x ($0.969 per sq.ft.) = $28,423.67

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               2.1.5  [Intentionally Omitted]
               2.1.6  (a)    Term Commencement Date: As defined in Section 4.1
                             hereof.

                      (b)    Term Expiration Date: 15 years from the Term
                             Commencement Date, subject to extension or earlier
                             termination as provided herein.

               2.1.7  Security Deposit: $79,955, subject to the provisions of
                      Section 8.1 hereof.

               2.1.8  Permitted Use: Scientific research laboratories and
                      related office uses consistent with Section 9 hereof and
                      such other uses consistent with zoning and other
                      applicable laws; provided such other uses do not require
                      alterations to the Demised Premises inconsistent with the
                      terms of Section 16 of this Lease.

               2.1.9  Address for Rent Payment:

                      ARE - 6166 Nancy Ridge, LLC
                      c/o Alexandria Real Estate Equities, Inc.
                      135 N. Los Robles Avenue, Suite 250
                      Pasadena, CA 91101
                      Attention: Corporate Secretary

                      Address for Notices to Landlord:

                      ARE - 6166 Nancy Ridge, LLC
                      c/o Alexandria Real Estate
                      Equities, Inc.
                      135 N. Los Robles Avenue, Suite 250
                      Pasadena, CA 91101
                      Attention: Corporate Secretary

                      With a copy to:

                      ARE - 6166 Nancy Ridge, LLC
                      c/o Alexandria Real Estate Equities, Inc.
                      11440 West Bernardo Court, Suite 170
                      San Diego, CA 92127
                      Attention: Gary A Kreitzer, Esq.

               2.1.10 Address for Notices to Tenant:
                      Arena Pharmaceuticals, Inc.

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                      6166 Nancy Ridge Drive
                      San Diego, CA 92121
               2.1.11 Guarantor of Lease:  None

               2.1.12  The following Exhibits are attached hereto and
incorporated herein:

                             Exhibit "A"           Legal Description
                             Exhibit "B"           Work Letter
                             Exhibit "C"           List of Trade Fixtures
                             Exhibit "D"           Estoppel Certificate
                             Exhibit "E"           Rules and Regulations
                             Exhibit "F"           Form of Letter of Credit

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3.      Term

        3.1. This Lease shall take effect upon the Effective Date and, except as
specifically otherwise provide within this Lease, each of the provisions hereof
shall be binding upon and inure to the benefit of Landlord and Tenant, and each
of their respective successors and permitted assigns, from the Effective Date.

        3.2. The term of this Lease (the "Term") will be that period from the
Term Commencement Date as defined in Section 4.1 below through the Term
Expiration Date, as such may be terminated or extended as provided herein.

4.      Possession and Commencement Date

        4.1. The "Term Commencement Date" shall be the date upon which a deed
conveying title to the Demised Premises to Landlord is recorded in the Official
Records of the San Diego County Recorder; provided, however, that either Tenant
or Landlord may terminate this Lease if the Term Commencement Date does not
occur on or before July 1, 1998. Neither Landlord nor Tenant shall have any
liability to the other if Landlord is unable to deliver possession of the
Demised Premises to Tenant on the Term Commencement Date, or if the Term
Commencement Date does not occur for any reason, including without limitation
the failure, for any reason, of the closing of the transaction contemplated by
the "Purchase Agreement" (defined below). Landlord has entered into that certain
Purchase and Sale Agreement and Joint Escrow Instructions (the "Purchase
Agreement") with Solomon Levy, as seller, and Landlord, as buyer, providing for,
among other things, the sale by Solomon Levy to Landlord of the Demised
Premises. Landlord anticipates acquiring title to the Demised Premises pursuant
to the terms of the Purchase Agreement.

        4.2. Tenant may, at the option of Tenant, cause to be constructed one or
more projects of tenant improvements to the Building (each such project being
referred to as a "TI Project" and all TI Projects being collectively referred to
as the "Tenant Improvements"). Each TI Project shall be subject to the terms of
Section 16 of this Lease and shall be completed in accordance with the work
letter attached hereto as Exhibit "B" (the "Work Letter"). Tenant shall be
reimbursed, strictly in accordance with the terms of the Work Letter, for the
cost to construct each TI Project in an aggregate amount for all TI Projects not
to exceed One Million Five Hundred Thousand Dollars ($1,500,000) (the "Tenant
Improvement Allowance"). The Tenant Improvement Allowance shall include the cost
of construction (including changes required by law), project management by
Tenant, cost of space planning, architect, engineering and other related
services, building permits and other planning, testing and inspection fees, the
cost of fixtures for the Demised Premises, the cost of permanent voice and data
wiring within the Demised Premises, and the cost of signage affixed by Tenant to
the Building.

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      4.3. If Tenant submits to Landlord a construction budget which shows that
the total cost of any TI Project will exceed the portion of the Tenant
Improvement Allowance which is then unpaid (such difference being referred to as
the "Deficiency"), Tenant shall, in accordance with this Section 4.3, pay a pro
rata share of any sums properly requested in an "Advance Request" (as defined in
the Work Letter). If there exists a Deficiency for any TI Project, Landlord's
obligation to expend or disburse any portion of the Tenant Improvement Allowance
shall be limited, for each Advance Request, to an amount equal to (a) the total
amount due under the Advance Request multiplied by (b) a fraction, the numerator
of which is the undisbursed balance of the Tenant Improvement Allowance at the
commencement of such TI Project and the denominator of which is the budget
approved for such TI Project in accordance with the Work Letter. Tenant shall
have until December 31, 1999 (the "Improvement Expiration Date") to expend the
unused portion Tenant Improvement Allowance, after which date Landlord's
obligation to fund such costs shall expire.

        4.4. An "Improvement Rent Increase Date" is each date (i) on which
Tenant receives from Landlord any portion of the Tenant Improvement Allowance
and (ii) on which Landlord pays any portion of the Tenant Improvement Allowance
to a third party on behalf of Tenant.

5.      Rent

        5.1. Basic Annual Rent Tenant agrees, commencing on the Term
Commencement Date, to pay Landlord as Basic Annual Rent for the Demised Premises
the sum set forth in Section 2.1.3 subject to the rental increases provided in
Section 6 hereof. Basic Annual Rent shall be paid in the equal monthly
installments set forth in Section 2.1.4, subject to the rental increases
provided in Section 6 hereof, each in advance on the first day of each and every
calendar month during the Term. Notwithstanding anything to the contrary set
forth herein, Tenant shall have no obligation to pay Basic Annual Rent for any
period prior to the Term Commencement Date.

        5.2. Additional Rent In addition to Basic Annual Rent, Tenant agrees to
pay to Landlord as additional rent ("Additional Rent") at times hereinafter
specified in this Lease (i) Landlord's Operating Expenses as provided in Section
7 and (ii) any other amounts that Tenant assumes or agrees to pay under the
provisions of this Lease that are owed to Landlord, including, without
limitation, any and all other sums that may become due by reason of any default
of Tenant or failure on Tenant's part to comply with the agreements, terms,
covenants and conditions of this Lease to be performed by Tenant, after notice
and lapse of applicable cure period.

        5.3.   Improvement Rent

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               5.3.1 In the event and to the extent that Tenant elects to
receive any portion of the Tenant Improvement Allowance pursuant to Section 4.3,
in addition to the Basic Annual Rent, Tenant further agrees to pay to Landlord
as additional rent the "Improvement Rent" (defined below), calculated in
accordance with this Section 5.3 and subject to the increases provided in
Section 6.1.

               5.3.2 The "Improvement Rent," which shall be calculated at each
Improvement Rent Increase Date, shall be equal to the product of (a) eleven
percent ( 11.0% ) multiplied by (b) the amount of the Tenant Improvement
Allowance actually distributed to or on behalf of Tenant as of such Improvement
Rent Increase Date. The Improvement Rent shall commence on the first Improvement
Rent Increase Date.

               5.3.3 The Improvement Rent shall be paid in equal monthly
installments, subject to the increases provided in Section 6.1, each in advance
on the first day of each and every calendar month during the Term.

               5.3.4 Notwithstanding anything to the contrary in this Lease,
Tenant shall have no obligation to pay Improvement Rent for any periods prior to
the Term Commencement Date.

        5.4. Rent Basic Annual Rent, Additional Rent, Improvement Rent and all
other amounts payable by Tenant to Landlord pursuant to any provision of this
Lease shall together be denominated "Rent". Rent shall be paid to Landlord,
without abatement, deduction, or offset, in lawful money of the United States of
America, at the office of Landlord as set forth in Section 2.1.10, or to such
other Person or at such other place as Landlord may from time designate in
writing. In the event the Term commences or ends on a day other than the first
day of a calendar month, then Rent for such fraction of a month shall be
prorated for such period on the basis of a thirty (30) day month and shall be
paid at the then current rate for such fractional month.

6.      Rent Adjustments

        6.1. Basic Annual Rent and Improvement Rent shall be adjusted upward on
the first day of the calendar month following the second (2nd) anniversary of
the Term Commencement Date, and on such date every year thereafter during the
Term (each, a "Rent Adjustment Date") in an amount equal to two and
three-quarters percent (2.75%) of the prior year's Basic Annual Rent or
Improvement Rent, as the case may be, as the same may be adjusted upward from
time to time. The first 2.75% upward adjustment to the Improvement Rent shall
occur on the first Rent Adjustment Date occurring after the first Improvement
Rent Increase Date.

7.      Taxes; Maintenance; Repair; & Landlord's Operating Expenses

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        7.1. Subject to the provisions of Section 9.8, Section 21 and Section
22, Tenant shall, at Tenant's sole cost and expense do all of the following:

      7.1.1 Pay all government impositions including, without limitation,
property tax costs consisting of real and personal property taxes and
assessments (including amounts due under any improvement bond upon the Demised
Premises or the Building, including the parcel or parcels of real property upon
which the Building is located or assessments levied in lieu thereof) imposed by
any governmental authority or agency; any tax on or measured by gross rentals
received from the rental of space in the Building, or tax based on the square
footage of the Demised Premises or the Building as well as any parking charges,
utilities surcharges, or any other costs levied, assessed or imposed by, or at
the direction of, or resulting from statutes or regulations, or interpretations
thereof, promulgated by any federal, state, regional, municipal or local
government authority in connection with the use or occupancy of the Building or
the parking facilities serving the Building; any tax on this transaction or any
document to which Tenant is a party creating or transferring an interest in the
Demised Premises; and any expenses, including the reasonable cost of attorneys
or experts, reasonably incurred by Landlord in seeking reduction by the taxing
authority of the applicable taxes, less tax refunds obtained as a result of an
application for review thereof; provided, however, that so long as no Default
exists, Landlord shall be required to seek Tenant's consent, which shall not be
unreasonably withheld or delayed, prior to having the right to require Tenant to
pay any such costs referred to in this Section 7.1.1 related to Landlord seeking
a reduction in taxes which are not due to the acts of Tenant..

      7.1.2 Perform all acts necessary to keep the Demised Premises in first
class condition and repair and shall pay, except as provided in Section 7.2 ,
all costs of any kind in connection therewith, including, by way of examples and
not as a limitation upon the generality of the foregoing, costs of repairs and
replacements to the Building or the other parts of the Demised Premises as
appropriate to maintain the Demised Premises or the Building as required
hereunder, costs of utilities furnished to the Demised Premises; sewer fees;
cable T.V.; trash collection; cleaning, including windows; heating; ventilation;
air-conditioning; maintenance of landscape and grounds; maintenance of drives
and parking areas; security services and devices; building supplies; maintenance
for and replacement of equipment utilized for operation and maintenance of the
Demised Premises; license, permit and inspection fees; sales, use and excise
taxes on goods and services purchased by Tenant in connection with the
operation, maintenance or repair of the Demised Premises and the Building
systems and equipment; telephone, postage, stationary supplies and other
expenses incurred in connection with the operation, maintenance, or repair of
the Demised Premises; accounting, legal and other professional fees and expenses
incurred in connection with the Demised Premises; the cost of furniture,
draperies, carpeting, landscaping and other customary and ordinary items of
personal property, costs of complying with any Applicable Laws or hazardous
waste remediation rules or regulations; service contracts; costs of services of
independent contractors retained to do work of nature or type herein referenced;
and costs of compensation (including

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employment taxes and fringe benefits) of all persons who perform regular and
recurring duties connected with the day-to-day operation and maintenance of the
Demised Premises, its equipment, the adjacent walks, landscaped areas, drives,
and parking areas, including without limitation, janitors, floor waxers,
window-washers, watchmen, gardeners, sweepers, and handymen The cost of any
capital expenditures by Landlord reimbursed as Landlord's Operating Expenses
pursuant to this Lease shall be amortized on a straight-line basis over a period
equal to the useful life of the item as determined by reference to the vendor's
or manufacturer's suggested useful life for such capital improvements or, where
such reference does not exist, by reference to generally accepted accounting
principals, consistently applied, but in any event not more than seven years.

        7.2. Subject to the provisions of Sections 9.8 (Required Alterations),
21 (Damage or Destruction), 22 (Eminent Domain), and the remainder of this
Section 7.2, it is intended by the parties hereto that Landlord shall have no
obligation, in any manner whatsoever, to repair and maintain the Premises, or
the equipment therein, all of which obligations are intended to be that of the
Tenant.

               7.2.1 Landlord shall pay all of the following costs and expenses
("Landlord's Operating Expenses"), the entire cost of which shall be reimbursed
to Landlord pursuant to Section 5.2:

               (i) the costs of all capital expenditures, repairs and
replacements to the Demised Premises; provided, however, that the reimbursement
of Landlord's Operating Expenses that are comprised of such capital
expenditures, repairs and replacements shall be amortized on a straight-line
basis over a period equal to the useful life of the item as determined by
reference to the vendor's or manufacturer's suggested useful life for such
capital improvements or, where such reference does not exist, by reference to
generally accepted accounting principals, consistently applied, but in any event
not more than seven years.

               (ii) insurance premiums, including premiums for public liability,
property casualty, earthquake, environmental coverages and any other insurance
coverages which may be obtained by Landlord pursuant to Section 20 of this
Lease, and those portions of insured losses paid by Landlord as part of the
deductible portion of such losses by reason of insurance policy terms; and

               (iii) Landlord's costs for management services applicable to the
Demised Premises which costs shall be equal to two percent (2%) of the Annual
Basic Rent.

               7.2.2 Notwithstanding the foregoing, if a Default has occurred
and is continuing after notice has been given and the applicable cure period has
expired, Landlord may, at its option, undertake Tenant's obligations to pay the
taxes and assessments and to keep the Demised Premises in good order, condition
and repair as described in Section 7.1.1 and 7.1.2, and all costs

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and expenses in connection therewith shall be deemed to be Landlord's Operating
Expenses and reimbursed by Tenant pursuant to Section 7.3 below.

          7.2.3 Notwithstanding the foregoing, Landlord's Operating Expenses
shall not include any leasing commissions; expenses which relate to preparation
of rental space for a tenant; expenses of initial development and construction,
including but not limited to, grading, paving, landscaping, and decorating (as
distinguished from maintenance repair and replacement of the foregoing); legal
expenses relating to other tenants; costs of repair to the extent reimbursed by
payment received by Landlord of insurance proceeds; interest upon loans to
Landlord or secured by mortgages or deeds of trust covering the Demised Premises
or a portion thereof (provided interest upon a government assessment or
improvement bond to be paid by Tenant in installments under Section 7.1.1
above); salaries of executive officers of Landlord; depreciation claimed by
Landlord for tax purposes (provided this exclusion of "depreciation" is not
intended to delete from Landlord's Operating Expenses actual costs of repairs
and replacements and reasonable reserves in regard thereto which are provided
for in Section 7.2 above); and any net income, franchise, capital stock, estate
or inheritance taxes.

        7.3. Tenant shall pay to Landlord on the first day of each calendar
month of the Term, as Additional Rent, Landlord's estimate of Landlord's
Operating Expenses with respect to the Demised Premises for such month.

               7.3.1 Within ninety (90) days after the conclusion of each
calendar year, (or such longer period as may be reasonably required) Landlord
shall furnish to Tenant a statement showing in reasonable detail the actual
Landlord's Operating Expenses for the previous calendar year. Any additional sum
due from Tenant to Landlord shall be immediately due and payable. If the amounts
paid by Tenant pursuant to Section 7.3 exceeds Landlord's Operating Expense for
the previous calendar year, Landlord shall, at Landlord's option, either (i)
credit the excess amount to the next succeeding installments of estimated
Additional Rent, or (ii) pay the excess to Tenant within thirty (30) days after
delivery of such statements; provided, however, any excess owing to Tenant after
the expiration of the term shall be paid to Tenant within thirty (30) days after
delivery of such statements.

               7.3.2 Any amount due under Section 7.3 for any period which is
less than a full month shall be prorated (based on a thirty (30) day month) for
such fractional month.

