Document:

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                                                                    EXHIBIT 10.1

                          STANDARD INDUSTRIAL NET LEASE

            This STANDARD INDUSTRIAL NET LEASE ("Lease" ), dated for reference
purposes only March 20, 2000, is entered into by BC SORRENTO LLC, a California
limited liability company ("Landlord"), and AVANIR PHARMACEUTICALS, INC., a
Delaware corporation ("Tenant").

1.   BASIC LEASE TERMS.

     The basic terms of the Lease set forth in this Article 1 shall be read in
conjunction with the other Articles of this Lease, which define and explain the
basic terms.

       1.1    ADDRESS FOR NOTICE (see Section 24.19):

                Landlord:      BC Sorrento LLC
                               11772 Sorrento Valley Road, Suite 100
                               San Diego, California  92121
                               Attention:  William R. Beckman

                Tenant:        Avanir Pharmaceuticals, Inc
                               At the Premises
                               Attention:  Gregory P. Hanson

       1.2    DESCRIPTION OF PREMISES:

                Building Name: BC Sorrento

                Address:       11388 Sorrento Valley Road
                               San Diego, California 92121

                Suite/Unit:    All of the second floor, a portion of the first
                               floor, and a portion of the Utility Yard (as
                               defined below) (See Exhibit "A")

                Approximate Rentable Square Footage (see Exhibit "A"):  27,046.8

       1.3    COMMENCEMENT DATE: September 1, 2000

       1.4    LEASE TERM (see Article 3): Eight (8) years and no months,
              beginning on the Commencement Date and ending on the last day of
              the calendar month of August, 2008 (the "Expiration Date").

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       1.5    MINIMUM MONTHLY RENT: The Minimum Monthly Rent shall be the
              following amounts during the following periods:

<TABLE>
<CAPTION>
                                      Minimum Monthly Rent Per            Minimum Monthly Rent Based
                                      Rentable Square Foot ("RSF)         on Initial Estimate of Premises RSF
 Period                               (Not Subject to Revision)           (Subject to Revision per Section 2.2)
 ------                               -------------------------           -------------------------------------
<S>                                   <C>                                 <C>
     From the Commencement Date
            to and including 8/31/01   $2.05 per RSF per month            $55,446 per month
     From 9/1/01 to and
            including 8/31/02          $2.12 per RSF per month            $57,339 per month
     From 9/1/02 to and
            including 8/31/03          $2.20 per RSF per month            $59,503 per month
     From 9/1/03 to and
            including 8/31/04          $2.27 per RSF per month            $61,396 per month
     From 9/1/04 to and
            including 8/31/05          $2.35 per RSF per month            $63,560 per month
     From 9/1/05 to and
             including 8/31/06         $2.44 per RSF per month            $65,994 per month
     From 9/1/06 to and
            including 8/31/07          $2.52 per RSF  per month           $68,158 per month
     From 9/1/07 to and
            including 8/31/08          $2.61 per RSF  per month           $70,592 per month
</TABLE>

       1.6    SECURITY DEPOSIT: Four Hundred Forty-three Thousand, Five Hundred
              Sixty-eight Dollars ($443,568). Tenant's obligations to deposit
              the Security Deposit may be satisfied in part by the deposit of a
              letter of credit, and is subject to reduction on certain terms and
              conditions, all as set forth in Article 5.

       1.7    TENANT'S PRO RATA SHARE OF OPERATING COSTS (see Article 6):
              75.26%.

       1.8    PERMITTED USE (see Article 11): Life science research and related
              manufacturing and office uses, and for no other use.

       1.9    TENANT'S PARKING SPACES (Unassigned) (see Section 11.6): 90
              spaces, subject to proportionate adjustment if Tenant's percentage
              occupancy of the Building changes (based on adjustments in the
              Rentable Area of the Premises), or if the total parking at the
              Building is decreased below 120 spaces

       1.10   LANDLORD'S BROKER: Burnham Real Estate Services

       1.11   TENANT'S BROKER: Burnham Real Estate Services

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       1.12   TENANT IMPROVEMENT ALLOWANCE: Landlord shall provide a Tenant
              Improvement Allowance of $75.00 per square foot of Usable Area of
              the Premises, in accordance with Exhibit "C".

       1.13   EXHIBITS: The following Exhibits are attached to and made a part
              of this Lease:

<TABLE>
                <S>             <C>
                Exhibit "A"  -  Description of Premises
                Exhibit "B"  -  Rules and Regulations
                Exhibit "C"  -  Initial Tenant Improvements and Tenant Improvement Allowance
                Exhibit "D"  -  Calculation of Rentable and Usable Area
                Exhibit "E"  -  Approved form of Letter of Credit
</TABLE>

2.   PREMISES.

     2.1 LEASE OF PREMISES. Landlord hereby leases to Tenant, and Tenant hereby
leases from Landlord, the premises (the "Premises") described in Section 1.2,
which are indicated on the site/floor plan attached as Exhibit "A". The Premises
are part of the Building (including surrounding parking lots, landscaped areas
and common facilities described in Section 6.5) identified in Section 1.2 (the
"Building").

     2.2 RECALCULATION OF SQUARE FOOTAGE. Promptly following the date Landlord
approves the Construction Documents (as defined in Exhibit "C"), Landlord's
architect shall calculate the Rentable Area of the Premises and the Usable Area
of the Premises in accordance with Exhibit "D", which calculation shall be
binding upon the parties absent demonstrated error in the calculations. Upon
such determinations, the parties shall execute and deliver to each other a
letter or other writing confirming the square footage of the Rentable Area and
Usable Area, and the consequent Minimum Monthly Rent, Tenant"s Pro Rate Share,
and amount of the Tenant Improvement Allowance.

3.   LEASE TERM.

     3.1 COMMENCEMENT. The term of this Lease (the "Lease Term") shall commence
on the Commencement Date stated in Section 1.3 and shall continue for the period
stated in Section 1.4, unless sooner terminated pursuant to any provision of
this Lease.

     3.2 DELAY IN COMMENCEMENT. If Landlord cannot deliver possession of the
Premises to Tenant with the Tenant Improvements having been Substantially
Completed (as such terms are defined in Exhibit "C") on the Commencement Date
specified in Section 1.3 for any reason other than Tenant Delay (as defined in
Exhibit "C"), Landlord shall not be subject to any liability therefor. Such
non-delivery shall not affect the validity of this Lease nor the obligations of
the parties hereunder. However Tenant shall not be obligated to pay rent until
the earlier of (i) possession of the Premises is delivered to Tenant, or (ii) if
such delivery is delayed in whole or in part by any Tenant Delay, the date
possession would have been delivered if no Tenant Delay had occurred. If
Landlord has not delivered possession of the Premises within sixty (60) days
after the Commencement Date (plus any days attributable to Tenant Delays),
Tenant may elect to terminate this Lease by delivering written notice to
Landlord within ten (10) days thereafter, in which event the parties shall be
discharged from all further obligations hereunder.

     3.3 EARLY OCCUPANCY. If Tenant occupies the Premises prior to the
Commencement Date, such occupancy shall be subject to all provisions of this
Lease. Such occupancy shall not advance the Expiration Date. Tenant shall pay
Minimum Monthly Rent at the rate in effect for the first Lease Year, Additional
Rent and all other charges required hereunder for such early occupancy period.

4.   RENT.

     4.1 MINIMUM MONTHLY RENT. Tenant shall pay minimum monthly rent ("Minimum
Monthly Rent") in the initial amount stated in Section 1.5. The Minimum Monthly
Rent shall be increased as set forth in Section 1.5 and/or elsewhere in this
Lease. Tenant shall pay the Minimum Monthly Rent on or before the first day of
each calendar month, in advance, at the office of Landlord or at such other
place designated by

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Landlord, without deduction, offset or prior demand. If the Commencement Date is
not the first day of a calendar month, the rent for the partial month at the
beginning of the Lease Term shall be prorated on a per diem basis and shall be
due on the first day of such partial month. Upon execution of this Lease, Tenant
shall pay the first month's Minimum Monthly Rent to Landlord.

     4.2 LEASE YEAR. As used in this Lease, the term "Lease Year" means (i) the
first period of twelve (12) full calendar months following the Commencement Date
(including, if the Commencement Date is not the first day of a calendar month,
the period between the Commencement Date and the next first day of the month),
(ii) each period of twelve (12) full calendar months thereafter, and (iii) any
remaining period at the end of the Lease Term of less than twelve (12) full
calendar months.