      7.4. Landlord's annual statement shall be final and binding upon Tenant
unless Tenant, within thirty (30) days after Tenant's receipt thereof, shall
contest any item therein by giving written notice to Landlord, specifying each
item contested and the reason therefor. If, during such thirty (30) day period,
Tenant reasonably and in good faith questions or contests the correctness of
Landlord's statement of Landlord's Operating Expenses, Landlord will provide
Tenant with access to Landlord's books and records and such information as
Landlord reasonably determines to be responsive to Tenant's questions. In the
event that after Tenant's

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review of such information, Landlord and Tenant cannot agree upon the amount of
Landlord's Operating Expenses, then Tenant shall have the right to have an
independent public accounting firm selected from among the ten (10) largest in
the United States hired by Tenant (at Tenant's sole cost and expense, unless the
Independent Review shall reveal a discrepancy of 5% and not less than $5,000, or
more, in which case Landlord shall pay the cost of such Independent Review) and
approved by Landlord (which approval shall not be unreasonably withheld or
delayed) audit and/or review such Landlord's books and records for the year in
question (the "Independent Review"). The results of any such Independent Review
shall be binding on Landlord and Tenant. If the Independent Review shows that
Landlord's Operating Expenses actually paid for the calendar year in question
exceeded Tenant's obligations for such calendar year, Landlord shall at
Landlord's option either (1) credit the excess amount to the next succeeding
installments of estimated Additional Rent or (2) pay the excess to Tenant within
thirty (30) days after delivery of such statement. If the Independent Review
shows that Tenant's payments of Landlord's Operating Expenses for such calendar
year were less than Tenant's obligation for the calendar year, Tenant shall pay
the deficiency to the Landlord within thirty (30) days after delivery of such
statement.

        7.5. Tenant shall not be responsible for Landlord's Operating Expenses
attributable to the time period prior to the Term Commencement Date. The
responsibility of Tenant for Landlord's Operating Expenses shall continue to the
latest of (i) the Term Expiration Date, (ii) the date Tenant has fully vacated
the Demised Premises (including, without limitation, the removal of all items
required hereby to be removed), or (iii) if termination of the Lease is due to
the default of Tenant, the date of rental commencement of a replacement tenant.

        7.6. Landlord's Operating Expenses for the calendar year in which
Tenant's obligation to share therein commences and in the calendar year in which
such obligation ceases, shall be prorated on a basis reasonably determined by
Landlord. Expenses such as taxes, assessments and insurance premiums which are
incurred for an extended time period shall be prorated based upon time periods
to which applicable so that the amounts attributed to the Demised Premises
relate in a reasonable manner to the time period wherein Tenant has an
obligation to share in Landlord's Operating Expenses.

        7.7. The parties agree that statements in this Lease to the effect that
Landlord is to perform certain of its obligations hereunder at its own cost and
expense shall not be interpreted as excluding any cost from Landlord's Operating
Expenses if such cost is a Landlord's Operating Expense pursuant to the terms of
this Lease.

8.      Security Deposit

      8.1. Tenant shall deposit with Landlord on the Term Commencement Date, at
Tenant's option, either of the following (each of which is referred to as the
"Security Deposit"): (i) the sum of $79,955 in cash, or (ii) the "Letter of
Credit" (defined below). The

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Security Deposit shall be held by Landlord as security for the performance by
Tenant of all of the terms, covenants, and conditions of this Lease to be kept
and performed by Tenant during the Term. If a Default exists, including, but not
limited to, any provision relating to the payment of Rent, Landlord may (but
shall not be required to) draw upon, use, apply or retain all or any part of the
Security Deposit as follows: (a) for the payment of any Rent or any other sum in
default, (b) to reimburse Landlord for any amounts expended by Landlord in
performing any of Tenant's obligations under this Lease, including without
limitation, Tenant's obligations to repair and maintain the Demised Premises,
and (c) to reimburse Landlord for any sums expended by Landlord after the
expiration or earlier termination of the Term in performing any of Tenant's
obligations to repair, maintain, remediate, replace or in any way spend money
with respect to any portion of the Demised Premises. If any portion of the
Security Deposit is so used or applied, Tenant shall, upon demand therefor,
deposit cash with Landlord in an amount sufficient to restore the Security
Deposit to its original amount, and Tenant's failure to do so shall be a
material breach of this Lease. Landlord shall not be required to keep the
Security Deposit separate from its general fund, and Tenant shall not be
entitled to any interest on the Security Deposit.

        8.2. In lieu of depositing cash as the Security Deposit, Tenant shall
have the right, but not the obligation, to deliver to Landlord an unconditional,
irrevocable standby letter of credit in the amount of $79,955 (the "Letter of
Credit"), which Letter of Credit shall (i) be in a form reasonably acceptable to
Landlord, (ii) be issued by Silicon Valley Bank, or such other financial
institution selected by Tenant and reasonably acceptable to Landlord, (iii) be
for the benefit of Landlord, but shall be assignable by Landlord to any
subsequent purchaser or encumbrancer of the Building or the Demised Premises,
(iv) be automatically renewable from year to year throughout the Term, (v) be
payable by draft sight in San Diego, California, upon presentation of a
certification signed by an officer of Landlord which states that a default under
the Lease has occurred and has not been cured within any applicable cure period,
and (vi) be payable in the event such Letter of Credit is not renewed on or
before the date which is thirty (30) days prior to its expiration. Tenant shall
pay all expenses in obtaining the Letter of Credit.

        8.3. In the event of bankruptcy or other debtor-creditor proceedings
against Tenant, the Security Deposit shall be deemed to be applied first to the
payment of Rent and other charges due Landlord for all periods prior to the
filing of such proceedings.

        8.4. If Landlord disposes of its interest in the Demised Premises (and
with respect to any subsequent transfers of the landlord's interest under this
Lease), Landlord shall deliver or credit the unapplied balance of the Security
Deposit then held by Landlord to Landlord's successor in interest in the Demised
Premises and thereupon be relieved of further responsibility with respect to the
Security Deposit as long as the transferee agrees in writing to assume
Landlord's obligations under this Lease. If the transferee does not assume
Landlord's obligations under this Lease and if Landlord fails to deliver or
credit the unapplied balance of the Security

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Deposit to the transferee, or the transferee does not credit Tenant for the
amount of the unapplied balance of the Security Deposit, Tenant may deduct from
Rent payable by Tenant under this Lease the amount of the unapplied balance of
the Security Deposit.

        8.5. Landlord may deliver the Security Deposit to any purchaser of
Landlord's interest in the Demised Premises and thereupon Landlord shall be
discharged from any further liability with respect to the Security Deposit. This
provision shall also apply to any subsequent transfers.

        8.6. If Tenant shall fully perform every provision of this Lease to be
performed by Tenant, the Security Deposit, or any balance thereof, shall be
returned to Tenant (or, at Landlord's option, to the last assignee of Tenant's
interest hereunder) within ninety (90) days after the expiration or earlier
termination of this Lease.

9.      Use

        9.1. Tenant shall use the Demised Premises for the purpose set forth in
Section 2.1.8 and shall not use the Demised Premises, or permit or suffer the
Demised Premises to be used, for any other purpose without the prior written
consent of Landlord which may be withheld in Landlord's sole discretion.

        9.2. Tenant shall not use or occupy the Demised Premises in violation of
any federal, state and local laws and regulations, zoning ordinances, or the
certificate of occupancy issued for the Building, and shall, upon five (5) days'
written notice from Landlord, discontinue any use of the Demised Premises which
is declared or claimed by any governmental authority having jurisdiction to be a
violation of law, regulation or zoning ordinance or of such certificate of
occupancy; provided, however, that, subject to Applicable Law, Tenant shall have
the right to contest any such declaration or claim and while such contest is
pending and Tenant is diligently prosecuting the same to completion, Tenant
shall, subject to Applicable Law, have the right to continue such use. Tenant
shall comply with any direction of any governmental authority having
jurisdiction which shall, by reason of the nature of Tenant's use or occupancy
of the Demised Premises, impose any duty upon Tenant or Landlord with respect to
the Demised Premises or with respect to the use or occupation thereof.

        9.3. Tenant shall not do or permit to be done anything which will
prevent Landlord from obtaining or maintaining any fire, environmental, extended
coverage or any other insurance policy covering the Demised Premises and shall
comply with all rules, orders, regulations, and requirements of the insurers of
the Demised Premises.

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        9.4. No sign, advertisement, or notice shall be exhibited, painted or
affixed by Tenant on any exterior part of the Demised Premises or the Building
without the prior written consent of Landlord, which consent will not be
unreasonably withheld or delayed.

        9.5. Tenant shall not use or allow the Demised Premises to be used for
any unlawful purpose, nor shall Tenant knowingly cause, maintain or permit any
nuisance or waste in, on, or about the Demised Premises.

        9.6. No awnings or other projection shall be attached to any outside
wall of the building. No curtains, blinds, shades or screens shall be attached
to or hung in, or used in connection with, any window or door of the Building
without the consent of Landlord, which consent will not be unreasonably withheld
or delayed. Neither the interior nor exterior of any windows shall be coated or
otherwise sunscreened without the consent of Landlord, nor shall any bottles,
parcels, or other articles be placed on the windowsills. No equipment, furniture
or other items of personal property shall be placed on any exterior balcony
without the consent of Landlord, which consent will not be unreasonably withheld
or delayed.

      9.7. Tenant shall not cause any office equipment or machinery to be
installed in the Building which may reasonably be expected to cause damage to
the exterior of the Building, the structural integrity of the Building, the
slab, or any mechanical or safety systems of the Building. No such equipment
shall be placed upon the Demised Premises without advance notice to and approval
by Landlord and placement, if approved by Landlord, shall be at a location
designed to accommodate such equipment.

        9.8. Tenant shall comply and shall cause the Building and the other
portions of the Demised Premises to comply with all federal, state, municipal,
and county laws, orders, rules, regulations, covenants or restrictions of
record, building codes, regulations and ordinances applicable to the Demised
Premises ("Applicable Laws"), including, without limitation, the Americans With
Disabilities Act, 42 U.S.C. Section 12101, et seq. (together with regulations
promulgated pursuant thereto, "ADA") and Tenant shall indemnify, defend and hold
harmless from and against any loss, cost, liability or expense (including
reasonable attorneys fees and disbursements) arising out of any failure of the
Demised Premises to comply with the any Applicable Laws, including without
limitation, the ADA. If the Applicable Laws are hereafter changed so as to
require during the Term of this Lease the construction of an addition to or an
alteration of the Building or the other portions of the Demised Premises, the
remediation of any Hazardous Substance, or the reinforcement or other physical
modification of the Building ("Required Alterations"), Landlord and Tenant shall
allocate the cost of such work as follows:

               (i) Subject to 9.8(ii) below, if such Required Alterations are
required as a result of the specific and unique use of the Premises by Tenant as
compared with uses by tenants in general, Tenant shall be fully responsible for
the cost thereof; provided, however, that if such Required Alterations are
required during the last one (1) year of this Lease and the cost thereof

                                       14
<PAGE>   15

exceeds six (6) months' Basic Rent, Tenant may instead terminate this Lease
unless Landlord notifies Tenant, in writing, within ten (10) days after receipt
of Tenant's termination notice that Landlord has elected to pay the difference
between the actual cost thereof and the amount equal to six (6) months' Basic
Rent. Notwithstanding the preceding sentence, the provisions concerning Required
Alterations are intended to apply only to non-voluntary, unexpected, and new
Applicable Laws. If the Required Alterations are instead triggered by Tenant as
a result of an actual or proposed change in use, change in intensity of use, or
modification to the Demised Premises then, and in that event, Tenant shall be
fully responsible for the cost thereof, and Tenant shall not have any right to
terminate the Lease.

               (ii) If such Required Alterations are not the result of the
specific and unique use of the Demised Premises by Tenant (such as,
governmentally mandated seismic modifications), then Landlord and Tenant shall
allocate the obligation to perform the alterations, repairs or replacements and
pay for such costs pursuant to the provisions of Sections 7 and 17 of this
Lease.

10.     Brokers

       10.1. Tenant and Landlord each represents and warrants to the other that
it has had no dealings with any real estate broker or agent in connection with
the negotiation of this Lease; provided, however that Tenant has been
represented by John Burnham & Company ("Broker"). Neither Landlord nor Tenant
knows of any other real estate broker or agent who is or might be entitled to a
commission in connection with this Lease. If and when the Term Commencement Date
has occurred, Tenant shall pay to Broker a brokerage fee of $106,000 pursuant to
a separate agreement between Tenant and Broker.

        10.2. Landlord hereby indemnifies and shall defend, hold and save Tenant
harmless from and against any and all claims for any commissions or fees in
connection with this Lease made by any broker or finder having worked, or
claiming to have worked, on behalf of Landlord; provided, however, that Landlord
is not represented by Broker and does not indemnify Tenant against any claims
Broker may have.

        10.3. Tenant hereby indemnifies and shall defend, hold and save Landlord
harmless from and against any and all claims for any commissions or fees in
connection with this Lease made by any broker or finder having worked, or
claiming to have worked, on behalf of Tenant, including, without limitation,
Broker.

        10.4. Tenant represents and warrants that no broker or agent has made
any representation or warranty relied upon by Tenant in Tenant's decision to
enter into this Lease other than as contained in this Lease.

        10.5. Tenant acknowledges and agrees that the employment of brokers by
Landlord is for the purpose of solicitation of offers of lease from prospective
tenants and no authority is

                                       15
<PAGE>   16

granted to any broker to furnish any representation (written or oral) or
warranty from Landlord unless expressly contained within this Lease. Landlord in
executing this Lease does so in reliance upon Tenant's representations and
warranties contained within Sections 10.1 and 10.3 hereof.

11.     Holding Over

        11.1. If, with Landlord's express written consent, Tenant holds
possession of all or any part of the Demised Premises after the expiration or
earlier termination of the Term, Tenant shall become a tenant from
month-to-month upon the date of such expiration or earlier termination, and in
such case Tenant shall continue to pay Basic Annual Rent in the amount payable
upon the date of the expiration or earlier termination of this Lease, and all
other provisions, representations, covenants and agreements contained herein,
other than with respect to the Term and any extensions thereof, but specifically
including, without limitation, the adjustment of Basic Annual Rent pursuant to
Section 6 hereof, shall remain in full force and effect.

      11.2. Notwithstanding the foregoing, if Tenant remains in possession of
the Demised Premises after the expiration or earlier termination of the Term
without the express written consent of Landlord, Tenant shall become a tenant at
sufferance upon the terms of this Lease except that the monthly rental shall be
equal to one hundred fifty percent (150%) of the Basic Annual Rent and
Additional Rent in effect during the last thirty (30) days of the Term. Tenant
shall be responsible for all damages suffered by Landlord resulting from or
occasioned by Tenant's holding over.

        11.3. Acceptance by Landlord of Rent after such expiration or earlier
termination shall not result in a renewal or reinstatement of this Lease.

        11.4. The foregoing provisions of this Article 11 are in addition to and
do not affect Landlord's right to re-entry or any other rights of Landlord
hereunder or as otherwise provided by law.

12.     Taxes on Tenant's Property

        12.1. Tenant shall pay, prior to delinquency, any and all taxes levied
against any personal property or trade fixtures placed by Tenant in or about the
Demised Premises.

        12.2. If any such taxes on Tenant's personal property or trade fixtures
are levied against Landlord or Landlord's property or, if the assessed valuation
of the Building is increased by the inclusion therein of a value attributable to
Tenant's personal property or trade fixtures, and if Landlord, after written
notice to Tenant, pays the taxes based upon such

                                       16
<PAGE>   17

increase in the assessed valued, then Tenant shall upon demand repay to Landlord
the taxes so levied against Landlord.

        12.3. If any improvements in or alterations to the Demised Premises,
whether owned by Landlord or Tenant and whether or not affixed to the real
property so as to become a part thereof, are assessed for real property tax
purposes at a valuation higher than the valuation prior to the completion of
such improvements, then the real property taxes and assessments levied against
Landlord or the Building by reason of such excess assessed valuation shall be
deemed to be taxes levied against personal property of Tenant and shall be
governed by the provisions of Section 12.2 above.

13.     Condition of Demised Premises

        Tenant acknowledges that neither Landlord nor any agent of Landlord has
made any representation or warranty with respect to the condition of the Demised
Premises or the Building, or with respect to the suitability for the conduct of
Tenant's business. Tenant further acknowledges that: (a) prior to the Effective
Date, Tenant has been in possession of the Demised Premises pursuant to a lease
with the prior owner of the Demised Premises, which lease terminated immediately
prior to the Effective Date; (b) that as the prior tenant, Tenant is familiar
with the Building and the Demised Premises; and (c) Tenant is accepting the
Demised Premises "AS-IS."

14.     Exterior Areas of the Demised Premises and Parking Facilities

        14.1. Tenant's rights to use the exterior portion of the Demised
Premises, including the parking facilities, shall be subject to the rules and
regulations adopted by Landlord and attached hereto as Exhibit "E" together with
such other reasonable and nondiscriminatory rules and regulations as are
hereafter promulgated by Landlord in its discretion (the "Rules and
Regulations").