     4.3 ADDITIONAL RENT. All charges payable by Tenant in addition to Minimum
Monthly Rent shall constitute Additional Rent to Landlord. All remedies
available to Landlord for nonpayment of rent shall be available for nonpayment
of any such Additional Rent. Unless this Lease provides otherwise, all
Additional Rent shall be paid by Tenant, without limitation or offset, within
fifteen (15) days after Tenant's receipt of a statement from Landlord.
Additional Rent includes, without limitation, Operating Costs (see Article 6),
Maintenance and Repairs (see Article 7), Real Property Taxes (see Article 8),
insurance costs (see Article 9), Utilities (see Article 10), and attorneys' fees
and costs (see Section 24.3). If any Minimum Monthly Rent is abated or waived
pursuant to another specific term of this Lease or in any separate agreement, it
is understood that such abatement or waiver shall apply only to the Minimum
Monthly Rent, and Tenant shall be obligated to pay all components of Additional
Rent (including the applicable impounds thereof) during the periods of abatement
or waiver of Minimum Monthly Rent and throughout the Lease Term. Minimum Monthly
Rent, Additional Rent, and all other charges and monetary amounts due Landlord
from Tenant hereunder shall constitute "rent."

     4.4 IMPOUNDS. Landlord shall have the right, but not the obligation, to
collect and impound, in advance, any or all components of Operating Costs, Real
Property Taxes and insurance costs based upon Landlord's reasonable estimate of
Tenant's future liability for such amounts under this Lease. Landlord shall
initially establish the monthly amount of such impound ("Monthly Impound
Payments"), based upon its estimate of one-twelfth of Tenant's annual liability
therefor. Landlord shall have the right, at any time during the Lease Term, to
adjust the amount of the Monthly Impound Payment upon notice to Tenant in the
exercise of its reasonable discretion. The Monthly Impound Payment shall be due
and payable on the first day of each month throughout the Lease Term. Any
failure to pay the Monthly Impound Payment when due shall be an Event of Default
under this Lease and shall entitle Landlord to exercise any or all of its
remedies available in the same manner as for the failure to pay rent, including
the imposition of late charges and interest, and the right of Landlord to
require that future payment of the Monthly Impound Payments be made by cashier's
check. Upon the occurrence of any Event of Default by Tenant hereunder, Landlord
shall have the right to apply all unapplied amounts of Monthly Impound Payments
to Tenant's default. Within ninety (90) days after the end of each calendar
year, Landlord shall deliver to Tenant an accounting of Tenant's actual Pro Rata
Share of Operating Costs and the estimated amounts paid by Tenant. Any
overpayment by Tenant shall be credited against next Monthly Impound Payments
due hereunder, or, at Landlord's option, shall be remitted to Tenant. Tenant
shall pay the amount of any underpayment within fifteen (15) days after receipt
of the accounting. Tenant acknowledges that the Monthly Impound Payments are
estimates only and not a representation of the amount of Tenant's ultimate
liability for Operating Costs, Real Property Taxes and insurance costs.

5.   SECURITY DEPOSIT.

     5.1 CASH. Upon execution of this Lease, Tenant shall deposit with Landlord
the amount specified in Section 1.6 (the "Security Deposit"), to be held by
Landlord, without liability for interest, as security for Tenant's performance
of its obligations under this Lease. If such deposit is made in cash, Landlord
shall not be required to keep the Security Deposit separate from its other
accounts. Landlord may apply all or a part of the Security Deposit to any unpaid
rent (including unpaid Additional Rent or Monthly Impound Payments), to Tenant
obligations in respect of the initial Tenant Improvements, or any other monetary
payment due from Tenant or to cure any other default of Tenant hereunder and to
compensate Landlord for

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all damage and expense sustained as a result of such default. If all or any
portion of the Security Deposit is so applied, Tenant shall deposit cash
sufficient to restore the Security Deposit to its original amount within fifteen
(15) days after receipt of Landlord's written demand. If Tenant fully and
faithfully performs each of its obligations under this Lease, the Security
Deposit or any balance thereof shall be returned to Tenant within thirty (30)
days of the later of the expiration or earlier termination of this Lease or the
vacation of the Premises by Tenant. At Landlord's request, Tenant shall
accompany Landlord or Landlord's representative on a "walk-through" of the
Premises prior to Landlord's return of the Security Deposit.

     5.2 OPTIONAL LETTER OF CREDIT. Tenant shall have the right to substitute a
Letter of Credit for all but Fifty-five Thousand, Four Hundred Forty-Six Dollars
($55,446) of the Cash Security Deposit. Such Letter of Credit shall be issued by
a financial institution in a form and substance acceptable to Landlord (with the
form attached hereto as Exhibit "E" being acceptable). The Letter of Credit
shall have an original term of no less than one year with provisions for
extensions unless sixty (60) days prior notice is given to Landlord by the
issuing bank. The Letter of Credit shall provide for partial draws. Tenant shall
keep the Letter of Credit, at its expense, in full force and effect throughout
the term of this Lease. Upon the happening of any "Draw Event" (as defined
below), Landlord or its assignee, at its option, may present its written demand
for payment of the entire face amount of the Letter of Credit and the funds so
obtained shall become due and payable to Landlord or its assignee to be applied
as a Security Deposit pursuant to the provisions of Subsection 5.1 above. A
"Draw Event" shall mean any of the following: (i) Tenant becomes or is the
subject of any bankruptcy, insolvency or similar proceeding or event, (ii) an
Event of Default occurs under the Lease; or (iii) the Letter of Credit is not
extended within thirty (30) days prior to its expiration.

     5.3 REDUCTION OF SECURITY DEPOSIT AMOUNT. The amount of the Security
Deposit (and, if elected, the Letter of Credit) shall be reduced at the end of
the third Lease Year and the end of each Lease Year thereafter by the amount of
$55,446, provided that within the one (1) year prior to the time of the
reduction no Event of Default has occurred and that no condition then exists
that, with the passage of time or the giving of notice or both would constitute
an Event of Default, and provided further that Tenant"s net worth at the time of
reduction includes cash or cash equivalents that are at least equal to the
liabilities of Tenant reasonably projected for the following two (2) years.

6.   OPERATING COSTS.

     6.1 PAYMENT OF OPERATING COSTS BY TENANT. Tenant shall pay its pro rata
share of Operating Costs for the Building, as defined herein. Tenant's pro rata
share shall be computed by Landlord on a monthly or other periodic basis
selected by Landlord. Tenant shall pay the amount of such pro rata share to
Landlord, to the extent such obligation exceeds any amount thereof impounded
under Section 4.4, within fifteen (15) days after receipt of a statement from
Landlord.

     6.2 PRO RATA SHARE OF OPERATING COSTS. Tenant's pro rata share of Operating
Costs is stated in Section 1.7 and represents the ratio of the Rentable Square
Footage of the Premises (identified in Section 1.2) to the total Rentable Square
Footage of the Building, as determined by Landlord from time to time. Changes in
Rentable Square Footage shall be effective on the first day of the first
calendar month following the change. Tenant's share of Real Property Taxes,
insurance costs and other components of Additional Rent shall be computed on the
same basis as Tenant's Pro Rata Share of Operating Costs, unless Landlord
determines that some other basis would be equitable. In the event the Building
is not fully occupied during any year or in the event all of the Building is not
provided with standard services during any year, an adjustment shall be made by
Landlord in computing Operating Costs for such year so that Operating Costs
shall be computed as though 95% of the Building had been occupied and 95% of the
Building had been provided with standard services during such year (or such
Operating Costs shall be computed in accordance with actual occupancy or actual
provision of standard services if such respective amounts shall exceed 95%);
provided, however, that in no event shall the aggregate amount of Operating
Costs collected by Landlord from all tenants in the Building exceed the actual
Operating Costs for said year. Additionally, if any item of the Common
Facilities exclusively serves the Premises (such as the elevators for so long as
Tenant is the sole occupant of the second floor of the Building), then Tenant"s
Pro Rata Share of such items shall be 100%.