15.     Utilities and Services

        15.1. Tenant shall pay for all water (including, without limitation, the
cost to service, repair and replace reverse osmosis, deionized and other treated
water) gas, heat, light, power, telephone and other utilities supplied to the
Demised Premises, together with any fees, surcharges and taxes thereon. Tenant
shall, at its sole cost and expense, cause all such utilities to be delivered to
the Demised Premises and metered to Tenant.

        15.2. Subject to Section 17.1 hereof, Landlord shall not be liable for,
nor shall any eviction of Tenant result from, the failure to furnish any such
utility or service whether or not such failure is caused by accident, breakage,
repairs, strikes, lockouts or other labor disturbances or labor disputes of any
character, governmental regulation, moratorium or other

                                       17
<PAGE>   18

governmental action, inability despite the exercise of reasonable diligence or
by any other cause, including the negligence of Landlord. In the event of such
failure, Tenant shall not be entitled to any abatement or reduction of Rent, nor
be relieved from the operation of any covenant or agreement of this Lease.

        15.3. Tenant shall pay directly to the applicable utility or service
provider, prior to delinquency, for all utilities and services which may be
furnished to Tenant or the Demised Premises during the Term.

        15.4. If Tenant shall require services in excess of that usually
furnished or supplied for similar space in the Building, by reason of equipment
operated and/or extended hours of business operation, Tenant may procure the
same all at Tenant's sole cost and expense.

        15.5. Landlord reserves the right to stop service of the elevator,
plumbing, ventilation, air conditioning and electric systems, when necessary, by
reason of accident or emergency or for repairs, alterations or improvements, in
the judgment of Landlord desirable or necessary to be made, until said repairs,
alterations or improvements shall have been completed, and Landlord shall
further have no responsibility or liability for failure to supply elevator
facilities, plumbing, ventilation, air conditioning, electric or other utility
service, when prevented from doing so by strike or accident, or by laws, rules,
order, ordinances, directions, regulations or requirements of any federal,
state, country or municipal authority or failure to deliver gas, oil or other
suitable fuel supply or inability by exercise of reasonable diligence to obtain
gas, oil or other suitable fuel. It is expressly understood and agreed that any
covenants on Landlord's part to furnish any service pursuant to any of the
terms, covenants, conditions, provisions or agreements of this Lease, or to
perform any act or thing for the benefit of Tenant, shall not be deemed breached
if Landlord is unable to furnish or perform the same by virtue of a strike or
labor trouble or any other cause whatsoever.

160     Alterations

        16.1. Other than TI Projects and non-structural works of improvement
which individually cost less than $25,000, Tenant shall make no alterations,
additions or improvements in or to the Demised Premises without Landlord's prior
written consent, which approval shall not be unreasonably withheld; provided,
however, that (regardless of the cost of such improvement) in the event any
proposed alteration, addition or improvement affects (i) any structural portions
of the Building including exterior walls, roof, foundation and core of the
Building, (ii) the exterior of the Building or (iii) any Building systems,
including elevator, plumbing, air conditioning, heating, electrical, security,
life safety and power (but excluding minor plumbing, electrical or security
alterations, additions or improvements which do not require permits from the
appropriate governmental authority, then Landlord may withhold its consent with
respect thereto in its sole and absolute discretion. In any such alteration,
addition or improvement which requires Landlord's prior written consent pursuant
to this Section 16.1

                                       18
<PAGE>   19

(each a "Major Alteration"), Landlord may condition its approval of such Major
Alteration on the employment of architects, contractors, suppliers or mechanics
that have been approved by Landlord in Landlord's sole discretion. In seeking
Landlord's approval, Tenant shall provide Landlord, at least thirty (30) days in
advance of any proposed construction, with plans, specifications, bid proposals,
work contracts and such other information concerning the nature and cost of the
alterations as may be reasonably requested by Landlord.

        16.2. All work done by Tenant shall be accomplished in such a manner as
to permit any fire sprinkler system and fire water supply lines to remain fully
operable at all times.

        16.3. All work done by Tenant shall be performed in full compliance with
all Applicable Laws. Tenant shall provide Landlord with "as-built" plans showing
any change in the Demised Premises.

        16.4. Before commencing any work, Tenant shall give Landlord at least
ten (10) days prior written notice of the proposed commencement of such work
(and an additional 10 days if requested by Landlord in order for Landlord to
post a Notice of Non-Responsibility prior to the commencement of any such work).
Other than TI Projects being paid for by the Tenant Improvement Allowance,
Tenant shall, if required by Landlord, secure at Tenant's own cost and expense a
completion and lien indemnity bond satisfactory to Landlord for said work, or
such other security as Landlord may reasonably require.

        16.5. All alterations, attached equipment, decorations, fixtures,
machinery, trade fixtures, additions and improvements, subject to Section 16.7,
attached to or built into the Demised Premises, made by either of Landlord or
Tenant, including (without limiting the generality of the foregoing) all floor
and wallcovering, built-in cabinet work and paneling, sinks and related plumbing
fixtures, built-in autoclaves, exterior venting fume hoods and walk-in freezers
and refrigerators, clean rooms, climatized rooms, ductwork, conduits, electrical
panels and circuits, together with all additions and accessories thereto,
installed in and upon the Demised Premises shall be and remain the property of
Landlord and shall not be removed from the Building or Demised Premises by
Tenant at any time during the Term. All of the foregoing shall become the
property of Landlord upon the expiration or earlier termination of the Term of
this Lease, and shall remain upon and be surrendered with the Demised Premises
as a part thereof; provided, however, that Landlord may elect to cause Tenant to
remove any such items from the Demised Premises upon the expiration or earlier
termination of this Lease, and, if Landlord so elects, Tenant shall remove such
alterations, attached equipment, decorations, fixtures, trade fixtures,
additions and improvements upon the expiration or earlier termination of this
Lease and restore any damage caused by or occasioned as a result of such result.

        16.6. Tenant shall repair any damage to the Demised Premises caused by
Tenant's removal of any property from the Demised Premises. During any such
restoration period,

                                       19
<PAGE>   20

Tenant shall pay Rent to Landlord as provided herein as if said space were
otherwise occupied by Tenant.

        16.7. Notwithstanding Section 16.5, Tenant may remove from the Demised
Premises those items listed on Exhibit "C" attached hereto and incorporated
herein and all subsequently acquired business and trade fixtures, machinery and
equipment that are not permanently affixed to the real property. If Tenant shall
fail to remove all of its effects from the Demised Premises prior to expiration
or earlier termination of this Lease, then Landlord may, at its option, remove
the same in any manner that Landlord shall choose, and store said effects
without liability to Tenant for loss thereof or damage thereto, and Tenant
agrees to pay Landlord upon demand any expenses incurred to such removal and
storage or Landlord may, at its option, after a reasonable attempt to notify
Tenant, sell said property or any of the same, at private sale and without legal
process, for such price as Landlord may obtain and apply the proceeds of such
sale against any amounts due under this Lease from Tenant to Landlord and
against any expenses incident to the removal, storage and sale of said personal
property.

        16.8. Notwithstanding any other provision of this Article 16 to the
contrary, in no event may Tenant remove any improvement from the Demised
Premises as to which Landlord contributed payment, including, without
limitation, the Tenant Improvements made pursuant to the Work Letter without
Landlord's prior written consent, which may be withheld in Landlord's sole
discretion.

170     Repairs and Replacements

      17.1. Landlord shall repair the structural and the exterior portions of
the Demised Premises, including, without limitation, structural portions of the
roof system (but not including the roof membrane), foundations, exterior walls,
interior load bearing walls, and replace, landscaping, parking areas, the
Demised Premises's systems (including, without limitation, the plumbing and the
fire sprinkler, heating, ventilating, air conditioning, elevator and electrical
systems) as and when required consistent with a first-class laboratory facility,
and the full cost thereof shall be included as a part of Landlord's Operating
Expenses as provided in Section 7.2 hereof. If Landlord fails to perform any of
its repair and replacements obligations under this Section 17.1, and such
failure materially affects Tenant's ability to use and occupy the Demised
Premises for the purposes permitted herein, Tenant shall have the right, but not
the obligation, at Tenant's sole cost and expense, to perform such repairs
and/or replacements if such failure continues for more than fifteen (15) days
after written notice from Tenant to Landlord and any of Landlord's lenders
(provided Tenant has received notice of such lender's interest); provided,
however, that if the nature of the repairs and/or maintenance to be completed by
Landlord is such that more than fifteen (15) days are required to complete such
repairs and/or maintenance, Landlord shall have such additional time as is
reasonably necessary to complete such repairs and/or maintenance so long as
Landlord takes appropriate

                                       20
<PAGE>   21

action to commence such repairs and/or maintenance within such fifteen (15) day
period and thereafter diligently pursues such repairs and/or maintenance to
completion.

        17.2. Subject to Sections 9.8, 21, and 22, and except for services of
Landlord, if any, required by Section 17.1, Tenant shall at Tenant's sole cost
and expense keep the Demised Premises and every part thereof in good condition
and repair, damage thereto from ordinary wear and tear excepted. Tenant shall,
upon the Term Expiration Date or earlier termination of this Lease, surrender
the Demised Premises to Landlord in as good as condition as when received,
ordinary wear and tear and casualty and condemnation not caused by Tenant
excepted. Landlord shall have no obligation to alter, remodel, improve, repair,
decorate or paint the Demised Premises or any part thereof, except as
specifically set forth in Sections 9.8, 21 and 22 of this Lease.

        17.3. Landlord shall not be liable for any failure to make any repairs
or to perform any maintenance which is an obligation of Landlord unless such
failure shall persist for an unreasonable time after written notice of the need
of such repairs or maintenance is given to Landlord by Tenant. Tenant waives the
rights under Section 1941 and 1942 of the California Civil Code or under any
similar law, statute or ordinance now or hereafter in effect to make repairs at
Landlord's expense.

        17.4. This Article 17 relates to repairs, maintenance and replacements
arising in ordinary course of operation of the Building and any related
facilities. In the event of fire, earthquake, flood, vandalism, war, or similar
cause of damage or destruction, this Article 17 shall not be applicable and the
provisions of Article 21 shall apply and control.

180     Liens

      18.1. Subject to the immediately succeeding sentence, Tenant shall keep
the Demised Premises and the Building free from any liens arising out of work
performed, materials furnished or obligations incurred by Tenant. Tenant further
covenants and agrees that any mechanic's lien filed against the Demised Premises
or against the Building for work claimed to have been done for, or materials
claimed to have been furnished to Tenant, will be discharged by Tenant, by bond
or otherwise, within ten (10) days after Tenant receives notice of the filing
thereof (but not later than 30 days after the filing thereof), at the sole cost
and expense of Tenant; provided, however, that if Tenant provides Landlord with
a bond or other security acceptable to Landlord in its sole and absolute
discretion, Tenant shall have the right to contest such liens and while such
contest is being diligently prosecuted to completion by Tenant, Tenant shall not
be required to discharge such lien; provided that at no time during such contest
is there any imminent threat of foreclosure of such lien.

        18.2. Unless Tenant is contesting a lien in accordance with Section
18.1, should Tenant fail to discharge any lien of the nature described in
Section 18.1, Landlord may at

                                       21
<PAGE>   22

Landlord's election pay such claim or post a bond or otherwise provide security
to eliminate the lien as a claim against title and the cost thereof shall be
immediately due from Tenant as Additional Rent.

        18.3. In the event Tenant shall lease or finance the acquisition of
office equipment, furnishings, or other personal property of a removable nature
utilized by Tenant in the operation of Tenant's business, Tenant warrants that
any Uniform Commercial Code Financing Statement executed by Tenant will upon its
face or by exhibit thereto indicate that such Financing Statement is applicable
only to removable personal property of Tenant located within the Demised
Premises. In no event shall the address of the Building be furnished on the
statement without qualifying language as to applicability of the lien only to
removable personal property, located in an identified suite held by Tenant.
Should any holder of a Financing Statement executed by Tenant record or place of
record a Financing Statement which appears to constitute a lien against any
interest of Landlord or against equipment which may be located other than within
the Demised Premises, Tenant shall within ten (10) days after filing such
Financing Statement (i) cause a copy of the Security Agreement or other
documents to which Financing Statement pertains to be furnished to Landlord to
facilitate Landlord's being in a position to show such lien is not applicable to
Landlord's interest, and (ii) cause Tenant's lender to amend any documents of
record so as to clarify that such lien is not applicable to any interest of
Landlord in the Building or the Project.

190     Indemnification and Exculpation

        19.1. Tenant hereby indemnifies and agrees to defend and save Landlord
harmless from and against any and all demands, claims, liabilities, losses,
costs, expenses, actions, causes of action, damages or judgments, and all
reasonable expenses incurred in investigating or resisting the same (including,
without limitation, reasonable attorneys' fees, charges and disbursements), for
injury or death to person or injury to property occurring within or about the
Demised Premises, arising directly or indirectly out of Tenant's, it's
employees, agents or guests use or occupancy of the Demised Premises or a breach
or default by Tenant in the performance of any of its obligations hereunder,
unless caused solely by the willful act or gross negligence of the Landlord.

       19.2. Landlord shall not be liable to Tenant and Tenant assumes all risk
of damage to personal property or scientific research, including loss of records
kept within the Demised Premises if the cause of such damage is of a nature
which, if Tenant had elected to maintain fire and theft insurance with extended
coverage and business records endorsement available on a commercially reasonable
basis, would be a loss subject to settlement by the insurance carrier,
including, but not limited to, damage or losses caused by fire, electrical
malfunctions, gas explosion, and water damage of any type, including, but not
limited to, broken water lines, malfunction of fire sprinkler system, roof
leakage or stoppages of lines unless and except if such loss is due to willful
disregard of Landlord after written notice by Tenant of

                                       22
<PAGE>   23

need for a repair which Landlord is responsible to make for an unreasonable
period of time. Tenant further waives any claim for injury to Tenant's business
or loss of income relating to any such damage or destruction of personal
property including any loss of records.

        19.3. Landlord shall not be liable for any damages arising from any act,
omission or neglect of any person on or about the Demised Premises or any other
third party.

        19.4. Tenant shall provide any security devices and services which
Tenant may determine to be necessary. Tenant acknowledges and agrees that
Landlord shall not be liable for injuries or losses caused by criminal acts of
third parties and the risk that any security device or service may malfunction
or otherwise be circumvented by a criminal is assumed by Tenant. Tenant shall at
Tenant's cost obtain insurance coverage to the extent Tenant desires protection
against such criminal acts. Tenant shall provide Landlord with all security
access codes and other information which Landlord may require to access the
Demised Premises.

200     Insurance - Waiver of Subrogation

        20.1. Landlord, as part of Landlord's Operating Expenses, shall carry
insurance upon the Building, in an amount equal to full replacement cost
(exclusive of the costs of excavation, foundations, and footings, and without
reference to depreciation taken by Landlord upon its books or tax returns) or
such greater amount of such insurance Landlord's mortgage lender requires
Landlord to maintain, providing protection against any peril generally included
within the classification "Fire and Extended Coverage" together with insurance
against sprinkler damage (if applicable), vandalism and malicious mischief.
Landlord, subject to availability thereof and, as part of Landlord's Operating
Expenses, shall further insure, as Landlord reasonably deems appropriate
coverage against flood, environmental hazard and earthquake, loss or failure of
building equipment, rental loss during the period of repair or rebuild,
workmen's compensation insurance and fidelity bonds for employees employed to
perform services.

        20.2. Landlord, as part of Landlord's Operating Expenses, shall further
carry public liability insurance with a single loss limit of not less than One
Million Dollars ($1,000,000.00) for death or bodily injury, or property damage
with respect to the Project.

        20.3. Tenant at its own cost shall procure and continue in effect from
the Term Commencement Date and continuing throughout the Term (and occupancy by
Tenant, if any, after the expiration or earlier termination of this Lease)
comprehensive public liability insurance with limits of not less than Two
Million Dollars ($2,000,000.00) per occurrence for death or bodily injury and
not less than One Million Dollars ($1,000,000.00) for property damage with
respect to the Demised Property.

                                       23
<PAGE>   24

        20.4. The aforesaid insurance required of Tenant shall name Landlord,
its officers, employees and agents, as an additional insured. Said insurance
shall be with companies having a rating of not less than policyholder rating of
A and financial category rating of at least Class XII in "Best's Insurance
Guide." Tenant shall obtain for Landlord from the insurance companies or cause
the insurance companies to furnish certificates of coverage to Landlord. No such
policy shall be cancelable or subject to reduction of coverage or other
modification or cancellation except after thirty (30) days prior written notice
to Landlord from the insurer. All such policies shall be written as primary
policies, not contributing with and not in excess of the coverage which Landlord
may carry. Tenant's policy may be a "blanket policy" which specifically provides
that the amount of insurance shall not be prejudiced by other losses covered by
the policy. Tenant shall, at least twenty (20) days prior to the expiration of
such policies, furnish Landlord with renewals or binders. Tenant agrees that if
Tenant does not take out and maintain such insurance, Landlord may (but shall
not be required to) procure said insurance on Tenant's behalf and at its cost to
be paid as Additional Rent.