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     6.3 OPERATING COSTS. "Operating Costs" includes all costs of operating,
managing, repairing and maintaining the Common Facilities, including without
limitation: gardening and landscaping; the cost of public liability and property
damage insurance; Real Property Taxes, as defined in Section 8.2 but applicable
to the Common Facilities; utilities; line painting and parking lot repairs; roof
repairs; lighting; trash and refuse removal; supplies; equipment; exterior
painting; capital improvements (including without limitation the costs of roof,
parking lot and underground utilities replacements); reasonable reserves for
repairs and replacements; the costs of altering, improving, renovating,
upgrading or retrofitting any portion of the Common Facilities to comply with
all laws, regulations and governmental requirements applicable to the Building
(including without limitation those related to disabled persons, hazardous
materials, lighting upgrades, sprinkler and energy-saving retrofits); security
service; property management costs and administrative fees; bookkeeping
services; labor; the cost of personnel to implement such services and to direct
parking; and the includable amount of Capital Costs (as provided in Section
6.4). With respect to Operating Costs other than the includable amount of
Capital Costs, in lieu of including the entire amount of any such expense in
Operating Costs in any one period, Landlord may spread the inclusion of, or may
amortize, any such expenses, or a reasonable reserve for anticipated expenses,
in Operating Costs over such multiple periods as Landlord shall determine and
which approximate the life of the asset.

     6.4 CAPITAL COSTS. As used herein, "Capital Costs" shall mean any cost or
expense for any furniture, fixture, equipment or other physical improvement the
amount of which exceeds $25,000 and that is properly treated as a capitalized
expense under generally accepted accounting principles. Landlord may include in
Operating Costs the amortized amount of such Capital Cost, amortized over the
useful life of the asset. Capital Costs shall not include items that do not
reasonably serve the Premises or the Building, and shall not include any
improvement that results in additional space in the building from which Landlord
will derive rental income.

     6.5 COMMON FACILITIES. "Common Facilities" means all areas, facilities,
utilities, equipment and services provided by Landlord for the common use or
benefit of the occupants of the Building and their employees, agents, customers
and other invitees, including without limitation: building lobbies, common
corridors and hallways, restrooms, pedestrian walkways, utility yard, driveways
and access roads, access facilities for disabled persons (including elevators),
truck serviceways, loading docks, garages, driveways, parking lots, landscaped
areas, stairways, elevators (passenger and service), retaining walls, all areas
required to be maintained under the conditions of governmental approvals for the
Building, and other generally understood public or common areas. Landlord
reserves the right to relocate, alter, improve, or adjust the size and location
of any Common Facilities from time to time without liability to Tenant so long
as Tenant retains sufficient access to the Premises and that Tenant's use of the
Common Area remains reasonably equivalent.

7.   MAINTENANCE AND REPAIRS.

     7.1 TENANT'S OBLIGATIONS. Except as provided in Section 7.2, Tenant shall
keep the Premises in good order, condition and repair during the Lease Term,
including without limitation: all nonstructural interior areas; all heating,
ventilating and air conditioning systems and equipment exclusively serving the
Premises; all glass, glazing, windows, window moldings, partitions, doors and
door hardware; all interior painting; all fixtures and appurtenances in the
Premises or exclusively serving the Premises including electrical, lighting and
plumbing fixtures; and all other portions of the Premises seen or unseen. Tenant
shall promptly replace at its sole cost and expense any of the systems,
equipment and other portions of the Premises for which it is responsible
hereunder during the Lease Term if and when necessary, regardless of whether the
benefit of such replacement extends beyond the Lease Term. It is the intention
of Landlord and Tenant that Tenant shall maintain the Premises, at all times
during the Lease Term, in an attractive, first-class and fully operative
condition, at Tenant's expense. Tenant shall additionally obtain and keep in
force a preventive maintenance contract providing for the regular (at least
quarterly) inspection and maintenance of the heating, ventilating and air
conditioning system serving the Premises (including leaks around ducts, pipes,
vents, and other parts of the air conditioning) by a reputable licensed heating,
ventilating and air conditioning contractor acceptable to Landlord. Prior to
April 1 of each calendar year, Tenant shall deliver to Landlord written
confirmation from such contractor verifying that such a contract has been
entered into

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and that the required service will be provided. Notwithstanding the foregoing,
Landlord shall have the right, upon written notice to Tenant, to undertake the
responsibility for preventive maintenance and repair of the heating, ventilating
and air conditioning system, at Tenant's sole cost and expense provided services
are provided at market rates.

     7.2 LANDLORD'S OBLIGATIONS. Landlord shall repair and maintain the Common
Facilities, subject to Tenant's obligation to pay its Pro Rata Share of
Operating Costs, as provided in Article 6. Landlord shall maintain the roof, the
foundations, structural portions, landscaping, parking lots and other exterior
areas of the Building, but Tenant shall pay (a) the full costs of such
maintenance, or an equitable share determined by Landlord if the Premises are
part of a multi-tenant building, (b) the full amount of any maintenance and
repairs necessitated by any act, omission, conduct or activity of, or breach of
this lease by, Tenant or any of Tenant's officers, agents, customers or invitees
(plus fifteen percent (15%) of the cost thereof for Landlord"s overhead); and
(c) any maintenance and repairs necessitated by breaking and entering of the
Premises. Tenant shall pay its share of such maintenance and repair costs
incurred by Landlord, to the extent such obligation exceeds any amount thereof
impounded under Section 4.4, within fifteen (15) days after receipt of a
statement from Landlord. There shall be no abatement of rent, and no liability
of Landlord, by reason of any injury to or interference with Tenant's business
arising from the making of any repairs, alterations, or improvements to any
portion of the Premises or the Building except to the extent caused by
Landlord's gross negligence or willful misconduct. Except as provided in Article
16 (Damage and Destruction) and Article 17 (Condemnation), Landlord shall have
absolutely no other responsibility to repair, maintain or replace any portion of
the Premises at any time. Tenant waives the right to make repairs at Landlord's
expense under California Civil Code Section 1942, or under any other law,
statute or ordinance now or hereafter in effect. Landlord's obligations under
this Section are not intended to alter or modify in any way the provisions of
Article 12.

     7.3 PERFORMANCE BY LANDLORD. If Tenant refuses or neglects to perform its
maintenance obligations hereunder to the reasonable satisfaction of Landlord,
Landlord shall have the right (but not the obligation), upon three (3) days'
prior notice to Tenant, to enter the Premises and perform such repairs and
maintenance on behalf of Tenant. Landlord shall also have the right (but not the
obligation), without prior notice to Tenant, to correct or remove any dangerous
or hazardous condition, to repair the heating, ventilating, air conditioning or
plumbing systems, to correct, repair or bring into legal compliance any fire or
other life safety systems of the Premises, and to repair or replace any broken
glass or glazing, if Tenant fails to correct or repair the same within
twenty-four (24) hours after the need arises. Landlord shall not be liable to
Tenant for any loss or damage to Tenant's merchandise, fixtures, or other
property or to Tenant's business in connection with Landlord's performance
hereunder, and Tenant shall pay Landlord's costs plus fifteen percent (15%) of
such amount for overhead, upon presentation of a statement therefor, as
Additional Rent. Tenant shall also pay interest at the rate provided in Section
22.4 from the date of completion of repairs by Landlord to the date paid by
Tenant.

8.   REAL PROPERTY TAXES.

     8.1 PAYMENT OF REAL PROPERTY TAXES BY TENANT. Tenant shall pay all Real
Property Taxes applicable to the Premises during the Lease Term. If the Premises
are not separately assessed, a share of the tax bill that includes the Premises
shall be allocated to the Premises. Such share shall be equitably determined by
Landlord based upon the Rentable Square Footage of the Premises compared to the
total Rentable Square Footage covered by the tax bill, the respective valuations
assigned in the assessor's worksheet, or other reasonably available information.
Tenant shall pay its share of Real Property Taxes to Landlord, to the extent
such obligation exceeds any amount thereof impounded under Section 4.4, within
fifteen (15) days after receipt of a statement from Landlord.

     8.2 REAL PROPERTY TAXES DEFINED. "Real Property Taxes" means all taxes,
assessments, levies, fees and other governmental charges levied on or
attributable to the Premises or any part thereof, including without limitation:
(a) real property taxes and assessments levied with respect to all or a portion
of the Premises, (b) assessments, charges and fees charged by governmental
agencies or districts for services or facilities provided to the Premises, (c)
transfer, transaction, rental, gross receipts, license or similar taxes or

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charges measured by rent received by Landlord, excluding any federal or state
income, franchise, estate or inheritance taxes of Landlord, (d) taxes based upon
a reassessment of the Premises due to a transfer or change of ownership, and (e)
any assessment, charge or fee that is a substitute in whole or in part for any
tax now or previously included within the definition of Real Property Taxes. If
Landlord elects to contest an assessment of any Real Property Taxes, Landlord
shall have the right to recover its actual costs of such contest (including
attorneys' fees and costs) as part of Real Property Taxes, but only to the
extent such contest has resulted in a reduction of Real Property Taxes. Tenant
shall not be entitled to the benefit of any reduction, refund, rebate or credit
accruing or payable to Landlord prior to the commencement of or after the
expiration or other termination of the Lease Term.

     8.3 PERSONAL PROPERTY TAXES. Tenant shall pay prior to delinquency all
taxes charged against trade fixtures, furnishings, equipment or any other
personal property belonging to Tenant. Tenant shall attempt to have such
personal property taxed separately from the Premises. If any such taxes on
Tenant's personal property are levied against Landlord or the Premises, or if
the assessed value of the Premises is increased by inclusion of a value placed
upon such personal property of Tenant, then: (a) Landlord, after written notice
to Tenant, shall have the right to pay the taxes levied against Landlord, or the
taxes based upon such increased valuation, but under protest if so requested by
Tenant in writing, and (b) Tenant shall pay to Landlord the taxes levied against
Landlord, or the taxes resulting from such increased valuation, within fifteen
(15) days after Tenant's receipt of a written statement from Landlord.

9.0  INSURANCE

     9.1 ALL RISK COVERAGE. During the Lease Term, Landlord shall maintain, at
Tenant's expense, insurance covering loss or damage to the Premises (excluding
Tenant's Alterations, fixtures, equipment and personal property), insuring
against any or all risks of physical loss (and including, at Landlord's option,
flood and earthquake coverage), with the scope and amounts of such coverage as
determined by Landlord. Said insurance shall provide for payment of loss
thereunder to Landlord or to the holder of a first mortgage or deed of trust on
the Premises. Landlord may also maintain during the Lease Term, at Tenant's
expense, a policy of rental income insurance covering a period of one (1) year,
with loss payable to Landlord.

     9.2 TENANT'S PERSONAL PROPERTY AND FIXTURES. Tenant shall at all times, at
Tenant's sole cost and expense, maintain insurance against any or all risks of
physical loss in an amount adequate to cover the cost of replacement of all of
Tenant's Alterations, trade fixtures, equipment and personal property. Such
policy shall be issued by an insurance company approved by Landlord, shall name
Landlord and Landlord's lender as additional insureds, and shall provide that no
cancellation or reduction in coverage shall be effective until thirty (30) days
after written notice to Landlord and Landlord's lender. Tenant shall deliver a
certificate evidencing such insurance to Landlord and a renewal or binder at
least twenty (20) days prior to expiration. Tenant acknowledges that Landlord's
insurance is not intended to cover Tenant's Alterations, trade fixtures,
equipment, and personal property. Provided, however, that at Landlord's sole
election, Landlord may obtain at Tenant's expense any or all of the insurance
described in this Section.

     9.3 TENANT'S LIABILITY INSURANCE. Tenant shall, at Tenant's sole cost and
expense, provide comprehensive general liability insurance, fully covering and
indemnifying Landlord and Landlord's officers, directors, shareholders,
partners, members, principals, employees, agents, representatives, and other
related entities and individuals (together with, at Landlord's election,
Landlord's lender), as additional insureds, against any and all claims arising
from personal injury, death, and/or property damage occurring in or about the
Premises or the Building during the period of Tenant's possession (actual and/or
constructive) at the Premises. The initial limits of such insurance shall be at
least $3,000,000 combined single liability limit. Such liability insurance
limits shall be subject to periodic increase, at Landlord's election, based upon
inflation, increased liability awards, lender requirements, the recommendations
of Landlord's professional insurance advisors, and other relevant factors.
Tenant shall also, at its sole cost and expense, obtain workers' compensation
insurance for the protection of its employees such as will relieve Landlord of
all liability to such employees for any and all accidents that may arise on or
about the Premises or the Building. All insurance required to be carried by
Tenant shall be primary and noncontributory to any insurance carried by
Landlord, regardless of the absence of negligence or other fault of Tenant for
alleged injury, death and/or

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<PAGE>   9

property damage. Each policy of insurance required to be carried by Tenant
hereunder shall: (a) contain cross-liability and contractual liability
endorsements, (b) provide that no cancellation or reduction in coverage shall be
effective until thirty (30) days after written notice to Landlord and Landlord's
lender, (c) be issued by an insurer licensed in California and reasonably
approved by Landlord, and (d) shall insure Tenant's performance of the indemnity
provisions of Article 13, but the amount of such insurance shall not limit
Tenant's liability nor relieve Tenant of any obligation hereunder. Prior to the
Commencement Date, Tenant shall deliver a certificate evidencing all such
insurance to Landlord. Tenant shall deliver a renewal or binder of such policy
at least thirty (30) days prior to expiration thereof. Tenant shall, at Tenant's
expense, maintain such other liability insurance as Tenant deems necessary to
protect Tenant. Tenant shall be in material breach of this Lease if Tenant fails
to obtain the insurance required under this Section, or if Tenant obtains
insurance with terms, conditions and/or exclusions that are inconsistent with
the requirements and terms of this Lease.

     9.4 PAYMENT OF INSURANCE COSTS. Tenant shall pay directly all premiums for
its liability insurance required under Section 9.3, for its personal property
insurance to be carried by Tenant as required under this Article, and for all
other insurance Tenant elects to carry. Tenant shall pay the insurance premiums,
or, where applicable, its share thereof as equitably determined by Landlord, for
the insurance policies carried or obtained by Landlord as described in this
Article. If the Lease Term expires before the expiration of any such insurance
policy, Tenant's liability for premiums shall be prorated on an annual basis.
Tenant shall pay such insurance costs to Landlord, to the extent such obligation
exceeds any amount thereof impounded under Section 4.4, within fifteen (15) days
after receipt of a statement from Landlord. If any insurance policy maintained
by Landlord covers improvements or real property other than the Premises,
Landlord shall reasonably determine the portion of the premiums applicable to
the Premises, and Tenant shall pay its share thereof as so determined. In
addition, Tenant shall pay the full amount of any deductible amount under
Landlord's insurance policies, or where applicable its share thereof as
equitably determined by Landlord, within fifteen (15) days after receipt of a
statement from Landlord.

     9.5 WAIVER OF SUBROGATION. Each party waives all rights of recovery against
the other party and its officers, employees, agents and representatives for any
claims for loss or damage to person or property caused by or resulting from fire
or any other risks insured against under any insurance policy in force at the
time of such loss or damage. Each party shall cause each insurance policy
obtained by it to provide that the insurer waives all rights of recovery by way
of subrogation against the other party in connection with any damage covered by
such policy.

     9.6 TENANT'S USE NOT TO INCREASE PREMIUM. Tenant shall not keep, use,
manufacture, assemble, sell or offer for sale in or upon the Premises any
article that may be prohibited by, or that might invalidate, in whole or in
part, the coverage afforded by, a standard form of fire or all risk insurance
policy. Tenant shall pay the entire amount of any increase in premiums that may
be charged during the Lease Term for the insurance that may be maintained by
Landlord on the Premises or the Building resulting from the type of materials or
products stored, manufactured, assembled or sold by Tenant in the Premises,
whether or not Landlord has consented to the same. In determining whether
increased premiums are the result of Tenant's use of the Premises, a schedule
issued by the entity making the insurance rate on the Premises showing the
various components of such rate shall be conclusive evidence of the items and
charges that make up the fire insurance rate on the Premises.

     9.7 BOILER AND MACHINERY COVERAGE. If applicable, Landlord may maintain, at
Tenant's expense, boiler broad form insurance, if applicable, in the amount of
One Hundred Fifty Thousand Dollars ($150,000) in the name of Landlord. Tenant
shall pay the premium therefor, or its share thereof equitably determined by
Landlord if the Premises are a part of a multi-tenant building.