        20.5. Subject to Section 17.3, Tenant assumes the risk of damage to any
fixtures, goods, inventory, merchandise, equipment, and leasehold improvements,
and Landlord shall not be liable for injury to Tenant's business or any loss of
income therefrom relative to such damage all as more particularly heretofore set
forth within this Lease. Tenant at Tenant's cost shall carry such insurance as
Tenant desires for Tenant's protection with respect to personal property of
Tenant or business interruption.

        20.6. In each instance where insurance is to name Landlord as additional
insured, Tenant shall upon written request of Landlord also designate and
furnish certificates so evidencing Landlord as additional insured to (i) any
lender of Landlord holding a security interest in the Building or real property
upon which the Building is situated, and/or (ii) the landlord under any lease
wherein Landlord is tenant of the real property whereupon the Building is
located if the interest of Landlord is or shall become that of a tenant under a
ground lease rather than that of a fee owner, and/or (iii) any management
company retained by Landlord to manage the Building or the Project.

      20.7. Landlord and Tenant each hereby waive any and all rights of recovery
against the other or against the officers, directors, employees, agents, and
representatives of the other, on account of loss or damage occasioned to such
waiving party or its property or the property of others under its control to the
extent that such loss or damage is insured against under any fire and extended
coverage insurance policy which either may have in force at the time of such
loss or damage. Such waivers shall continue as long as their respective insurers
so permit. Any termination of such a waiver shall be by written notice of
circumstances as hereinafter set forth. Landlord and Tenant upon obtaining the
policies of insurance required or permitted under this Lease shall give notice
to the insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Lease. If such policies shall not be obtainable
with such waiver or shall be so obtainable only at a premium over that
chargeable without such

                                       24
<PAGE>   25

waiver, the party seeking such policy shall notify the other thereof, and the
latter shall have ten (10) days thereafter to either (i) procure such insurance
with companies reasonably satisfactory to the other party or (ii) agree to pay
such additional premium. If neither (i) nor (ii) are done, this Section 20.7
shall have no effect during such time as such policies shall not be obtainable
or the party in whose favor a waiver of subrogation is desired refuses to pay
the additional premium. If such policies shall at any time be unobtainable, but
shall be subsequently obtainable, neither party shall be subsequently liable for
a failure to obtain such insurance until a reasonable time after notification
thereof by the other party. If the release of either Landlord or Tenant, as set
forth in the first sentence of this Section 20.7 shall contravene any law with
respect to exculpatory agreements, the liability of the party in question shall
be deemed not released but shall be secondary to the other's insurer.

        20.8. Landlord may require insurance policy limits to be raised to bring
coverage limits to levels that are commercially reasonable at such time.

210     Damage or Destruction

        21.1. In the event of a partial destruction of the Building by fire or
other perils covered by extended coverage insurance, not exceeding twenty-five
percent (25%) of the full insurable value thereof, and if the damage thereto is
such that the Building may be repaired, reconstructed or restored within a
period of six (6) months from the date of the happening of such casualty and
Landlord will receive insurance proceeds sufficient to cover the cost of such
repairs (except for any deductible amount provided by Landlord's policy, which
deductible amount, if paid by Landlord shall be a Landlord's Operating Expense),
Landlord shall commence and proceed diligently with the work of repair,
reconstruction and restoration and this Lease shall continue in full force and
effect.

        21.2. In the event of any damage to or destruction of the Building,
other than as provided in Section 21.1, Landlord may elect to repair,
reconstruct and restore the Building, in which case this Lease shall continue in
full force and effect. If Landlord elects not to repair then this Lease shall
terminate as of date of destruction unless Tenant gives written notice to
Landlord within 10 days of Landlord's election (i) stating that Tenant is
unconditionally committed to pay for the repair of such damage without
reimbursement from or contribution of any kind from Landlord and (ii) providing
evidence reasonably satisfactory to Landlord of Tenant's financial ability to
perform such repairs.

        21.3. Landlord shall give written notice to Tenant of its election not
to repair, reconstruct or restore the Building within the sixty (60) day period
following the date of damage or destruction.

        21.4. Upon any termination of this Lease under any of the provisions of
this Article, the parties shall be released thereby without further obligation
to the other from the date

                                       25
<PAGE>   26

possession of the Demised Premises is surrendered to the Landlord except for
items which have theretofore occurred.

        21.5. In the event of repair, reconstruction and restoration as herein
provided, the rental provided to be paid under this Lease shall be abated
proportionately based on the extent to which Tenant's use of the Demised
Premises is impaired during the period of such repair, reconstruction or
restoration, unless Landlord provides Tenant with other space during the period
of repair, which in Tenant's reasonable opinion is suitable for the temporary
conduct of Tenant's business.

        21.6. Notwithstanding anything to the contrary contained in this
Article, should Landlord be delayed or prevented from completing the repair or
restoration of the damage to the Demised Premises after the occurrence of such
damage or destruction by reason of acts of God or war, governmental
restrictions, inability to procure the necessary labor or materials, strikes, or
other uses beyond the control of Landlord, the time for Landlord to commence or
complete repairs shall be extended, provided, at the election of Landlord,
Landlord shall be relieved of its obligation to make such repairs or restoration
and Tenant shall be released from its obligation under this Lease as of the end
of eight (8) months from date of destruction, if repairs required to provide
Tenant use of the Demised Premises are not then substantially complete.

        21.7. If Landlord is obligated to or elects to repair or restore as
herein provided, Landlord shall be obligated to make repairs or restoration only
of those portions of the Building and the Demised Premises which were provided
at Landlord's expense; the repair and restoration of items not provided at
Landlord's expense shall be the obligation of Tenant. In the event Tenant
elected to upgrade certain improvements from the standard normally provided by
Landlord, Landlord shall upon the need for replacement due to an insured loss,
provide only the standard Landlord improvements unless Tenant shall elect to
again upgrade and pay any additional cost of such upgrades, except to such
extent as insurance proceeds which, if received, the excess proceeds are
adequate to provide such upgrades, in addition to providing for basic
reconstruction and standard improvements.

        21.8. Notwithstanding anything to the contrary contained in this
Article, Landlord shall not have any obligation whatsoever to repair,
reconstruct or restore the Demised Premises when such damage results from any
casualty covered under this Article which occurs during the last twenty-four
(24) months of the Term, unless Tenant shall exercise its right to extend the
Term in accordance with Section 39 hereof.

220     Eminent Domain

        22.1. In the event the whole of the Demised Premises, or such part
thereof as shall substantially interfere with the Tenant's use and occupancy
thereof, shall be taken for any

                                       26
<PAGE>   27

public or quasi-public purpose by any lawful power or authority by exercise of
the right of appropriation, condemnation or eminent domain, or sold to prevent
such taking, Tenant or Landlord may terminate this Lease effective as of the
date possession is required to be surrendered to said authority.

        22.2. In the event of a partial taking of the Building, or of drives,
walkways, and parking areas serving the Building for any public or quasi-public
purpose by any lawful power or authority by exercise of right of appropriation,
condemnation, or eminent domain, or sold to prevent such taking, then without
regard as to whether any portion of the Demised Premises occupied by Tenant was
so taken, Landlord may elect to terminate this Lease as of such taking if such
taking is, in the sole opinion of Landlord, of a material nature such as to make
it uneconomical to continue use of the unappropriated portion for purposes of
office rentals or laboratory space. If Landlord elects to terminate the Lease in
accordance with this Section 22.2, Tenant may thereafter elect to remain as the
tenant under this Lease; provided however, that there shall be no abatement of
Rent or any reduction in any of Tenant's liabilities and obligations under this
Lease.

        22.3. Tenant shall be entitled to any award which is specifically
awarded as compensation for the taking of Tenant's personal property, which was
installed at Tenant's expense and for costs of Tenant moving to a new location.
Except as before set forth, any award for such taking shall belong to Landlord.

        22.4. If upon any taking of the nature described in this Article 22,
this Lease or any part thereof continues in effect, Tenant shall promptly
proceed to restore the Demised Premises and the Building to substantially their
same condition prior to such partial taking. To the extent such restoration is
feasible, as determined by Landlord in its sole discretion, the Rent shall be
abated proportionately based upon the extent to which Tenant's use of the
Demised Premises has decreased on the basis of the percentage of the rental
value of the Demised Premises after such taking and the rental value of the
Demised Premises prior to such taking.

230     Defaults and Remedies

       23.1. Late payment by Tenant to Landlord of Rent and other sums due will
cause Landlord to incur costs not contemplated by this Lease, the exact amount
of which will be extremely difficult and impracticable to ascertain. Such costs
include, but are not limited to, processing and accounting charges and late
charges which may be imposed on Landlord by the terms of any mortgage or trust
deed covering the Demised Premises. Therefore, if any installment of Rent due
from Tenant is not received by Landlord within ten (10) days after the date such
payment is due, Tenant shall pay to Landlord an additional sum of three percent
(3%) of the overdue Rent as a late charge. The parties agree that this late
charge represents a fair and reasonable estimate of the costs that Landlord will
incur by reason of late payment by

                                       27
<PAGE>   28

Tenant. In addition to the late charge, Rent not paid when due shall bear
interest from the 5th day after date due until paid at the lesser of (i) twelve
percent (12%) per annum or (ii) the maximum rate permitted by law.

        23.2. No payment by Tenant or receipt by Landlord of a lesser amount
than the Rent payment herein stipulated shall be deemed to be other than on
account of the Rent, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment as Rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such Rent or pursue any other remedy
provided. If at any time a dispute shall arise as to any amount or sum of money
to be paid by Tenant to Landlord, Tenant shall have the right to make payment
"under protest" and such payment shall not be regarded as a voluntary payment,
and there shall survive the right on the part of Tenant to institute suit for
recovery of the payment paid under protest.

        23.3. If Tenant fails to pay any sum of money required to be paid by it
hereunder, or shall fail to perform any other act on its part to be performed
hereunder, Landlord may, after notice to Tenant, without waiving or releasing
Tenant from any obligations of Tenant, but shall not be obligated to, make such
payment or perform such act. All sums so paid or incurred by Landlord shall be
payable to Landlord on demand as Additional Rent, and if such amounts are not
paid within 10 days thereafter, shall bear interest, from the date such sums
were paid or incurred, at the annual rate equal to twelve percent (12%) per
annum or highest rate permitted by law, whichever is less, .

        23.4.  The occurrence of any one or more of the following events shall
constitute a "Default" hereunder by Tenant:

               23.4.1 The abandonment or vacation of the Demised Premises by
Tenant;

               23.4.2 The failure by Tenant to make any payment of Rent as and
when due where such failure continues for three (3) days after written notice is
delivered to Tenant; provided, however, that Landlord shall not be obligated to
deliver to Tenant more than two (2) written notices in any twelve (12) month
period nor more than four (4) written notices during the entire Term;

               23.4.3 The failure by Tenant to observe or perform any
obligation or covenant contained herein (other than described in Section 23.4.1
and 23.4.2) to be performed by Tenant, where such failure shall continue for a
period of ten (10) days after written notice thereof from Landlord to Tenant.
Such notice shall be in lieu of, and not in addition to, any notice required
under California Code or Civil Procedure Section 1161; provided that if the
nature of Tenant's default is such that it reasonably requires more than ten
(10) days to cure, then Tenant shall not be deemed to be in default if Tenant
shall commence such cure within

                                       28
<PAGE>   29

said ten (10) day period and thereafter diligently prosecute the same to
completion, provided, however, that such cure is completed no later than thirty
(30) days from the date of written notice;

               23.4.4 Tenant makes an assignment for the benefit of creditors;

               23.4.5 A receiver, trustee or custodian is appointed to, or does,
take title, possession or control of all, or substantially all, of Tenant's
assets;

               23.4.6 Tenant files a voluntary petition under the Bankruptcy
Code (or any similar law) or an order for relief is entered against Tenant
pursuant to a voluntary or involuntary proceeding commenced under any chapter of
the Bankruptcy Code;

               23.4.7 Any involuntary petition if filed against the Tenant under
any chapter of the Bankruptcy Code and is not dismissed within ninety (90) days;
or

               23.4.8 Tenant's interest in this Lease is attached, executed
upon, or otherwise judicially seized and such action is not released within
ninety (90) days of the action.

Notices given under this Section 23.4 shall specify the alleged default and
shall demand that Tenant perform the provisions of this Lease or pay the Rent
that is in arrears, as the case may be, within the applicable period of time, or
quit the Demised Premises. No such notice shall be deemed a forfeiture or a
termination of this Lease unless Landlord elects otherwise in such notice.

        23.5. In the event of a Default by Tenant, and at any time thereafter,
with or without notice or demand and without limiting Landlord in the exercise
of any right or remedy which Landlord may have, Landlord shall be entitled to
terminate Tenant's right to possession of the Demised Premises by any lawful
means, in which case this Lease shall terminate and Tenant shall immediately
surrender possession of the Demised Premises to Landlord. In such event,
Landlord shall have the immediate right to re-enter and remove all persons and
property, and such property may be removed and stored in a public warehouse or
elsewhere at the cost of, and for the account of Tenant, all without service of
notice or resort to legal process and without being deemed guilty of trespass,
or becoming liable for any loss or damage which may be occasioned thereby. In
the event that Landlord shall elect to so terminate this Lease, then Landlord
shall be entitled to recover from Tenant all damages incurred by Landlord by
reason of Tenant's default, including:

               23.5.1 The worth at the time of award of any unpaid Rent which
had been earned at the time of such termination; plus

                                       29
<PAGE>   30

               23.5.2 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 that portion of such rental loss which Tenant proves could have
been reasonably avoided; plus

               23.5.3 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
amount of such rental loss which Tenant proves could have been reasonably
avoided; plus

               23.5.4 Any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its obligation
under this Lease or which in the ordinary course of things would be likely to
result therefrom, including, but not limited to, the cost of restoring the
Demised Premises to the condition required under the terms of this Lease; plus

               23.5.5 At the Landlord's election, such other amounts in addition
to or in lieu of the foregoing as may be permitted from time to time by
Applicable Law.

As used in Sections 23.5.1 and 23.5.2 above, "worth at the time of award" shall
be computed by allowing interest at the rate specified in Section 23.1. As used
in Section 23.5.3 above, the "worth at the time of the award" shall be computed
by taking the present value of such amount, by using the discount rate of the
Federal Reserve Bank of San Francisco at the time of the award plus six (6)
percentage points.

        23.6. If Landlord does not elect to terminate this Lease as provided in
this Article 23, then Landlord may, from time to time, recover all Rent as it
becomes due under this Lease. At any time thereafter, Landlord may elect to
terminate this Lease and to recover damage to which Landlord is entitled.

        23.7. In the event Landlord elects to terminate this Lease and relet the
Demised Premises, it may execute any new lease in its own name. Tenant hereunder
shall have no right or authority whatsoever to collect any Rent from such
tenant. The proceeds of any such reletting shall be applied as follows:

               First, to the payment of any indebtedness other than Rent due
        hereunder from Tenant to Landlord, including, but not limited to,
        storage charges or brokerage commissions owing from Tenant to Landlord
        as the result of such reletting;

               Second, to the payment of the costs and expenses of reletting the
        Demised Premises, including alterations and repairs which Landlord deems
        reasonably necessary and advisable and reasonable attorneys' fees,
        charges and disbursements incurred by Landlord in connection with the
        retaking of the Demised Premises and such reletting;

                                       30
<PAGE>   31

               Third, to the payment of Rent and other charges due and unpaid
         hereunder; and

               Fourth, to the payment of future Rent and other damages payable
         by Tenant under this Lease.

        23.8. All rights, options, and remedies of Landlord contained in this
Lease shall be construed and held to be nonexclusive and cumulative. Landlord
shall have the right to pursue any one or all of such remedies or any other
remedy or relief which may be provided by law, whether or not stated in this
Lease. No waiver of any default of Tenant hereunder shall be implied from any
acceptance by Landlord of any Rent or other payments due hereunder or any
omission by Landlord to take any action on account of such default if such
default persists or is repeated, and no express waiver shall affect defaults
other than as specified in said waiver.

        23.9. Termination of this Lease or Tenant's right to possession by
Landlord shall not relieve Tenant from any liability to Landlord which has
theretofore accrued or shall arise based upon events which occurred prior to the
last to occur of (i) the date of Lease termination or (ii) the date possession
of Demised Premises is surrendered.

        23.10. Landlord shall not be in default unless Landlord fails to perform
obligations required of Landlord within a reasonable time, but in no event shall
such failure to continue be for more than thirty (30) days after written notice
by Tenant specifying wherein Landlord has failed to perform such obligation;
provided, however, that if the nature of Landlord's obligation is such that more
than thirty (30) days are required for performance, then Landlord shall not be
in default if Landlord commences performance within such thirty (30) day period
and thereafter diligently prosecutes the same to completion.

        23.11. In the event of any default on the part of Landlord, Tenant will
give notice by registered or certified mail to any beneficiary of a deed of
trust or mortgagee or a mortgage covering the Demised Premises and to any
landlord of any lease of any building in which Demised Premises is located whose
address shall have been furnished, and Tenant shall offer such beneficiary,
mortgagee and/or landlord a reasonable opportunity to cure the default,
including time to obtain possession of the Building by power of sale or a
judicial action if such should prove necessary to effect a cure, provided the
Landlord shall have furnished to Tenant in writing the names and addresses of
all such persons who are to receive such notices.