10.0        UTILITIES

     Tenant shall pay the cost of all water, gas, heat, light, power, sewer,
telephone, refuse disposal, and all other utilities and services supplied to the
Premises. Tenant shall make payments for all separately metered utilities, when
due, directly to the appropriate supplier. Landlord shall have the right to
require Tenant to install, at Tenant's sole expense, separate meters (or other
submeter, device or monitor for the measurement

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<PAGE>   10

of utility usage) for any utility for which a separate meter is not installed as
of the Commencement Date. If any utilities or services are not separately
metered or monitored with respect to the Premises, Landlord shall determine
Tenant's equitable share thereof, based on rentable square footage, intensity of
use of any Utility, hours of operation, and such other factors as Landlord deems
relevant. Tenant shall pay its equitable share of such utilities to Landlord, to
the extent such obligation exceeds any amount thereof impounded under Section
4.5, within fifteen (15) days after receipt of a statement from Landlord. If at
any time during the Lease Term, electrical power or any other utility is
available to the Premises from multiple sources, Landlord shall have the right
at any time and from time to time to contract for service from any company or
companies providing electrical, telecommunication, or other utility service to
the Building. Tenant shall cooperate with Landlord and all providers of
electrical, telecommunication, or other utility service and, as reasonably
necessary, allow Landlord and such providers reasonable access to the Premises
and to the electric lines, feeders, risers, wiring and any other machinery or
equipment within the Premises. Landlord shall in no way be liable or responsible
for any loss, damage or expense that Tenant may sustain or incur by reason of
any change, failure, interruption, interference or defect in the supply or
character of the electricity or other utilities supplied to the Premises.
Landlord makes no representation or warranty as the suitability of the utility
service for Tenant"s requirements, and no such change, failure, defect,
unavailability or unsuitability shall constitute any actual or constructive
eviction, in whole or in part, or entitle Tenant to any abatement or diminution
of rent, or relieve Tenant of any of its obligations under the Lease. Landlord
shall not be liable in damages or otherwise for any failure or interruption of
any utility service, and no such failure or interruption shall entitle Tenant to
terminate this Lease or abate the rent due hereunder.

11.0        USE

     11.1 PERMITTED USE. The Premises shall be used and occupied only for the
permitted uses specified in Section 1.8. The Premises shall not be used or
occupied for any other purposes without the prior written consent of Landlord.
Tenant shall provide such information about such proposed use as may be
reasonably requested by Landlord. Landlord shall not unreasonably withhold its
consent to any requested change of use, and shall have the right to impose
reasonable restrictions on such other use so long as such other use is
consistent with the zoning for the Building and all other applicable provisions
of law and this Lease. Factors that Landlord may take into account in granting
or withholding its consent shall include, without limitation: (a) whether the
proposed use is compatible with the character and tenant mix of the Building,
(b) whether the proposed use poses any increased risk to Landlord or any other
occupant of the Building, (c) whether any proposed Alterations to accommodate
such proposed use might decrease the rental or sale value of the Premises or the
Building, and (d) whether Tenant has the requisite expertise and financial
ability to successfully operate in the Premises with the proposed use.

     11.2 COMPLIANCE WITH LAW AND OTHER REQUIREMENTS. Tenant shall not do or
permit anything to be done in or about the Premises in conflict with all laws,
ordinances, rules, regulations, orders, requirements, and recorded covenants and
restrictions applicable to the Premises, whether now in force or hereafter in
effect, including any requirement to make alterations or to install additional
facilities required by Tenant's occupancy or the conduct of Tenant's business,
and Tenant shall promptly comply with the same at its sole expense,

     11.3 WASTE, QUIET CONDUCT. Tenant shall not use or permit the use of the
Premises in any manner that tends to create waste or a nuisance, that will cause
objectionable noise or odors, or that may disturb the quiet enjoyment of any
other tenant in the Building.

     11.4 RULES AND REGULATIONS. Tenant shall comply with the Rules and
Regulations for the Building attached as Exhibit "B", as the same may be amended
by Landlord from time to time, upon notice to Tenant.

     11.5 SIGNS. Tenant may, at Tenant's sole cost, install signage at the
Building. All signs must be fabricated by a contractor approved by Landlord.
Prior to construction of any such sign, a detailed drawing of the proposed sign
shall be prepared by Landlord's contractor, at the sole expense of Tenant, and
submitted to Landlord for written approval, which approval Landlord may withhold
in its sole discretion. All signs must comply in all respects with all
governmental laws rules and regulations in effect from time to time. No sign,
placard, pennant, flag, awning, canopy, or advertising matter of any kind shall
be placed or

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<PAGE>   11

maintained on any exterior door, wall or window of the Premises or in any area
outside the Premises, and no decoration, lettering or advertising matter shall
be placed or maintained on the glass of any window or door, or that can be seen
through the glass, of the Premises without first obtaining Landlord's written
approval. All signs and sign cases shall be considered fixtures and improvements
and shall become the property of Landlord upon expiration or termination of the
Lease. Landlord shall have the right at any time to establish a sign criteria
for the Building, and to revise the same from time to time. Within sixty (60)
days after Tenant's receipt of written notice of any new sign criteria, Tenant
shall, at Tenant's expense, remove all existing exterior signs and replace the
same with new signs conforming to the new sign criteria.

     11.6 PARKING. Tenant shall have the nonexclusive right, in common with
others, to use the parking areas of the Building; provided, however, that Tenant
shall not use more than the number of parking spaces designated in Section 1.10,
or if no number of such spaces is so indicated, Tenant shall not use more than
its reasonable share of parking spaces, as Landlord shall determine. Landlord
reserves the right, without liability to Tenant, to modify the parking areas, to
designate the specific location of the parking for Tenant and Tenant's customers
and employees, and to adopt reasonable rules and regulations for use of the
parking areas.

     11.7 ENTRY BY LANDLORD. Tenant shall permit Landlord and Landlord's agents
to enter the Premises at all reasonable times for any of the following purposes:
(a) to inspect the Premises, (b) to supply any services or to perform any
maintenance obligations of Landlord, including the erection and maintenance of
such scaffolding, canopies, fences, and props as may be required, (c) to make
such improvements, replacements or additions to the Premises or the Building as
Landlord deems necessary or desirable, (d) to post notices of nonresponsibility,
(e) to place any usual or ordinary "for sale" signs, or (f) within six (6)
months prior to the expiration of this Lease, to place any usual or ordinary
"for lease" signs. No such entry shall result in any rebate of rent or any
liability to Tenant for any loss of occupation or quiet enjoyment of the
Premises. Landlord shall give reasonable notice to Tenant prior to any entry
except in an emergency or unless Tenant consents at the time of entry. If Tenant
is not personally present to open and permit an entry into the Premises, at any
time when for any reason an entry therein shall be necessary or permissible,
Landlord or Landlord's agents may enter the same by a master key, or may
forcibly enter the same without rendering Landlord or such agents liable
therefor, and without in any manner affecting the obligations and covenants of
this Lease. Nothing herein contained, however, shall be deemed or construed to
impose upon Landlord any obligation, responsibility or liability whatsoever for
the care, maintenance or repair of the Premises or any part thereof, except as
otherwise specifically provided herein.

     11.8 UTILITY YARD. In addition and as part of the Premises, Tenant shall
have a revocable, non-exclusive license to use the Utility Yard depicted on the
attached Exhibit "A" (the "Utility Yard") for the purpose of installing,
maintaining and operating thereon (all at Tenant's sole cost) certain equipment
necessary for Tenant's use of the Premises. Prior to the installation of any
equipment in the Utility Yard, Tenant shall provide to Landlord a detailed
listing and description of the equipment, together with a plat showing the
proposed location thereof. Tenant shall also describe in detail whether such
equipment emits any noise, vibrations, fumes, or other substances, or would
otherwise cause any nuisance or disturbance to Landlord or any other tenant. The
types and locations of the equipment to be installed shall be subject to
Landlord's approval, which approval may be granted, denied, withdrawn or
modified in Landlord's sole discretion. Tenant shall screen, fence or otherwise
enclose Tenant's approved equipment at its sole cost in accordance with any
requirements of governmental agencies and/or the reasonable requirements of
Landlord. The Utility Yard forms a part of the Premises (except that such area
shall not count as Rentable Area or Usable Area) and shall be governed and
subject to all of the restrictions, indemnification obligations, use
requirements and other terms and provisions of the Lease applicable to the
Premises. Under no circumstances shall Tenant install any underground storage
tanks or other equipment utilizing Hazardous Materials without Landlord's prior
written consent, and otherwise on the terms and conditions set forth in Article
14. Tenant acknowledges and agrees that a portion of the Utility Yard may be
needed by other tenants of the Building, and therefore agrees to cooperate with
Landlord in allowing the use of and access to the Utility Yard by such other
tenants.