240     Assignment or Subletting

        24.1. Except as hereinafter provided, Tenant shall not, either
voluntarily or by operation of law, directly or indirectly, sell, hypothecate,
assign, pledge, encumber or otherwise transfer this Lease, or sublet the Demised
Premises or any part thereof, or permit or suffer the Demised Premises or any
part thereof to be used or occupied as work space, storage space, mailing
privileges, concession or otherwise by anyone other than Tenant or Tenant's

                                       31
<PAGE>   32

employees, without the prior written consent of Landlord in each instance, which
consent shall not be unreasonably withheld or delayed.

      24.2. If Tenant is a corporation, the shares of which are not actively
traded upon a stock exchange or in the over-the-counter market, and all three of
the following conditions are met, then such related series of events shall
collectively be deemed an assignment of this Lease requiring the consent of
Landlord as provided in Section 24.1:

            (i) A transfer or series of transfers (which occur within 12
calendar months of the first transaction in the series) whereby fifty percent
(50%) or more of the issued and outstanding shares of such corporation are
transferred (but excepting transfers upon deaths of individual shareholders)
from Tenant (as a corporation) or a person or persons or entity or entities
which were owners thereof on the Effective Date to persons or entities who were
not owners of shares of the corporation on the Effective Date;

            (ii) on or after the date of such transfer or the first of such
series of transfers, more than half of the members of the Board of Directors of
Tenant (with respect to the number of directors measured at such time) are
replaced with persons who are not members of the Board of Directors on the
Effective Date; and

            (iii) the net worth of Tenant is, at such time, less than
$1,000,000.

        24.3. If Tenant desires to assign this Lease to any entity into which
Tenant is merged, with which Tenant is consolidated, or which acquires all or
substantially all of the assets of Tenant, provided that the assignee first
executes, acknowledge and delivers to Landlord an agreement whereby the assignee
agrees to be bound by all of the covenants and agreements in this Lease and that
the assignee shall have a net worth (determined in accordance with generally
accepted accounting principles consistently applied) immediately after such
assignment which is at least equal to the net worth (as so determined) of Tenant
immediately prior to the assignment (or as of the date hereof, if greater), then
Landlord, upon receipt of proof of foregoing shall, in Landlord's reasonable
discretion, consent to such assignment.

        24.4. In the event Tenant desires to assign, sublease, hypothecate or
otherwise transfer this Lease or sublet the Demised Premises, then at least
forty-five (45) days, but not more than ninety (90) days, prior to the date when
Tenant desires the assignment or sublease to be effective (the "Assignment
Date"), Tenant shall give Landlord a notice (the "Assignment Notice") containing
information (including references) concerning the character of the proposed
assignee or sublessee, the Assignment Date, any ownership or commercial
relationship between Tenant and the proposed assignee or sublessee, and the
consideration and all other material terms and conditions of the proposed
assignment or sublease along with such other information as Landlord may
reasonably require, all in such detail as Landlord shall reasonably require.
Tenant shall also tender to Landlord, reasonable attorneys fees and other costs
or overhead expenses incurred by Landlord in reviewing Tenants request for such

                                       32
<PAGE>   33

assignment; provided, however, that such fees and expenses shall not exceed
$2,000, which amount shall increase on each Rent Adjustment Date in accordance
with Section 6.1.

      24.5. Landlord in making its determination as to whether consent should be
given to a proposed assignment or sublease, may give consideration to the
financial strength of such successor (notwithstanding the assignor remaining
liable for Tenant's performance), any change in the permitted use which such
successor proposes to make in use of Demised Premises and desire of Landlord to
exercise rights under Section 24.10 to obtain cancellation of this Lease. In no
event shall Landlord be deemed to be unreasonable for declining to consent to
transfer to a successor of poor reputation, lacking financial qualifications, or
seeking change in use.

      24.6. As conditions precedent to Landlord considering a request by
Tenant to Tenant's transfer of rights or subletting of the Demises Premises
where Landlord's consent is required pursuant to Section 24.1, Landlord may
require any or all of the following:

               24.6.1   Tenant shall remain fully liable under this Lease
during the unexpired Term;

               24.6.2 Tenant shall provide Landlord with evidence reasonably
satisfactory to Landlord that the value of Landlord's interest under this Lease
will not thereby be diminished or reduced. Such evidence shall include, but need
not be limited to, evidence respecting the relevant business experience and
financial responsibility and status of the third party concerned;

               24.6.3 Tenant shall reimburse Landlord for Landlord's actual
costs and expenses, including, without limitation, reasonable attorneys' fees,
charges and disbursements incurred in connection with the review, processing and
documentation of such request; provided, however, that such fees and expenses
shall not exceed $2,000, which amount shall increase on each Rent Adjustment
Date in accordance with Section 6.1;

               24.6.4 If Tenant's transfer of rights or subletting of the
Demised Premises provides for the receipt by, on behalf or on account of Tenant
of any consideration of any kind whatsoever (including, but not by way of
limitation, a premium rental for a sublease or lump sum payment for an
assignment) in excess of the rental and other charges due Landlord under this
Lease, Tenant shall pay fifty percent (50%) of said excess to Landlord. If said
consideration consists of cash paid to Tenant, said payment to Landlord shall be
made upon receipt by Tenant of said cash payment;

               24.6.5 Written agreement from any third party concerned that in
the event Landlord gives such third party notice that Tenant is in default under
this Lease, such third party shall thereafter make all payments otherwise due
Tenant directly to Landlord, which

                                       33
<PAGE>   34

payments will be received by Landlord without any liability on Landlord except
to credit such payment against those due under the Lease, and any such third
party shall agree to attorn to Landlord or its successors and assigns should
this Lease be terminated for any reason; provided, however, that in no event
shall Landlord or its successors or assigns be obligated to accept such
attornment;

               24.6.6   Any such transfer and consent shall be effected on
forms reasonably approved by Landlord as to form and substance;

               24.6.7   Tenant shall not then be in default hereunder in any
respect;

               24.6.8   Such third party's proposed use of the Demised Premises
shall be the same as Tenant's permitted use;

               24.6.9   Landlord shall not be bound by any provision of any
agreement pertaining to Tenant's transfer of rights or subletting of the
Demised Premises;

               24.6.10 Any agreement pertaining to Tenant's transfer of this
Lease or subletting of any portion of the Demised Premises shall be in a form
acceptable to Landlord in Landlord's sole and absolute discretion, and any such
agreement shall not be modified or amended without Landlord's prior written
consent, which may be withheld in Landlord's sole and absolute discretion;

               24.6.11 Tenant shall deliver to Landlord one original executed
copy of any and all written instruments evidencing or relating to Tenant's
transfer of rights or subletting of the Demised Premises; and

               24.6.12 A list of Hazardous Materials, certified by the proposed
sublessee to be true and correct, which the proposed sublessee intends to use or
store in the Demised Premises. Additionally, Tenant shall deliver to Landlord,
on or before the date any proposed sublessee takes occupancy of the Demised
Premises, all of the items relating to Hazardous Materials of such proposed
sublessee.

        24.7. Any sale, assignment, hypothecation or transfer of this Lease or
subletting of the Demised Premises that is not in compliance with the provisions
of this Article 24 shall be void and shall, at the option of Landlord, terminate
this Lease.

        24.8. The consent by Landlord to an assignment or subletting shall not
relieve Tenant or any assignees of this Lease or sublessee of the Demised
Premises from obtaining the consent of Landlord to any further assignment or
subletting nor shall it release Tenant or any assignee or sublessee of Tenant
from full and primary liability under the Lease.

                                       34
<PAGE>   35

        24.9. Notwithstanding any subletting or assignment, Tenant shall remain
fully and primarily liable for the payment of all Rent and other sums due, or to
become due hereunder, and for the full performance of all other terms,
conditions, and covenants to be kept and performed by Tenant. The acceptance of
Rent or any other sum due hereunder, or the acceptance of performance of any
other term, covenant, or condition thereof, from any other person or entity
shall not be deemed to be a waiver of any of the provisions of this Lease or a
consent to any subletting, assignment or other transfer of the Demised Premises.

      24.10. If Tenant delivers to Landlord an Assignment Notice indicating a
desire to transfer this Lease to a transferee other than as provided within
Section 24.4, then Landlord shall have the option, exercisable by giving notice
to Tenant at any time within ten (10) days after Landlord's receipt of the
Assignment Notice, to terminate this Lease as of the date specified in the
Assignment Notice as the Assignment Date. If Landlord exercises such option,
then Tenant shall have the right to withdraw such Assignment Notice by delivery
to Landlord written notice of such election within five (5) days after
Landlord's delivery of notice electing to exercise such option to terminate. In
the event Tenant withdraws the Assignment Notice as herein above provided, this
Lease shall continue in full force and effect as if such Assignment Notice had
not been given. No failure of Landlord to exercise any such option to terminate
this Lease shall be deemed to be Landlord's consent to the proposed Assignment,
Sublease or other Transfer.

        24.11. If Tenant shall sublet the Demised Premises or any part, Tenant
hereby immediately and irrevocably assigns to Landlord, as security for Tenant's
obligations under this Lease, all rent from any subletting of all or a part of
the Demised Premises and Landlord as assignee and as attorney-in-fact for
Tenant, or a receiver for Tenant appointed on Landlord's application, may
collect such rent and apply it toward Tenant's obligations under this Lease;
except that, until the occurrence of an act of Default by Tenant, Tenant shall
have the right to collect such rent.

25.     Attorneys' Fees and Costs

        25.1. Tenant shall be responsible for (i) all of Tenant's legal and
related costs and fees in connection with this Lease, and (ii) all of Landlord's
legal and related costs and fees if Landlord is required to consult and attorney
regarding the enforcement of this Lease.

        25.2. If either party commences an action against the other party
arising out of or in connection with this Lease, the prevailing party shall be
entitled to have and recover from the non-prevailing party reasonable attorneys'
fees, charges and disbursements and costs of suit.

26.     Bankruptcy

        26.1. In the event a debtor, trustee, or debtor in possession under the
Bankruptcy Code, or other person with similar rights, duties and powers under
any other law, proposes to

                                       35
<PAGE>   36
cure any default under this Lease or to assume or assign this Lease, and is
obliged to provide adequate assurance to Landlord that (i) a default will be
cured, (ii) Landlord will be compensated for its damages arising from any breach
of this Lease, or (iii) future performance under this Lease will occur, then
adequate assurance shall include any or all of the following, as designated by
Landlord:

               26.1.1 Those acts specified in the Bankruptcy Code or other law
as included within the meaning of adequate assurance, even if this Lease does
not concern a shopping center or other facility described in such laws;

               26.1.2 A prompt cash payment to compensate Landlord for any
monetary defaults or actual damages arising directly from a breach of this
Lease;

               26.1.3 A cash deposit or a Letter of Credit in an amount at least
equal to the Security Deposit as referenced in 2.1.7 originally required at time
of execution of this Lease.

               26.1.4 The assumption or assignment of all of Tenant's interest
and obligations under this Lease.

27.     Estoppel Certificate

        Tenant shall within ten (10) days of written notice from Landlord,
execute, acknowledge and deliver a statement in writing substantially in the
form attached to this Lease as Exhibit "D" with the blanks filled in, and on any
other form reasonably requested by a proposed lender or purchaser, (i)
certifying that this Lease is unmodified and in full force and effect (or, if
modified, stating the nature of such modification and certifying that this Lease
as so modified is in full force and effect) and the dates to which the rental
and other charges are paid in advanced, if any, (ii) acknowledging that there
are not, to Tenant's knowledge, any uncured defaults on the part of Landlord
hereunder, or specifying such defaults if any are claimed and (iii) setting
forth such further information with respect to this Lease or the Demised
Premises as may be reasonably requested thereon. Any such statement may be
relied upon by any prospective purchaser or encumbrancer of all or any portion
of the real property of which the Demised Premises are a part. Tenant's failure
to deliver such statement within such time shall, at the option of Landlord,
constitute a Default under this Lease, and, in any event, shall be conclusive
upon Tenant that the Lease is in full force and effect and without modification
except as may be represented by Landlord in any certificate prepared by Landlord
and delivered to Tenant for execution.

28.     Joint and Several Obligations

        28.1.  If more than one person or entity executes this Lease as Tenant,

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<PAGE>   37

               28.1.1 Each of them is jointly and severally liable for the
keeping, observing and performing of all of the terms, covenants, conditions,
provisions and agreements of this Lease to be kept, observed and performed by
Tenant, and

               28.1.2 The term "Tenant" as used in this Lease shall mean and
include each of them jointly and severally. The act of, notice from, notice to,
refund to, or the signature of, any one or more of them, with respect to the
tenancy of this Lease, including, but not limited to, any renewal, extension,
expiration, termination or modification of this Lease, shall be binding upon
each and all of the persons executing this Lease as Tenant with the same force
and effect as if each and all of them had so acted, so given or received such
notice or refund or so signed.

29.     Definition of Landlord; Limitation of Landlord's Liability

      29.1. The term "Landlord" as used in this Lease, so far as covenants or
obligations on the part of Landlord are concerned, shall be limited to mean and
include only Landlord or the successor-in-interest of Landlord under this Lease
at the time in question. In the event of any transfer, assignment or the
conveyance of Landlord's fee title or leasehold interest, the landlord herein
named (and in case of any subsequent transfers or conveyances, the then grantor)
shall be automatically freed and relieved from, and after the date of such
transfer, assignment or conveyance, of all liability for the performance of any
covenants or obligations contained in this Lease thereafter to be performed by
Landlord and, without further agreement, the transferee of such title or
leasehold shall be deemed to have assumed and agreed to observe and perform any
and all obligations of Landlord hereunder during its ownership or ground lease
of the Demised Premises. Landlord may transfer its interest in the Demised
Premises or this Lease without the consent of Tenant and such transfer or
subsequent transfer shall not be deemed a violation on the part of Landlord or
the then grantor of any of the terms or conditions of this Lease.

        29.2. If Landlord is in default of this Lease, and as a consequence,
Tenant recovers a money judgment against Landlord, the judgment shall be
satisfied only out of the proceeds of sale received on execution of the judgment
and levy against the right, title and interest of Landlord in the Building and
the Demised Premises, and out of rent or other income from such real property
receivable by Landlord or out of the consideration received by Landlord from the
sale, financing, refinancing, or other disposition of all or any part of
Landlord's right, title, and interest in the Building and the Demised Premises.

        29.3. Landlord shall not be personally liable for any deficiency. If
Landlord is a partnership, joint venture, or limited liability company, the
partners or members of such partnership or limited liability company shall not
be personally liable and no partner or member of Landlord or limited liability
company shall be sued or named as a party in any suit or action or service of
process be made against any partner of Landlord except as may be

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<PAGE>   38

necessary to secure jurisdiction of the partnership or joint venture. If
Landlord is a corporation, the shareholders, directors, officers, employees,
and/or agents of such corporation shall not be personally liable and no
shareholder, director, officer, employee or agent of Landlord shall be sued or
named as a party in any suit or action or service of process made against any
shareholder, director, officer, employee or agent of Landlord. No partner,
shareholder, director, employee, or agent of Landlord shall be required to
answer or otherwise plead to any service of process and no judgment will be
taken or writ of execution levied against any partner, shareholder, director,
employee or agent of Landlord.

        29.4. Each of the covenants and agreements of this Article 29 shall be
applicable to any covenant or agreement either expressly contained in this Lease
or imposed by statute or by common law and shall survive the termination of this
Lease.

30.     Project Control by Landlord

        30.1. Landlord reserves full control over the Demised Premises to the
extent not inconsistent with the terms of this Lease and Tenant's enjoyment of
the Demised Premises. This reservation includes but is not limited to right of
Landlord to (i) subdivide the real property upon which the Building is located,
(ii) grant easements and licenses to others and (iii) maintain or establish
ownership of the Building separate from fee title to the land on which the
Building is located.

        30.2. Landlord further reserves the right to combine the land comprising
the Demised Premises with any other project in the area of the Demised Premises
and owned by Landlord or its affiliates.

        30.3. Tenant shall, should Landlord so request, promptly join with
Landlord in execution of such documents as may be reasonably appropriate to
assist Landlord to implement any such action, provided that Tenant need not
execute any document which is of nature wherein liability is created in Tenant
or, if by reason of the terms of such document, Tenant will be deprived of the
quiet enjoyment and use of the Demised Premises as granted by this Lease.

        30.4. Landlord may, at any and all reasonable times during non-business
hours (or during business hours if Tenant so requests), and upon reasonable
advance notice (provided that no time restrictions shall apply or advance notice
need be given if an emergency necessitates an immediate entry), but in any
event, provided that Landlord shall make commercially reasonable efforts to
maintain the confidentiality of Tenant's business, enter the Demised Premises to
(a) inspect the same and to determine whether Tenant is in compliance with its
obligations hereunder, (b) supply any service Landlord is required to provide
hereunder, (c) show the Demised Premises to prospective lenders, insurers,
investors, purchasers or, during the last year of the Term, tenants, (d) post
notices of nonresponsibility,

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<PAGE>   39

(e) access the telephone equipment, electrical substation and fire risers, and
(f) alter, improve or repair any portion of the Building other than the Demised
Premises, but for which access to the Demised Premises is necessary. In
connection with any such alteration, improvement or repair, Landlord may erect
in the Demised Premises or elsewhere in the Building scaffolding and other
structures reasonably required for the work to be performed. In no event shall
Tenant's Rent abate as a result of any such entry or work; provided, however,
that all such work shall be done in such a manner as to cause as little
interference to Tenant as reasonably possible. Landlord shall at all times
retain a key with which to unlock all of the doors in the Demised Premises. If
an emergency necessitates immediate access to the Demised Premises, Landlord may
use whatever force is necessary to enter the Demised Premises and any such entry
to the Demised Premises shall not constitute a forcible or unlawful entry to the
Demised Premises, an unlawful detainer of the Demised Premises, or an eviction
of Tenant from the Demised Premises, or any portion thereof.

        30.5. No additional security systems, locks or bolts of any kind shall
be placed upon any of the doors or windows by Tenant nor shall any changes be
made in existing security systems, locks or the mechanism thereof without
providing Landlord with a security card, password, or key, as the case may be
for each such security system or device. Tenant must, upon termination of this
Lease, return to Landlord all security cards, keys to offices and restrooms,
either furnished to, or otherwise procured by Tenant. In the event any key so
furnished is lost, Tenant shall pay to Landlord the cost of replacing the same
or of changing the lock or locks opened by such lost key if Landlord shall deem
it necessary to make such change.

31.     Quiet Enjoyment

        So long as no Default exists, Landlord covenants that Landlord or anyone
acting through or under Landlord will not disturb Tenant's occupancy of the
Demised Premises except as permitted by the provisions of this Lease.

32.     Quitclaim Deed

        Tenant shall execute and deliver to Landlord on the expiration or
termination of this Lease, immediately on Landlord's request, in recordable
form, a quitclaim deed to the Demised Premises or such other documentation
reasonably requested by Landlord evidencing termination of this Lease.

                                       39
<PAGE>   40

33.     Rules and Regulations

        Tenant shall faithfully observe and comply (and shall cause its
subtenants, guests, invitees, licensees, agents, employees and contractors to
comply) with the Rules and Regulations and all reasonable and nondiscriminatory
modifications thereof and additions thereto from time to time put into effect by
Landlord (provided such modifications or additions do not materially increase
Tenant's obligations under this Lease, unless required by Applicable Law).
Neither Landlord nor Tenant (except with respect to Tenant's subtenants, guests,
invitees, licensees, agents, employees and contractors) shall be responsible for
the violation or non-performance by any other tenant or any agent, employee or
invitee of Landlord of any of said Rules and Regulations.

34.     Subordination and Attornment

        34.1. Subject to Section 34.4, this Lease shall be subject and
subordinate to the lien of any mortgage, deed of trust, or lease in which
Landlord is tenant now or hereafter in force against the Demised Premises or the
Building and to all advances made or hereafter to be made upon the security
thereof without the necessity of the execution and delivery of any further
instruments on the part of Tenant to effectuate such subordination.

        34.2. Notwithstanding the foregoing, Tenant shall execute and deliver
upon demand such further instrument or instruments evidencing such subordination
of this Lease to the lien of any such mortgage or mortgages or deeds of trust or
lease in which Landlord is tenant as may be required by Landlord. However, if
any such mortgagee, beneficiary or Landlord under lease wherein Landlord is
tenant so elects, this Lease shall be deemed prior in lien to any such lease,
mortgage, or deed of trust upon or including the Demised Premises regardless of
date and Tenant will execute a statement in writing to such effect at Landlord's
request. If Tenant fails to execute any document required from Tenant under this
Section within ten (10) days after written request therefor, Tenant hereby
constitutes and appoints Landlord or its special attorney-in-fact to execute and
deliver any such document or documents in the name of Tenant. Such power is
coupled with an interest and is irrevocable.

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

        34.4. Tenant's subordination of this Lease shall be subject to receiving
a commercially reasonable non-disturbance agreement (a "Non-Disturbance
Agreement") from such mortgagee, beneficiary or lessor which Non-Disturbance
Agreement provides that Tenant's possession of the

                                       40
<PAGE>   41

Demised Premises, and this Lease, including any options to extend the term
hereof, will not be disturbed so long as Tenant is not in Default hereof.

35.     Surrender

        35.1. No surrender of possession of any part of the Demised Premises
shall release Tenant from any of its obligations hereunder unless accepted by
Landlord.

        35.2. The voluntary or other surrender of this Lease by Tenant shall not
work a merger, unless Landlord consents and shall, at the option of Landlord,
operate as an assignment to it of any or all subleases or subtenancies.

        35.3. The voluntary or other surrender of any ground or underlying lease
that now exists or may hereafter be executed affecting the Demised Premises, or
a mutual cancellation, thereof, or of Landlord's interest therein, shall not
work a merger and shall, at the option of the successor of Landlord's interest
in the Demised Premises, operate as an assignment of this Lease.

        35.4. Upon the expiration or earlier termination of this Lease, Tenant
shall surrender the Demised Premises to Landlord broom clean and free of debris;
with all of Tenant's personal property and effects removed therefrom (except as
otherwise provided herein); with all alterations, improvements and fixtures
required by Landlord to be removed from the Demised Premises actually removed
and all damage as a result of or caused by such removal repaired; and with all
licenses, permits and similar items which restrict or affect the use of the
Demised Premises released and fully terminated.

36.     Waiver and Modification

        No provision of this Lease may be modified, amended or added to except
by an agreement in writing. The waiver by Landlord of any breach of any term,
covenant or condition herein contained shall not be deemed to be a waiver of any
subsequent breach of the same or any other term, covenant or condition herein
contained.

37.     Waiver of Jury Trial and Counterclaims

        THE PARTIES HERETO SHALL AND THEY HEREBY DO WAIVE TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO
AGAINST THE OTHER ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE
OR OCCUPANCY OF THE DEMISED PREMISES, AND OR ANY CLAIM OF INJURY OR DAMAGE.

                                       41
<PAGE>   42

38.     Hazardous Materials

        38.1. Prohibition/Compliance. Tenant shall not cause or permit any
Hazardous Materials (as hereinafter defined) to be brought upon, kept or used in
or about the Demised Premises or the Building except in the ordinary course of
Tenant's business and in compliance with all Applicable Law by Tenant, its
agents, employees, contractors or invitees. If Tenant breaches the obligation
stated in the preceding sentence, or if the presence of Hazardous Materials
results in contamination of the Demised Premises or the Building or any adjacent
property or if contamination of the Demised Premises or the Building or any
adjacent property by Hazardous Materials otherwise occurs during the term of
this Lease or any extension or renewal hereof or holding over hereunder, Tenant
hereby indemnifies and shall defend and hold Landlord, its officers, directors,
employees, agents and contractors harmless from any and all claims, judgments,
damages, penalties, fines, costs, liabilities, or losses (including, without
limitation, diminution in value of the Demised Premises or any portion of the
Building, damages for the loss or restriction on use of rentable or usable space
or of any amenity of the Demised Premises or the Building, damages arising from
any adverse impact on marketing of space in the Demised Premises or the
Building, and sums paid in settlement of claims, attorneys' fees, consultant
fees and expert fees) which arise during or after the Lease 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 political subdivision because
of Hazardous Materials present in the air, soil or ground water above on or
under the Demised Premises. Without limiting the foregoing, if the presence of
any Hazardous Materials on or in the Demised Premises or the Building or any
adjacent property, caused or permitted by Tenant results in any contamination of
the Demised Premises or the Building or any adjacent property, Tenant shall
promptly take all actions at its sole expense as are necessary to return the
Demised Premises or the Building or any adjacent property, to the condition
existing prior to the time of such contamination, provided that Landlord's
approval of such action shall first be obtained, which approval shall not
unreasonably be withheld so long as such actions would not potentially have any
material adverse long-term or short-term effect on the Demised Premises or the
Building.

      38.2. Business. Landlord acknowledges that it is not the intent of this
Article 38 to prohibit Tenant from operating its business as described in
Section 2.1.8 above. Tenant may operate its business according to the custom of
the industry so long as the use or presence of Hazardous Materials is strictly
and properly monitored according to all applicable governmental requirements. As
a material inducement to Landlord to allow Tenant to use Hazardous Materials in
connection with its business, Tenant agrees to deliver to Landlord prior to the
Term Commencement Date a list identifying each type of Hazardous Materials to be
present on the Demised Premises and setting forth any and all governmental
approvals or permits required in connection with the presence of such Hazardous
Materials on the Demised Premises ("Hazardous Materials List"). Tenant shall
deliver to Landlord an updated

                                       42
<PAGE>   43

Hazardous Materials List at least once a year and shall also deliver an updated
list before any new Hazardous Materials is brought onto the Demised Premises.
Tenant shall deliver to Landlord true and correct copies of the following
documents (the "Documents") relating to the handling, storage, disposal and
emission of Hazardous Materials prior to the Term Commencement Date, or if
unavailable at that time, concurrent with the receipt from or submission to a
governmental agency: permits; approvals; reports and correspondence; storage and
management plans, notice of violations of any laws; plans relating to the
installation of any storage tanks to be installed in or under the Demised
premises or the Building (provided, said installation of tanks shall only be
permitted after Landlord has given Tenant its written consent to do so, which
consent may be withheld in Landlord's sole and absolute discretion); and all
closure plans or any other documents required by any and all federal, state and
local governmental agencies and authorities for any storage tanks installed in,
on or under the Demised Premises or the Building for the closure of any such
tanks. Tenant is not required, however, to provide Landlord with any portion(s)
of the Documents containing information of a proprietary nature which, in and of
themselves, do not contain a reference to any Hazardous Materials or hazardous
activities. It is not the intent of this Section to provide Landlord with
information which could be detrimental to Tenant's business should such
information become possessed by Tenant's competitors. Tenant at all times shall
maintain fire control areas (as defined in the Uniform Building Code, and
adopted by the City of San Diego ("UBC")) within the Demised Premises for the
storage of Hazardous Materials, classified by the UBC as an "H" occupancy area,
for the use and storage of Hazardous Materials.

        38.3. Termination of Lease or Rejection of Assignee. Notwithstanding the
provisions of Section 38.1 above, if (i) the proposed assignee or sublessee of
Tenant has been required by any prior landlord, lender or governmental authority
to take remedial action in connection with Hazardous Materials contaminating a
property if the contamination resulted from such party's action or use of the
property in question, or (ii) Tenant or the proposed assignee or sublessee is
(A) subject to an enforcement order issued by any governmental authority in
connection with the use, disposal or storage of a Hazardous Materials which
resulted in a material adverse effect on the Demised Premises or another
property, as the case may be, or (B) is or has been subject to multiple
enforcement orders issued by any governmental authority in connection with the
use, disposal or storage of a Hazardous Materials which did not result in a
material adverse effect on the Demised Premises or another property, as the case
may be, Landlord shall have the right to terminate this Lease in Landlord's sole
and absolute discretion (with respect to any such matter involving Tenant) and
it shall not be unreasonable for Landlord to withhold its consent to any
proposed assignment or subletting (with respect to any such matter involving a
proposed assignee or sublessee). Landlord shall give written notice to Tenant of
its election to terminate this Lease within the sixty (60) day period following
the issuance of the enforcement order that triggers the right to terminate, and
if Landlord elects to so terminate this Lease, Landlord shall grant Tenant all
necessary rights to enter the Demised Premises to comply with such order or
orders.

                                       43
<PAGE>   44
        38.4. Testing. At any time, and from time to time, prior to the
expiration or earlier termination of the Term, Landlord shall have the right to
conduct (a) an annual hazardous waste investigation of the Demised Premises and
(b) if Landlord has reasonable cause to believe that any contamination exists
on, in, under, or around the Building or the Demised Premises, such other tests
of the Demised Premises and the Building as Landlord may deem necessary or
desirable to demonstrate whether contamination has occurred as a result of
Tenant's use of the Demised Premises. Tenant shall be solely responsible for and
shall defend, indemnify and hold the Landlord, its agents and contractors
harmless from and against any and all claims, costs and liabilities including
actual attorneys' fees, charges and disbursements, arising out of or in
connection with any removal, clean up, restoration and materials required
hereunder to return the Demised Premises and any other property of whatever
nature to their condition existing prior to the time of any such contamination.
Tenant shall pay for the cost of the annual investigation and other tests of the
Demised Premises.

        38.5. Underground Tanks. If underground or other storage tanks storing
Hazardous Materials are located on the Demised Premises or are hereafter placed
on the Demised Premises by any party, Tenant shall monitor the storage tanks,
maintain appropriate records, implement reporting procedures, properly close any
underground storage tanks, and take or cause to be taken all other steps
necessary or required under the California Administrative Code, Title 23,
Chapter 3, Subchapter 16, "Underground Storage Tank Regulations," and Division
20, Chapter 6.7 of the California Health & Safety Code, "Underground Storage of
Hazardous Substances," as they now exist or may hereafter be adopted or amended.

        38.6. Tenant's Obligations. Tenant's obligations under this Article 38
shall survive the expiration or earlier termination of the Lease. During any
period of time employed by Tenant or Landlord after the termination of this
Lease to complete the removal from the Demised Premises of any such Hazardous
Materials and the release and termination of any licenses or permits restricting
the use of the Demised Premises, Tenant shall continue to pay the full Rent in
accordance with this Lease, which Rent shall be prorated daily.

        38.7. Definition of "Hazardous Materials." As used herein, the term
"Hazardous Materials" means any hazardous or toxic substance, material or waste
which is or becomes regulated by any local governmental authority, the State of
California or the United States government and includes, without limitation, any
material or substance which is (i) defined as a "hazardous waste, " "extremely
hazardous waste" or "restricted hazardous waste" under Section 25515 or 25117,
or listed pursuant to Section 25140, of the California Health and Safety Code,
Division 20, Chapter 6.5 (Hazardous Waste Control Law), (ii) defined as a
"hazardous substance" under Section 25316 of the California Health and Safety
Code, Division 2, Chapter 6.8 (Carpenter-Presly-Tanner Hazardous Substance
Account Act), (iii) defined as a "hazardous material," "hazardous substance" or
"hazardous waste" under Section 25501 of the California Health and Safety Code,
Division 20, Chapter 6.95 (Hazardous Substances), (v)

                                       44
<PAGE>   45

petroleum, (vi) asbestos, (vii) listed under Article 9 and defined as hazardous
or extremely hazardous pursuant to Article 11 of Title 22 of the California
Administrative Code, Division 4, Chapter 20, (viii) designated as a "hazardous
substance" pursuant to Section 311 of the Federal Water Pollution Control Act
(33 U.S.C. Section 1317), (ix) defined as a "hazardous waste" pursuant to
Section 1004 of the Federal Resource Conversation and Recovery Act, 42 U.S.C.
Section 6901, et. seq. (42 U.S.C. Section 6903), or (x) defined as a "hazardous
substance" pursuant to Section 101 of the Comprehensive Environmental Response
Compensation and Liability Act, 42 U.S.C. Section 9601 et. seq. (42 U.S.C.
Section 9601).

39.     Right to Extend Term.

        Tenant shall have the right to extend the Term of the Lease upon the
following terms and conditions:

        39.1. Tenant shall have two ( 2 ) consecutive rights (each, an
"Extension Right ") to extend the term of this Lease for five ( 5 ) years each
(each, an "Extension Term") on the same terms and conditions as the Lease;
except for the increases to Basic Annual Rent and Improvement Rent set forth
below. The Basic Annual Rent and Improvement Rent payable during the first year
of each Extension Term shall be equal to the Basic Annual Rent and Improvement
Rent payable on the date immediately preceding the commencement of such
Extension Term, as adjusted pursuant to Section 6 hereof. Basic Annual Rent and
Improvement Rent shall be adjusted on each one (1) year anniversary of the
commencement such Extension Term in accordance with Section 6 above.

        39.2.  Extension Rights are personal to Arena Pharmaceuticals, Inc. and
are not assignable separate and apart from this Lease.

        39.3. Extension Rights are conditional upon Tenant giving Landlord
written notice of its election to exercise each Extension Right at least one (1)
year prior to the end of the expiration of the initial term of the Lease or the
expiration of any Extension Term.

        39.4. Notwithstanding anything set forth above to the contrary,
Extension Rights shall not be in effect and Tenant may not exercise any of the
Extension Rights:

               39.4.1 during any period of time that Tenant is in Default under
any provision of this Lease; or

               39.4.2 if Tenant has been in Default under any provision of this
Lease three (3) or more times, whether or not the defaults are cured, during the
twelve (12) month period immediately prior to the date that Tenant intends to
exercise an Extension Rights, whether or not the defaults are cured.