                                       11
<PAGE>   12

12.0        ACCEPTANCE OF PREMISES; NONLIABILITY OF LANDLORD; DISCLAIMER

     12.1 ACCEPTANCE OF PREMISES. By taking possession hereunder, Tenant
acknowledges that it has examined the Premises and accepts the condition
thereof. Tenant acknowledges and agrees that Landlord has no obligation to
improve the Premises other than as set forth specifically in this Lease, if at
all. In particular, Tenant acknowledges that any additional improvements or
Alterations needed to accommodate Tenant's intended use shall be made solely at
Tenant's sole cost and expense, and strictly in accordance with the requirements
of this Lease (including the requirement to obtain Landlord's consent thereto),
unless such improvements and alterations are specifically required of Landlord.
Landlord shall have no responsibility to do any work required under any building
codes or other governmental requirements not in effect or applicable at the time
the Premises were constructed, including without limitation any requirements
related to sprinkler retrofitting, seismic structural requirements,
accommodation of disabled persons, or hazardous materials. Landlord shall be
under no obligation to provide utility, telephone or other service or access
beyond that which exists at the Premises as of the date of this Lease, unless
Landlord specifically agrees in writing to provide the same. If it is
anticipated that Tenant will be doing any Alterations or installations prior to
taking occupancy, any delays encountered by Tenant in accomplishing such work or
obtaining any required permits therefor shall not delay the Commencement Date or
the date that Tenant becomes liable to pay rent, or the date that Landlord may
effectively deliver possession of the Premises to Tenant. By taking possession
hereunder, Tenant acknowledges that it accepts the square footage of the
Premises as delivered and as stated in this Lease. No discovery or alleged
discovery after such acceptance of any variance in such square footage as set
forth in this Lease (or in any proposal, advertisement or other description
thereof) shall be grounds for any adjustment in any element of the rent payable
hereunder, unless such adjustment is initiated by and implemented by Landlord in
writing.

     12.2 LANDLORD'S EXEMPTION FROM LIABILITY. Landlord shall not be liable for
injury to Tenant's business or loss of income therefrom, or for personal injury
or property damage that may be sustained by Tenant or any subtenant of Tenant,
or their respective employees, invitees, customers, agents or contractors or any
other person in or about the Premises, caused by or resulting from fire, flood,
earthquake or other natural disaster, or from steam, electricity, gas, water or
rain, that may leak or flow from or into any part of the Premises, or from the
breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air-conditioning, lighting fixtures or computer equipment
or software, whether such damage or injury results from conditions arising upon
the Premises or upon other portions of the Building, or from other sources, and
regardless of whether the cause of such damage or injury or the means of
repairing the same is inaccessible to Tenant. Landlord shall not be liable for
any damages to property or for personal injury or loss of life arising from any
use, act or failure to act of any third parties (including other occupants of
the Building) occurring in, or about the Premises or in or about the Building
(including without limitation the criminal acts of any third parties). Landlord
shall not be liable for any latent defect in the Premises or in the Building.
All property of Tenant kept or stored on the Premises shall be so kept or stored
at the risk of Tenant only, and Tenant shall indemnify, defend and hold Landlord
and Landlord's officers, directors, shareholders, partners, members, principals,
employees and agents, and their respective successors and assigns, harmless from
and against any claims arising out of damage to the same, including subrogation
claims by Tenant's insurance carriers. Provided, however, that the
indemnifications and waivers of Tenant set forth in this Section shall not apply
to damage and liability caused by the gross negligence or willful misconduct of
Landlord, and through no fault of Tenant, its assignees or subtenants, or their
respective agents, contractors, employees, customers, invitees or licensees.

     12.3   NO WARRANTIES OR REPRESENTATIONS.

            (1) Neither Landlord nor Landlord's agents make any warranty or
representation with respect to the suitability or fitness of the space for the
conduct of Tenant's business, or for any other purpose.

            (2) Neither Landlord nor Landlord's agents make any warranty or
representation with respect to any other tenants or users that may or may not
construct improvements, occupy space or conduct business within the Building,
and Tenant hereby acknowledges and agrees that it is not relying on any warranty
or representation relating thereto in entering into this Lease.

                                       12
<PAGE>   13

            (3) Landlord specifically disavows any oral representations made by
or on behalf of its employees, agents and independent contractors, and Tenant
hereby acknowledges and agrees that it is not relying and has not relied on any
oral representations in entering into this Lease.

            (4) Landlord has not made any promises or representations, expressed
or implied, that it will renew, extend or modify this Lease in favor of Tenant
or any permitted transferee of Tenant, except as may be specifically set forth
herein or in a written instrument signed by both parties amending this Lease in
the future.

            (5) Notwithstanding that the rent payable to Landlord hereunder may
at times include the cost of guard service or other security measures, it is
specifically understood that Landlord does not represent, guarantee or assume
responsibility that Tenant will be secure from any damage, injury or loss of
life because of such guard service. Landlord shall have no obligation to hire,
maintain or provide such services, which may be withdrawn or changed at any time
with or without notice to Tenant or any other person and without liability to
Landlord. To induce Landlord to provide such service if Landlord elects in its
sole discretion to do so, Tenant agrees that Landlord shall not be liable for
any damage, injury or loss of life related to the provision or nonprovision of
such service, and Landlord shall have no responsibility to protect Tenant, or
its employees or agents, from the acts of any third parties (including other
occupants of the Building) occurring in or about the Premises or in or about the
Building (including without limitation the criminal acts of any third parties),
whether or not the same could have been prevented by any such guard service or
other security measures.

     12.4 KEYS. Tenant shall re-key the Premises at its sole cost upon taking
possession thereof. Tenant hereby acknowledges that various persons have had
access to the keys to the Premises as keyed prior to Tenant"s possession, and
that Landlord disclaims all liability and responsibility for any unauthorized
distribution or possession of such prior keys.

13.0        INDEMNIFICATION

     Tenant shall indemnify, defend and hold Landlord and Landlord's officers,
directors, shareholders, partners, members, principals, employees, agents,
representatives, and other related entities and individuals (collectively,
"Landlord's Related Entities"), harmless from and against any and all claims,
actions, damages, liability, costs, and expenses, including attorneys' fees and
costs, arising from personal injury, death, and/or property damage and arising
from: (a) Tenant's use or occupation of the Premises or any work or activity
done or permitted by Tenant in or about the Premises (including without
limitation any storage or display of materials or merchandise, or other activity
by Tenant in the Common Facilities), (b) any activity, condition or occurrence
in the Premises or other area under the control of Tenant, (c) any breach or
failure to perform any obligation imposed on Tenant under this Lease, or (d) any
other act or omission of Tenant or its assignees or subtenants or their
respective agents, contractors, employees, customers, invitees or licensees.
Tenant's obligation to defend and indemnify shall include, but not be limited
to, claims based on duties, obligations, or liabilities imposed on Landlord or
Landlord's Related Entities by statute, ordinance, regulation, or other law,
such as claims based on theories of peculiar risk and nondelegable duty, and to
any and all other claims based on the negligent act or omission of Landlord or
Landlord's Related Entities. The parties intend that this provision be
interpreted as the broadest Type I indemnity provision as defined in McDonald &
Kruse, Inc. v. San Jose Steel Co., 29 Cal. App. 3rd 413 (1972), and as allowed
by law between a landlord and a tenant. Upon notice from Landlord, Tenant shall,
at Tenant's sole expense and by counsel satisfactory to Landlord, defend any
action or proceeding brought against Landlord or Landlord's Related Entities by
reason of any such claim. If Landlord or any of Landlord's Related Entities is
made a party to any litigation commenced by or against Tenant, then Tenant shall
indemnify, defend and hold Landlord and Landlord's Related Entities harmless
from, and shall pay all costs, expenses and attorneys' fees and costs incurred
or paid in connection with, such litigation. Tenant, as a material part of the
consideration to Landlord hereunder, assumes all risk of, and waives all claims
against Landlord for, personal injury or property damage in, upon or about the
Premises, from any cause whatsoever. Provided, however, that the
indemnifications and waivers of Tenant set forth in this Section shall not apply
to damage and liability

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<PAGE>   14

caused (i) by the gross negligence or willful misconduct of Landlord, and (ii)
through no fault of Tenant, its assignees or subtenants, or their respective
agents, contractors, employees, customers, invitees or licensees.