                                       45
<PAGE>   46

        39.5. The period of time within which any Extension Rights may be
exercised shall not be extended or enlarged by reason of the Tenant's inability
to exercise the Expansion Rights because of the provisions of Section 39.4
above.

        39.6. The Extension Rights shall terminate and be of no further force or
effect even after Tenant's due and timely exercise of an Extension Right, if,
after such exercise, but prior to the commencement date of an Extension Term,
(1) Tenant fails to timely cure any Default by Tenant under this Lease; or (2) a
Default has occurred three (3) or more times during the period from the date of
the exercise of an Extension Right to the date of the commencement of the
Extension Term, whether or not such defaults are cured.

40. Miscellaneous

        40.1.  Financial Reporting.

               Tenant shall deliver to Landlord within sixty days following the
end of each fiscal year of Tenant, Tenant's unaudited financial statements (or
if Tenant has audited statements prepared, then Tenant shall deliver to Landlord
audited statements and accompanying notes for such year), certified by an
officer of Tenant to be true, correct and complete in all respects.

        40.2. Terms and Headings. Where applicable in this Lease, the singular
includes the plural and the masculine or neuter includes the masculine, feminine
and neuter. The section headings of this Lease are not a part of this Lease and
shall have no effect upon the construction or interpretation of any part hereof.

        40.3. Examination of Lease. Submission of this instrument for
examination or signature by Tenant does not constitute a reservation of or
option for lease, and it is not effective as a lease or otherwise until
execution by and delivery to both Landlord and Tenant.

        40.4. Time. Time is of the essence with respect to the performance of
every provision of this ease in which time of performance is a factor.

        40.5.  Covenants and Conditions.  Each provision of this Lease
performable by Tenant shall be deemed both a covenant and a condition.

        40.6.  Consents.  Whenever consent or approval of either party is
required, that party shall not unreasonably withhold such consent or approval,
except as may be expressly set forth to the contrary.

        40.7. Entire Agreement. The terms of this Lease are intended by the
parties as a final expression of their agreement with respect to the terms as
are included herein, and may not be contradicted by evidence of any prior or
contemporaneous agreement. The Basic Lease

                                       46
<PAGE>   47

Provisions, General Provisions, Work Letter, and Exhibits all constitute a
single document and are incorporated herein.

      40.8. Severability. Any provision of this Lease which shall provide to be
invalid, void, or illegal in no way affects, impairs or invalidates any other
provision hereof, and such other provisions shall remain in full force and
effect.

      40.9. Recording. Landlord shall record a short form memorandum hereof
concurrently with the recording of the grant deed in favor of Landlord. Neither
parties shall record this Lease. Tenant shall be responsible for the cost of
recording any Memorandum of Lease, including any transfer or other taxes
incurred in connection with said recordation. Tenant shall provide Landlord a
quitclaim deed at the expiration or earlier termination of the Term to allow
Landlord to remove of record any interest Tenant may have had in the Demised
Premises or the Building.

      40.10. Impartial Construction. The language in all parts of this Lease
shall be in all cases construed as a whole according to its fair meaning and not
strictly for or against either Landlord or Tenant.

      40.11. Inurement. Each of the covenants, conditions and agreements herein
contained shall inure to the benefit of and shall apply to and be binding upon
the parties hereto and their respective heirs, legatees, devisees, executors,
administrators, successors, assigns, sublessees, or any person who may come into
possession of said Demised Premises or any part thereof in any manner
whatsoever. Nothing in this Section 40.10 contained shall in any way alter the
provisions against assignment or subletting in this Lease provided.

      40.12. Notices. Any notice, consent, demand, bill, statement, or other
communication required or permitted to be given hereunder must be in writing and
may be given by (a) facsimile transmission and confirmed by any of the following
methods or (b) personal delivery, (c) reputable overnight courier or (d) by
mail, and if given by mail shall be deemed sufficiently given two (2) days after
time when deposited in United States Mail is sent by registered or certified
mail, and if given by other means shall be deemed given when received, addressed
to Tenant at the Demised Premises, or to Tenant or Landlord at the addresses
shown in Sections 2.1.9 and 2.1.10 of the Basic Lease Provisions. Either party
may, by notice to the other given pursuant to this Section, specify additional
or different addresses for notice purposes.

      40.13. Jurisdiction. This Lease has been negotiated and entered into in
the State of California and shall be governed by, construed and enforced in
accordance with the laws of the State of California, applied to contracts made
in California to be wholly performed in California.

                                       47
<PAGE>   48

                 [ REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ]

                                       48
<PAGE>   49

        40.14. Authority. That individual or those individuals signing this
Lease guarantee, warrant and represent that said individual or individuals have
the power, authority and legal capacity to sign this Lease on behalf of and to
bind all entities, corporations, partnerships, joint venturers or other
organizations and/or entities on whose behalf said individual or individuals
have signed.

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

                            Landlord:

                            ARE - 6166 NANCY RIDGE, LLC,
                            a Delaware limited liability company

                            By:  ALEXANDRIA REAL ESTATE EQUITIES, L.P.
                                   a Delaware limited partnership
                                   Managing Member

                                   By:  ARE-QRS, CORP.,
                                          a Maryland corporation
                                          General Partner

                                          By: _______________________________
                                          Name:______________________________
                                          Its:_________________________________

                            Tenant:

                            ARENA PHARMACEUTICALS, INC.,
                            A Delaware corporation

                            By:______________________________
                               Jack Lief
                               President

                                       49
<PAGE>   50

                                    EXHIBITS

EXHIBIT "A"           DEMISED PREMISES

EXHIBIT "B"           WORK LETTER

EXHIBIT "C"           TENANT'S PERSONAL PROPERTY

EXHIBIT "D"           ESTOPPEL CERTIFICATE

EXHIBIT "E"           RULES AND REGULATIONS

EXHIBIT "F"           FORM OF LETTER OF CREDIT

                                       50
<PAGE>   51

                                   EXHIBIT "A"
                                DEMISED PREMISES

        PARCEL A:

      Parcel 10 of Parcel Map No. 17347, in the City of San Diego, County of San
Diego, State of California as per the Map thereof, filed in the Office of the
San Diego County Recorder on April 13, 1994 as File No. 1994-0242762 of Official
Records.

        PARCEL B:

      A non-exclusive easement for ingress and egress by vehicular and
pedestrian traffic and vehicle parking upon, over and across the "Common Area"
for the benefit of the owner, present and future, and their respective
successors and assigns, tenants, customers and invitees, together with a
non-exclusive easement under and through the "Common Area" for the installation,
maintenance, removal, and replacement of water drainage systems or structures,
water mains, sewers, water sprinkler system lines, telephone or electrical
conduits or systems, gas mains and any other public utility and/or service
easements, as created, set forth, defined, described and granted in that certain
"Declaration of Reciprocal Easements of the Sorrento Ridge Business Park Planned
Industrial Development," recorded in the Office of the San Diego County Recorder
April 13, 1994 as File No. 1994-0242763 of Official Records.

                                       51
<PAGE>   52

                                   EXHIBIT "B"
                                   WORK LETTER

                                       52
<PAGE>   53

                                   EXHIBIT "C"
                           TENANT'S PERSONAL PROPERTY

                                       53
<PAGE>   54

                                   EXHIBIT "D"
                              ESTOPPEL CERTIFICATE

        THIS TENANT ESTOPPEL CERTIFICATE ("Certificate"), dated as of ________,
19__, is executed by, Arena Pharmaceuticals, Inc. ("Tenant") in favor of
______________________________________________, together with its nominees,
designees and assigns (collectively, "Purchaser"), and in favor of any lender of
Purchaser, together with its nominees, designees and assigns (collectively,
"Lender").

                                    RECITALS

        A. Purchaser and ARE-6166 Nancy Ridge, LLC, a Delaware limited liability
company ("Landlord"), have entered into that certain Purchase and Sale Agreement
and Joint Escrow Instructions, dated as of _____________ (the "Purchase
Agreement"), whereby Purchaser has agreed to purchase, among other things, the
improved real property located in the City of San Diego, California, more
particularly described on Exhibit "A" attached to the Purchase Agreement (the
"Property").

        B. Tenant and Landlord have entered into that certain Lease Agreement,
dated as of ___________ (together with all amendments, modifications,
supplements, guarantees and restatements thereof, the "Lease"), for a portion of
the Property.

        C. Pursuant to the Lease, Tenant has agreed that upon the request of
Landlord, Tenant would execute and deliver an estoppel certificate certifying
the status of the Lease.

        D. In connection with the Purchase Agreement, Landlord has requested
that Tenant execute this Certificate with an understanding that Purchaser will
rely on the representations and agreements below in purchasing the Property and
Lender will rely on the representations and agreements below in granting to
Purchaser a loan.

        NOW, THEREFORE, Tenant certifies, warrants, and represents to Purchaser
and Lender as follows:

        SECTION 1.  LEASE.

        Attached hereto as Exhibit "1" is a true, correct and complete copy of
the Lease, including the following amendments, modifications, supplements,
guarantees and restatements thereof, which together represent all of the
amendments, modifications, supplements, guarantees and restatements thereof:
-------------------------------------------------------------------
-------------------------------------------------------------------.
(If none, please state "None.")

        SECTION 2.  LEASED PREMISES.

                                       54
<PAGE>   55

        Pursuant to the Lease, Tenant leases those certain premises (the "Leased
Premises") consisting of approximately _______________ (________) rentable
square feet within the Property, as more particularly described in the Lease. In
addition, pursuant to the terms of the Lease, Tenant has the exclusive right to
use the parking area located on the Property during the term of the Lease.

        SECTION 3.  FULL FORCE OF LEASE.

        The Lease has been duly authorized, executed and delivered by Tenant, is
in full force and effect has not been terminated, except as follows:
_______________________________________________________________________________

__________________________________________________________________________.

        SECTION 4.  COMPLETE AGREEMENT.

        The Lease constitutes the complete agreement between Landlord and Tenant
for the Leased Premises and the Property, except as modified by the Lease
amendments noted above (if any), and has not been modified, altered or amended.

        SECTION 5.  ACCEPTANCE OF LEASED PREMISES.

        Tenant has accepted possession and is currently occupying the Leased
Premises.

        SECTION 6.  LEASE TERM.

        The term of the Lease commenced on ______________ and ends on
_______________, subject to the following options to extend:

 .
(If none, please state "None.")

        SECTION 7.  PURCHASE RIGHTS.

        Tenant has no right, title, or interest in the Leased Premises, other
than as Tenant under the Lease. Tenant has no option, right of first refusal,
right of first offer, or other right to acquire or purchase all or any portion
of the Leased Premises or all or any portion of, or interest in, the Property,
except as follows: ____________________________________________________________
________________________________________________________.

(If none, please state "None.")

        SECTION 8.  INTENTIONALLY OMITTED.

        SECTION 9.  RENT.

                                       55
<PAGE>   56

        (a) The obligation to pay Basic Annual Rent under the Lease commenced on
___________. The Rent under the Lease is current, and Tenant is not in default
in the performance of any of its obligations under the Lease.

        (b) Tenant is currently paying Basic Annual Rent under the Lease in the
amount of ___________________ Dollars ($__________) per month. Tenant is
currently paying Improvement Rent under the Lease in the amount of
___________________ Dollars ($__________) per month. Tenant has not received and
is not, presently, entitled to any abatement, refunds, rebates, concessions or
forgiveness of Rent or other charges, free rent, partial rent, or credits,
offsets or reductions in rent, except as follows: _____________________________
_______________________________________________.
(If none, please state "None.")

        (c) Tenant's estimated annual cost of Landlord's Operating Expenses is
________________ Dollars ($____________). The portion of Landlord's Operating
Expenses being paid over time is ________________ Dollars ($____________) and is
currently being paid at the rate of _____________________ Dollars ($__________)
per month, payable to: __________________________.

        (d) There are no existing defenses or offsets against Rent due or to
become due under the terms of the Lease, and to Tenant's actual knowledge, there
presently is no default or other wrongful act or omission by Landlord under the
Lease or otherwise in connection with Tenant's occupancy of the Leased Premises,
nor is there a state of facts which with the passage of time or the giving of
notice or both could ripen into a default on the part of Landlord under the
Lease, except as follows: _____________________________________________________
_______________________________________________________________________________
____________________________________________.
(If none, please state "None.")

        SECTION 10.  SECURITY DEPOSIT.

        The amount of Tenant's security deposit held by Landlord under the Lease
is _________________ Dollars ($ __________) [ in cash ] [ represented by a
letter of credit issued by
_______________________________ ].

        SECTION 11.  PREPAID RENT.

        The amount of prepaid rent, separate from the security deposit,
is ___________________ Dollars ($___________), covering the period
from _________ to ________.

        SECTION 12.  INSURANCE.

                                       56
<PAGE>   57

        All insurance, if any, required to be maintained by Tenant under the
Lease is presently in effect.

        SECTION 13.  PENDING ACTIONS.

        To Tenant's actual knowledge, there is not pending or threatened against
or contemplated by the Tenant, any petition in bankruptcy, whether voluntary or
otherwise, any assignment for the benefit of creditors, or any petition seeking
reorganization or arrangement under the federal bankruptcy laws or those of any
state.

        SECTION 14.  LANDLORD'S WORK.

        As of the date of this Certificate, to the best of Tenant's knowledge,
Landlord has performed all obligations required of Landlord pursuant to the
Lease; no offsets, counterclaims, or defenses of Tenant under the Lease exist
against Landlord; and no events have occurred that, with the passage of time or
the giving of notice, would constitute a basis for offsets, counterclaims, or
defenses against Landlord, except as follows: _________________________________
_______________________________________________.
(If none, please state "None.")

        SECTION 15.  ASSIGNMENTS BY LANDLORD.

        Tenant has received no notice of any assignment, hypothecation or pledge
of the Lease or rentals under the Lease by Landlord.

        SECTION 16.  ASSIGNMENTS BY TENANT.

        Except as listed below, Tenant has not sublet or assigned the Leased
Premises or the Lease or any portion thereof to any sublessee or assignee. No
one except Tenant, its employees, and approved visitors under joint development
projects will occupy the Leased Premises. The address for notices to be sent to
Tenant is as set forth in the Lease.

____________________________________________

        SECTION 17.  ENVIRONMENTAL MATTERS.

        The operation and use of the Leased Premises does not violate Section 38
of the Lease.

        SECTION 18.  INTENTIONALLY OMITTED.

        SECTION 19.  INTENTIONALLY OMITTED.

        SECTION 20.  NOTIFICATION BY TENANT.

                                       57
<PAGE>   58

      From the date of this Certificate and continuing until ____________,
Tenant agrees to immediately notify Purchaser and Lender, in writing by
registered or certified mail, return receipt requested, at the following
addresses, on the occurrence of any event or the discovery of any fact that
would make any representation contained in this Certificate inaccurate:

        If To [Purchaser]:   ____________________________
                 [ Lender ]  ____________________________
                             ____________________________

                             ____________________________
        With A Copy To:      ____________________________
                             ____________________________
                             ____________________________

       Tenant makes this Certificate with the knowledge that it will be relied
upon by Purchaser and Lender in agreeing to purchase the Property.

                                       58
<PAGE>   59

         Tenant has executed this Certificate as of the date first written above
by the person named below, who is duly authorized to do so.

                             TENANT

                             ARENA PHARMACEUTICALS, INC.,
                              a Delaware corporation

                             By:_____________________________
                             Name: __________________________
                             Its:  __________________________
ATTEST:

By: __________________________
Name: ________________________
Its:  Secretary                 (SEAL)

                                       59
<PAGE>   60

                                   EXHIBIT "E"
                              RULES AND REGULATIONS

                                       60
<PAGE>   61

                                   EXHIBIT "F"
                            FORM OF LETTER OF CREDIT

                                       61
<PAGE>   62
                            FIRST AMENDMENT TO LEASE

               THIS FIRST AMENDMENT TO LEASE (this "Amendment") is made and
entered into as of June ___, 1998 (the "Effective Date") by and between ARE-6166
NANCY RIDGE, LLC, a Delaware limited liability company ("Landlord"), and ARENA
PHARMACEUTICALS, INC. a Delaware corporation ("Tenant").

                                 R E C I T A L S

               A. Tenant and Landlord entered into that certain Lease (the
"Lease"), dated as of April 30, 1998, pursuant to which Tenant leases the
"Demised Premises" (as defined in the Lease). All capitalized terms used and not
otherwise defined in this Amendment shall have the meanings set forth for the
same in the Lease.

               B. Tenant desires to make additional improvements to the Leased
Premises and Landlord desires to increase the amount of the Tenant Improvement
Allowance.

               D. Landlord and Tenant now desire to amend the Lease in
accordance with the terms and conditions of this Amendment.

                                A G R E E M E N T

               NOW, THEREFORE, in consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Landlord and Tenant hereby amend
the Lease and covenant and agree as follows:

1.    Increase in Tenant Improvement Allowance. The Lease is amended by deleting
      Section 4.2 of the Lease in its entirety and inserting, in lieu thereof,
      the following new Section 4.2:

        " 4.2 Tenant may, at the option of Tenant, cause to be constructed one
or more projects of tenant improvements to the Building (each such project being
referred to as a "TI Project" and all TI Projects being collectively referred to
as the "Tenant Improvements"). Each TI Project shall be subject to the terms of
Section 16 of this Lease and shall be completed in accordance with the work
letter attached hereto as Exhibit "B"

<PAGE>   63

(the "Work Letter"). Tenant shall be reimbursed, strictly in accordance with the
terms of the Work Letter, for the cost to construct each TI Project in an
aggregate amount for all TI Projects not to exceed One Million Eight Hundred
Thousand Dollars ($1,800,000) (the "Tenant Improvement Allowance"). Three
Hundred Thousand Dollars ($300,000) of the Tenant Improvement Allowance (the
"Mezzanine Allowance") may only be used for a single TI Project to construct an
additional mezzanine in the Building (the "New Mezzanine"). The Tenant
Improvement Allowance, as limited by the Mezzanine Allowance, shall include the
cost of construction (including changes required by law), project management by
Tenant, cost of space planning, architect, engineering and other related
services, building permits and other planning, testing and inspection fees, the
cost of fixtures for the Demised Premises, the cost of permanent voice and data
wiring within the Demised Premises, and the cost of signage affixed by Tenant to
the Building."

2.    Deficiency in Tenant Improvement Allowance. The Lease is amended by
      deleting Section 4.3 of the Lease in its entirety and inserting, in lieu
      thereof, the following new Section 4.3:

         "4.3 If Tenant submits to Landlord a construction budget which shows
that the total cost of any TI Project (other than the New Mezzanine) will exceed
the portion of the Tenant Improvement Allowance (excluding the Mezzanine
Allowance) which is then unpaid (such difference being referred to as the
"Deficiency"), Tenant shall, in accordance with this Section 4.3, pay a pro rata
share of any sums properly requested in an "Advance Request" (as defined in the
Work Letter). If there exists a Deficiency for any TI Project other than the New
Mezzanine, Landlord's obligation to expend or disburse any portion of the Tenant
Improvement Allowance (other than the Mezzanine Allowance) shall be limited, for
each Advance Request, to an amount equal to (a) the total amount due under the
Advance Request multiplied by (b) a fraction, the numerator of which is the
undisbursed balance of the Tenant Improvement Allowance (excluding the Mezzanine
Allowance) at the commencement of such TI Project and the denominator of which
is the budget approved for such TI Project in accordance with the Work Letter.

               If Tenant submits to Landlord a construction budget which shows
that the total cost of the New Mezzanine TI Project will exceed the portion of
the Mezzanine Allowance which is then unpaid (such difference being referred to
as the "Mezzanine Deficiency"), Tenant shall, in accordance with this Section
4.3, pay a pro rata share of any sums properly requested in an "Advance Request"
(as defined in the Work Letter). If there exists a Mezzanine Deficiency,
Landlord's obligation to expend or disburse any portion of the Mezzanine
Allowance shall be limited, for each such Advance Request, to

                                       2
<PAGE>   64
an amount equal to (a) the total amount due under the Advance Request
multiplied by (b) a fraction, the numerator of which is the undisbursed balance
of the Mezzanine Allowance at the commencement of the New Mezzanine TI Project
and the denominator of which is the budget approved for the New Mezzanine TI
Project in accordance with the Work Letter.

               Tenant shall have until December 31, 1999 (the "Improvement
Expiration Date") to expend the unused portion Tenant Improvement Allowance and
the Mezzanine Allowance, after which date Landlord's obligation to fund such
costs shall expire."

3.    New Exhibit "B". The existing Exhibit "B" (Work Letter) to the Lease is
      deleted in its entirety and the Exhibit "B" attached to this Amendment is
      substituted therefor.

4.    Miscellaneous Amendments. Landlord acknowledges a scrivener's error on the
      signature page of the Lease and the Assignment of Option that incorrectly
      sets forth the party authorized to sign on behalf of the Landlord.
      Landlord further acknowledges and ratifies its obligations under the Lease
      and the Assignment of Option for the benefit of Tenant, its successors and
      assigns. In furtherance thereof, Landlord and Tenant have resigned (i) the
      signature page to the Lease, a copy of which is attached hereto as
      Schedule 1, and (ii) the signature page to the Assignment of Option, a
      copy of which is attached hereto as Schedule 2. Schedule 1 attached to
      this Amendment shall now constitute the signature page to the Lease for
      all purposes, and Landlord and Tenant are authorized to replace the
      signature page thereto. Schedule 2 attached to this Amendment shall now
      constitute the signature page to the Assignment of Option for all
      purposes, and Landlord and Tenant are authorized to replace the signature
      page thereto.

5.    Lease Remains Effective. Except as otherwise expressly provided herein,
      (i) the Lease shall remain unamended and in full force and effect, (ii)
      all of the terms, covenants and provisions of the Lease, as herein
      modified, are hereby ratified and reaffirmed, and (iii) Landlord and
      Tenant hereby agree to be bound by the terms of the Lease as modified by
      this Amendment. All reference herein and in the Lease to the "Lease" shall
      mean the Lease as modified hereby.

                                       3
<PAGE>   65

6.    Counterparts. This Amendment may be executed in as many counterparts as
      may be deemed necessary and convenient, and by the different parties
      hereto on separate counterparts, each of which, when so executed, shall be
      deemed an original, but all such counterparts shall constitute one and the
      same instrument.

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

                             LANDLORD:

                             ARE - 6166 NANCY RIDGE, LLC,
                             a Delaware limited liability company

                             By:  ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
                                  a Delaware limited partnership
                                  Managing Member

                                    By:  ARE-QRS, CORP.,
                                            a Maryland corporation
                                            General Partner

                                            By: _______________________________
                                            Name:______________________________
                                            Its:_______________________________

                             TENANT:

                             ARENA PHARMACEUTICALS, INC.,
                             a Delaware corporation

                             By:______________________________
                             Name:___________________________
                             Its:______________________________

                                       4
<PAGE>   66

                                   EXHIBIT "B"

                                   Work Letter

                                       B-1

<PAGE>   67

                                  SCHEDULE "1"

                        Revised Signature Page for Lease

                                      B-2
<PAGE>   68

                                  SCHEDULE "2"

                 Revised Signature Page for Assignment of Option

                                      B-3<PAGE>   1
                                                                    EXHIBIT 10.7

                                                                    CONFIDENTIAL

               BINDING LETTER OF INTENT & MEMORANDUM OF AGREEMENT

                                     BETWEEN

         TAISHO PHARMACEUTICAL CO., LTD. AND ARENA PHARMACEUTICALS, INC.

        This BINDING LETTER OF INTENT & MEMORANDUM OF AGREEMENT ("Agreement") is
effective as of the later date of the signature written at the bottom of this
Agreement ("Effective Date") by and between Taisho Pharmaceutical Co., Ltd.
("Taisho") and Arena Pharmaceuticals, Inc. ("Arena").

        Taisho and Arena, as of the Effective Date, have agreed to both to be
bound by the following terms and conditions, with the understanding that a final
agreement ("Final Agreement") shall be prepared and signed by Taisho and Arena
within one hundred twenty (120) days of the Effective Date or extended period to
be agreed by the parties. The effective date of the Final Agreement shall be the
Effective Date, and all terms and conditions set forth in this Agreement shall
be incorporated into the Final Agreement. The terms "hereunder" and "this
Agreement" used in this Agreement shall thereafter be construed by adding or
replacing by the term "the Final Agreement" as the case may be.

        1.     SCOPE OF COLLABORATION

        The collaboration between Taisho and Arena shall involve ***** (**), or
***** (**) or ***** (**) if Taisho does not select additional ***** (**) or
***** (**), G protein coupled receptors (GPCR) that have been subjected to
Arena's CART Technology. GPCRs for CART Activation shall be selected by Taisho,
and these selected GPCRs shall be referred to as "Taisho Activated Receptor(s)."
The ***** (**) Taisho Activated Receptor selected as of the Effective Date by
Taisho is designated as: (**) *****. Taisho may select ***** (**) additional
Taisho Activated Receptor(s) within ***** (**) years from the Effective Date,
but only with respect to GPCRs that are ***************************************
**************************.

        2.     RIGHTS GRANTED

        Arena grants to Taisho worldwide, exclusive rights (including the right
to sublicense), exclusive even as to Arena but subject to Section 3.C, to use
and have used each Taisho Activated Receptor for screening of chemical library
compounds, other synthetic compounds, natural extracts, etc. for the
identification of compounds that modulate the activity of the Taisho Activated
Receptor ("CART Identified Compounds" inclusive of compounds which are derived
from identified lead compounds by such screening) and to use and have used each
Taisho Activated Receptor for further research and development of such CART
Identified Compounds as drug candidates. Arena grants to Taisho worldwide,
exclusive rights (including the right to sublicense), exclusive even as to
Arena, to research, develop, use, have used, make, have made, sell and have
sold, CART Identified Compounds and/or drug products that incorporate the CART
Identified Compound(s) ("Drug Products").

                  THE REST OF THIS PAGE IS INTENTIONALLY BLANK

                                       1
<PAGE>   2

        3.     PAYMENTS, FEES AND ROYALTY RATES

        All payments shall be made in United States dollars.

               A.      UP FRONT PAYMENT

        To form the basis of collaboration between the parties and in
consideration of the right granted under this Agreement, Taisho shall pay to
Arena *********** within thirty (30) days of the Effective Date.

               B.      RESEARCH FEE

        As remuneration for preparation and supply of a validated screening
assay and the research therefor by Arena, Taisho shall pay to Arena as to EACH
receptor as follows:

                       1.     Within thirty (30) days of selection by Taisho of
                              a Taisho Activated Receptor (i.e., within thirty
                              (30) days of the Effective Date as to *****, and
                              within thirty (30) days of selection by Taisho as
                              to an additional Taisho Activated Receptor
                              ********************): *********.

                       2.     Within thirty (30) days of receipt by Taisho of a
                              validated screening assay incorporating a Taisho
                              Activated Receptor and for use by Taisho:
                              *********.

                       3.     Within thirty (30) days of completion of the
                              screening by Taisho of ******** compounds using
                              the validated screening assay incorporating a
                              Taisho Activated Receptor: *********.

                       4.     If and only if Taisho continues the screening
                              using the validated screening assay on and after
                              the ***** anniversary of receipt by Taisho of the
                              validated screening assay, within thirty (30) days
                              of the ****** anniversary of receipt by Taisho of
                              the validated screening assay:      ********.

        Taisho and Arena agree that the MAXIMUM amount of remuneration that
Taisho would be required to pay to Arena under Research Fee, in case of
selection of ****** (**) Taisho Activated Receptors is: **********.

                  THE REST OF THIS PAGE IS INTENTIONALLY BLANK

                                       2
<PAGE>   3

               C.      ARENA SCREENING FEE

        Taisho has requested that Arena conduct screening of the Arena chemical
library and upon such request, Arena shall screen more than ******* compounds
that belong to the Arena chemical library using the Taisho Activated Receptor
selected by Taisho ("Screening Request"). Arena shall use its best commercial
efforts to identify at least ***** (**) CART Identified Compound for use by
Taisho as a screening lead candidate. Taisho shall pay to Arena a screening fee
of ********, and upon receipt of such fee, Arena shall initiate its screening
efforts.

        Taisho and Arena agree that the amount that Taisho would be required to
pay to Arena under Arena Screening Fee, in case of selection of ****** (**)
Taisho Activated Receptors is: **********, and in case of selection of *****
(**) Taisho Activated Receptors is:

***********.

               D.      MILESTONE FEE

        In consideration of the right granted hereunder, Taisho agrees to pay to
Arena the following Milestone Fees for EACH CART Identified Compound. Taisho may
at its sole discretion decide which CART Identified Compound it shall actually
develop or not develop for Drug Product(s) and decide whether to continue or to
discontinue such development. For a CART Identified Compound, the payment shall
be made only at the *************, if any, of a milestone set forth below as to
the Drug Product ************ to such milestone that incorporate the CART
Identified Compound, regardless of formulation and/or indication of the Drug
Product. Provided, however, both Taisho and Arena agree that (i) as long as the
development of preceding CART Identified Compound is being continued, Taisho
shall ********************** of Milestone Fees for *********** CART Identified
Compound developed as ************** of the *********** CART Identified Compound
and (ii) any Milestone Payment made by Taisho to Arena for the *********** CART
Identified Compound may be ************ by Taisho ********* Milestone Payments
for the ********** CART Identified Compound that shall become due by Taisho
when: (a) the development of the preceding CART Identified Compound is
*************** and (b) the *********** CART Identified Compound
*********************** CART Identified Compound (such ************ shall be
notified in writing to Arena by Taisho). Both Taisho and Arena further agree
that (i) the following Milestone Fees shall be *********************** and
become due by Taisho for each ************* CART Identified Compound if Taisho
continues the development of the ************** CART Identified Compound for the
************ as the ************** CART Identified Compound even after Taisho
launches the ********** CART Identified Compound and (ii) Taisho shall be
**************** from the payments of Milestone Fees for the ************** CART
Identified Compound if Taisho ********************** CART Identified Compound
********************** of the **************** CART Identified Compound.

                       1.     Within thirty (30) days of Taisho's decision to
                              implement the development directed to the filing
                              of an Investigational New Drug application (or its
                              equivalent) of a CART Identified Compound as Drug
                              Product(s): **********

                       2.     Within thirty (30) days of the first filing of an
                              Investigational New Drug application (or its
                              equivalent) for a Drug Product: ***********

                                       3
<PAGE>   4

                       3.     Within thirty (30) days of dosing of the first
                              human in a Phase *** clinical investigation (or
                              its equivalent) of a Drug Product: ***********

                       4.     Within thirty (30) days of dosing of the first
                              human in a Phase *** clinical investigation (or
                              its equivalent) of a Drug Product: ***********

                       5.     Within thirty (30) days of the notice of the first
                              approval of a New Drug Application for a Drug
                              Product in the United States: ************

                       6.     Within thirty (30) days of the notice of the first
                              approval of a New Drug Application for a Drug
                              Product in a major European country: ************

                       7.     Within thirty (30) days of the notice of the first
                              approval of a New Drug Application for a Drug
                              Product in Japan: ************

        Taisho and Arena agree that the MAXIMUM amount that Taisho would be
required to pay to Arena under Milestone Fee for each CART Identified Compound:

                       1.     ***********.

                       2.     for each *********** CART Identified Compound
                              developed by Taisho for the *********** as a
                              ******* Drug Product launched by Taisho:
                              ***********.

               E.      ROYALTY RATES

        In consideration of the right granted hereunder, Taisho shall pay a
royalty to Arena based upon net sales received by Taisho and Taisho licensees
for the sale of each Drug Product on an annual basis ("**********************),
with the royalty rates as follows and within the limited period to be agreed by
the parties and provided for in the Final Agreement for each Drug Product:

                       a)     On a portion of Annual Net Sales of between *****
                              and *****:
                                                                            ***%

                       b)     On a portion of Annual Net Sales of between *****
                              and *****:
                                                                            ***%

                       c)     On a portion of Annual Net Sales of between *****
                              and *****:
                                                                            ***%

                       d)     On a portion of Annual Net Sales above *****:
                                                                            ***%

(i.e., if Annual Net Sales is *****, the amount of royalty is ***** (***** of
*****, *****, ***** and *****).

                                       4
<PAGE>   5

        4. WITHHOLDING TAX         All figures set forth herein are net of any
taxes and duties, except withholding tax if levied in Japan on any of the
payment. Any withholding taxes levied shall be borne by Arena and deducted by
Taisho from the payment for tax payment.

        5. LEGALLY BINDING EFFECT  Both Taisho and Arena further agree to
cooperate, in good faith, in the completion of the Final Agreement. Irrespective
of the completion of the Final Agreement, both Taisho and Arena agree to be
bound by the foregoing terms and to treat the terms and conditions of this
Agreement as a legally binding contract with the rights, duties and obligations
of each party set forth as above.

        6. CONFIDENTIALITY         Both Taisho and Arena agree that this
Agreement shall fully incorporate mutatis mutandis the terms and conditions of
confidentiality of the Mutual Non-Disclosure Agreement between Taisho and Arena,
dated August 31, 1999.

        7. REMEDIES                All disputes, which may arise between the
parties hereto, in connection with this Agreement shall be finally settled by
arbitration in accordance with the Rules of Arbitration of the International
Chamber of Commerce. The arbitration shall be held in San Diego, if requested by
Taisho or in Tokyo, if requested by Arena. The award to be rendered shall be
final and binding upon both parties.

        WHEREUPON, each party, having read and understood the foregoing, and
agreeing to be bound by the terms and conditions herein, have caused this
Agreement to be executed by their authorized agents as of the Effective Date.

ARENA PHARMACEUTICALS, INC.         TAISHO PHARMACEUTICAL CO., LTD.

By:                   /s/                   By:                  /s/
        ----------------------------               -----------------------------

Name:   Jack Lief                           Name:  Akira Uebara

Title:  President & CEO                     Title: President

Date:   May 18, 2000                        Date:  May 29, 2000

         ***************************************************************

                                       5

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