14.0        HAZARDOUS MATERIALS

     14.1 DEFINITIONS. "Hazardous Materials Laws" means any and all federal,
state or local laws, ordinances, rules, decrees, orders, regulations or court
decisions relating to hazardous substances, hazardous materials, hazardous
waste, toxic substances, environmental conditions on, under or about the
Premises, or soil and ground water conditions, including, but not limited to,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, 42 U.S.C. "9601, et seq., the Resource Conservation and
Recovery Act ,42 U.S.C. "6901, et seq., the Hazardous Materials Transportation
Act, 49 U.S.C. "1801, et seq., the California Hazardous Waste Control Act, Cal.
Health and Safety Code "25100, et seq., the Carpenter-Presley-Tanner Hazardous
Substances Account Act, Cal. Health and Safety Code "25300, et seq., the Safe
Drinking Water and Toxic Enforcement Act, Cal. Health and Safety Code "25249.5,
et seq., the Porter-Cologne Water Quality Control Act, Cal. Water Code "13000,
et seq., any amendments to the foregoing, and any similar federal, state or
local laws, ordinances, rules, decrees, orders or regulations. "Hazardous
Materials" means any chemical, compound, material, substance or other matter
that: (a) is defined as a hazardous substance, hazardous material, hazardous
waste or toxic substance under any Hazardous Materials Law, (b) is controlled or
governed by any Hazardous Materials Law or gives rise to any reporting, notice
or publication requirements hereunder, or gives rise to any liability,
responsibility or duty on the part of Tenant or Landlord with respect to any
third person hereunder; or (c) is flammable or explosive material, oil,
asbestos, urea formaldehyde, radioactive material, nuclear medicine material,
drug, vaccine, bacteria, virus, hazardous waste, toxic substance, or related
injurious or potentially injurious material (by itself or in combination with
other materials).

     14.2 USE OF HAZARDOUS MATERIALS. Tenant shall not allow any Hazardous
Material to be used, generated, manufactured, released, stored or disposed of
on, under or about, or transported from, the Premises, unless: (a) such use is
specifically disclosed to and approved by Landlord in writing prior to such use,
and (b) such use is conducted in compliance with the provisions of this Article.
Landlord's consent may be withheld in Landlord's sole discretion and, if
granted, may be revoked at any time upon reasonable cause. Landlord may approve
such use subject to reasonable conditions to protect the Premises and Landlord's
interests. Landlord may withhold approval if Landlord in good faith determines
that such proposed use involves a material risk of a release or discharge of
Hazardous Materials or a violation of any Hazardous Materials Laws or that
Tenant has not provided reasonably sufficient assurances of its ability to
remedy such a violation and fulfill its obligations under this Article.
Notwithstanding the foregoing, Landlord hereby consents to the use, storage or
disposal of Hazardous Materials necessary for the conduct of the business of
Avanir Pharmaceuticals, Inc., in its capacity as Tenant hereunder, so long as
Tenant handles, uses, stores and disposes of the same in compliance with all
Hazardous Materials Laws, including, without limitation, (x)products containing
small amounts of Hazardous Materials that are of a type customarily found in
offices and households (such as aerosol cans containing insecticides, toner for
copies, paints, paint remover and similar items); (y) small quantities of
radioactive material used in the life science research activities of Tenant, but
only to the extent necessary for such activities; and (z) animal-related
supplies used in the life science research activities of Tenant, but only to the
extent necessary for such activities.

     14.3 COMPLIANCE WITH LAWS; HANDLING HAZARDOUS MATERIALS. Tenant shall
strictly comply with, and shall maintain the Premises in compliance with, all
Hazardous Materials Laws. Tenant shall obtain, maintain in effect and comply
with the conditions of all permits, licenses and other governmental approvals
required for Tenant's operations on the Premises under any Hazardous Materials
Laws, including, but not limited to, the discharge of appropriately treated
Hazardous Materials into or through any sanitary sewer serving the Premises. At
Landlord's request, Tenant shall deliver copies of, or allow Landlord to
inspect, all such permits, licenses and approvals. All Hazardous Materials
removed from the Premises shall be removed and transported by duly licensed
haulers to duly licensed disposal facilities, in compliance with all Hazardous
Materials Laws. Tenant shall perform any monitoring, testing, investigation,
clean-up, removal,

                                       14
<PAGE>   15

detoxification, preparation of closure or other required plans and any other
remedial work required by any governmental agency or lender, or recommended by
Landlord's environmental consultants, as a result of any release or discharge or
potential release or discharge of Hazardous Materials affecting the Premises or
the Building or any violation or potential violation of Hazardous Materials Laws
by Tenant or any assignee or subtenant of Tenant or their respective agents,
contractors, employees, licensees or invitees (collectively, "Remedial Work").
Landlord shall have the right to intervene in any governmental action or
proceeding involving any Remedial Work, and to approve performance of the work,
in order to protect Landlord's interests. Tenant shall not enter into any
settlement agreement, consent decree or other compromise with respect to any
claims relating to Hazardous Materials without notifying Landlord and providing
ample opportunity for Landlord to intervene. Tenant shall additionally comply
with the recommendations of Landlord's and Tenant's insurers based upon National
Fire Protection Association standards or other applicable guidelines regarding
the management and handling of Hazardous Materials. If any present or future law
imposes any requirement of reporting, survey, investigation or other compliance
upon Landlord, Tenant, or the Premises, and if such requirement is precipitated
by a transaction involving the Lease (other than the natural expiration thereof
at the end of the lease term), including without limitation the assignment or
sublease, in whole or in part of Tenant's interest in the Lease, or the change
in the ownership of Tenant, then Tenant shall fully comply with and pay all
costs of compliance with such requirement, including Landlord's attorneys' fees
and costs.

     14.4 NOTICE; REPORTING. Tenant shall notify Landlord, in writing, within
three (3) days after any of the following: (a) Tenant has knowledge, or has
reasonable cause to believe, that any Hazardous Material has been released,
discharged or is located on, under or about the Premises, whether or not the
release or discharge is in quantities that would otherwise be reportable to a
public agency, (b) Tenant receives any order of a governmental agency requiring
any Remedial Work pursuant to any Hazardous Materials Laws, (c) Tenant receives
any warning, notice of inspection, notice of violation or alleged violation or
Tenant receives notice or knowledge of any proceeding, investigation or
enforcement action, pursuant to any Hazardous Materials Laws; or (d) Tenant
receives notice or knowledge of any claims made or threatened by any third party
against Tenant or the Premises relating to any loss or injury resulting from
Hazardous Materials. If the potential risk of any of the foregoing events is
material, Tenant shall deliver immediate verbal notice to Landlord, in addition
to written notice as set forth above. Tenant shall deliver to Landlord copies of
all test results, reports and business or management plans required to be filed
with any governmental agency pursuant to any Hazardous Materials Laws.

     14.5 INDEMNITY. Tenant shall indemnify, defend and hold Landlord (and its
partners, members and their respective officers, directors, employees and
agents) harmless from and against any and all liabilities, claims, suits,
judgments, actions, investigations, proceedings, costs and expenses (including
attorneys' fees and costs) arising out of or in connection with any breach of
any provisions of this Article or directly or indirectly arising out of the use,
generation, storage, release, disposal or transportation of Hazardous Materials
by Tenant, or any assignee or subtenant of Tenant, or their respective agents,
contractors, employees, licensees, or invitees, on, under or about the Premises
during the Lease Term or any other period of Tenant's actual or constructive
occupancy of the Premises, including, but not limited to, all foreseeable and
unforeseeable consequential damages and the cost of any Remedial Work. Any
defense of Tenant pursuant to this Section shall be by counsel reasonably
acceptable to Landlord. Neither the consent by Landlord to the use, generation,
storage, release, disposal or transportation of Hazardous Materials nor the
strict compliance with all Hazardous Materials Laws shall excuse Tenant from
Tenant's indemnification obligations pursuant to this Article. The foregoing
indemnity shall be in addition to and not a limitation of the indemnification
provisions of Article 13 of this Lease. Tenant's obligations pursuant to this
Article shall survive the termination or expiration of this Lease.

     14.6 ENTRY AND INSPECTION; CURE. Landlord and its agents, employees and
contractors, shall have the right (but not the obligation) to enter the Premises
at all reasonable times to inspect the Premises and Tenant's compliance with the
terms and conditions of this Article, or to conduct investigations and tests. No
prior notice to Tenant shall be required in the event of an emergency, or if
Landlord has reasonable cause

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<PAGE>   16

to believe that violations of this Article have occurred, or if Tenant consents
at the time of entry. In all other cases, Landlord shall give at least
twenty-four (24) hours' prior notice to Tenant. Landlord shall have the right
(but not the obligation) to remedy any violation by Tenant of the provisions of
this Article pursuant to Section 22.3 of this Lease or to perform any Remedial
Work. Tenant shall pay, upon demand, all costs incurred by Landlord in
investigating any such violations or potential violations or performing Remedial
Work, plus interest thereon at the rate specified in this Lease from the date of
demand until the date paid by Tenant.

     14.7 TERMINATION/EXPIRATION. Upon termination or expiration of this Lease,
Tenant shall, at Tenant's cost, remove any equipment, improvements or storage
facilities utilized in connection with any Hazardous Materials and shall clean
up, detoxify, repair and otherwise restore the Premises to a condition free of
Hazardous Materials, to the extent such condition is caused by Tenant or any
assignee or subtenant of Tenant or their respective agents, contractors,
employees, licensees or invitees.

     14.8 EXIT ASSESSMENT. No later than ten (10) days after the expiration or
earlier termination of this Lease, Tenant shall cause to be performed, at its
sole expense, an environmental assessment (the "Exit Assessment") of the
Premises. Landlord agrees to allow Tenant access to the Premises for such
purpose. The Exit Assessment must be performed by a qualified environmental
consultant acceptable to Landlord, and shall include without limitation the
following, as applicable to the Premises and Tenant's activities: (a) inspection
of all floors, walls, ceiling tiles, benches, cabinet interiors, sinks, the roof
and other surfaces for signs of contamination and/or deterioration related to
Hazardous Materials, (b) inspection of any and all ducts, hoods and exhaust
systems for signs of contamination, deterioration and/or leakage related or
potentially related to Hazardous Materials, (c) inspection of all readily
accessible drain lines and other discharge piping for signs of deterioration,
loss of integrity and leakage, (d) Tenant interviews and review of appropriate
Tenant records to determine the uses to which Tenant has put the Premises that
involve or may have involved Hazardous Materials, and to determine if any known
discharges to the Premises or ground or soils from Tenant's activities have
occurred, (e) documentation in detail of all observations, including dated
photographs, (f) if applicable a certification that all areas inspected are
clean and free of any Hazardous Materials and that the investigation conducted
by the consultant does indicate that any release of any Hazardous Materials has
occurred in the Premises or the Building as a result of Tenant's activities, (g)
if applicable, a detailed description of Hazardous Materials remaining in the
Premises and of any contamination, deterioration and/or leakage observed,
together with detailed recommendations for the removal, repair or abatement of
the same, and (h) if applicable, a detailed description of evidence of possible
or past releases of Hazardous Materials, together with detailed recommendations
for the prevention of the same in the future. Landlord shall have the right to
require additional evaluations or work in connection with the Exit Assessment
based upon Tenant's use of the Premises, any actual or suspected Hazardous
Materials issues, or other reasonable factors. The original of the Exit
Assessment shall be addressed to Landlord and shall be provided to the Landlord
within twenty (20) days of the expiration or earlier termination of the Lease.
In addition to Tenant's obligations under Section 14.7, Tenant agrees to fully
implement and address all recommended actions contained in the Exit Assessment,
at its sole cost, within thirty (30) days of the date thereof.

     14.9 EVENT OF DEFAULT. The release or discharge of any Hazardous Material
or the violation of any Hazardous Materials Law by Tenant or any assignee or
subtenant of Tenant shall be a material Event of Default by Tenant under this
Lease. In addition to or in lieu of the remedies available under this Lease as a
result of such Event of Default, Landlord shall have the right, without
terminating this Lease, to require Tenant to suspend its operations and
activities on the Premises until Landlord is satisfied that appropriate Remedial
Work has been or is being adequately performed; Landlord's election of this
remedy shall not constitute a waiver of Landlord's right thereafter to declare
an Event of Default and pursue any other available remedy.

15.0        ALTERATIONS; LIENS

     15.1 ALTERATIONS BY TENANT. Tenant shall not make any alterations,
additions or improvements ("Alterations") to the Premises without Landlord's
prior written consent, except for nonstructural Alterations

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<PAGE>   17

that cost $5,000 or less and are not visible from the exterior of the Premises.
All Alterations installed by Tenant shall be new or completely reconditioned.
Landlord shall have the right to approve the contractor, the method of payment
of the contractor, and the plans and specifications for all proposed
Alterations. Tenant shall obtain Landlord's consent to all proposed Alterations
requiring Landlord's consent prior to the commencement of any such Alterations.
Tenant's request for consent shall be accompanied by information identifying the
contractor and method of payment and two (2) copies of the proposed plans and
specifications. All Alterations of whatever kind and nature shall become at once
a part of the realty and shall be surrendered or removed upon expiration or
earlier termination of the Lease Term as provided in Article 20. If Tenant
demolishes or removes any then-existing tenant improvements or other portions of
the Premises or the Building (including without limitation any
previously-installed Alterations), Tenant shall promptly commence and diligently
pursue to completion the Alterations then underway or shall otherwise restore
the Premises and the Building to its condition and state of improvement prior to
such demolition or removal. During the Lease Term, Tenant agrees to provide, at
Tenant's expense, a policy of insurance covering loss or damage to Alterations
made by Tenant, in an amount adequate to repair or replace the same, naming
Landlord as an additional insured. Provided, however, Tenant may install movable
furniture, trade fixtures, machinery or equipment in conformance with applicable
governmental rules or ordinances and remove the same upon expiration or earlier
termination of this Lease as provided in Article 20.

     15.2 PERMITS AND GOVERNMENTAL REQUIREMENTS. Tenant shall obtain, at
Tenant's sole cost and expense, all building permits and other permits of every
kind and nature required by any governmental agency having jurisdiction in
connection with the Alterations. Tenant shall indemnify, defend and hold
Landlord and Landlord's officers, directors, shareholders, partners, members,
principals, employees and agents, and their respective successors and assigns,
harmless from and against any and all claims, actions, damages, liability,
costs, and expenses, including attorneys' fees and costs, arising out of any
failure by Tenant or Tenant's contractor or agents to obtain all required
permits, regardless of when such failure is discovered. Tenant shall do any and
all additional construction, alterations, improvements and retrofittings
required to be made to the Premises and/or the Building, or any other property
of Landlord as a result of, or as may be triggered by, Tenant's Alterations.
Landlord shall have the right to do such construction itself; but in all
instances Tenant shall pay all costs directly or indirectly related to such work
and shall indemnify, defend and hold Landlord and Landlord's officers,
directors, shareholders, partners, members, principals, employees and agents,
and their respective successors and assigns, harmless from and against any and
all claims, actions, damages, liability, costs, and expenses, including
attorneys' fees and costs, arising out of any such additionally required work.
All payment and indemnification obligations under this Section shall survive the
expiration or earlier termination of the Lease Term.

     15.3 LIENS. Tenant shall pay when due all claims for any work performed,
materials furnished or obligations incurred by or for Tenant, and Tenant shall
keep the Premises free from any liens arising with respect thereto. If Tenant
fails to cause any such lien to be released within fifteen (15) days after
imposition, by payment or posting of a proper bond, Landlord shall have the
right (but not the obligation) to cause such release by such means as Landlord
deems proper. Tenant shall pay Landlord upon demand for all costs incurred by
Landlord in connection therewith (including attorneys' fees and costs), with
interest at the rate specified in Section 22.4 from the date of payment by
Landlord to the date of payment by Tenant. Tenant will notify Landlord in
writing thirty (30) days prior to commencing any alterations, additions,
improvements or repairs in order to allow Landlord time to file a notice of
nonresponsibility.

16.0        DAMAGE AND DESTRUCTION

     16.1 PARTIAL INSURED DAMAGE. If the Premises or the Building are partially
damaged or destroyed during the Lease Term, Landlord shall make the necessary
repairs, provided such repairs can reasonably be completed within sixty (60)
days after the date of the damage or destruction in accordance with applicable
laws and regulations and provided that Landlord receives sufficient insurance
proceeds to pay the cost of such repairs. In such event, this Lease shall
continue in full force and effect. If such repairs cannot reasonably be
completed within sixty (60) days after the date of the damage or destruction or
if Landlord does not receive sufficient insurance proceeds, then Landlord may,
at its option, elect within forty-five (45)

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<PAGE>   18

days of the date of the damage or destruction to proceed with the necessary
repairs, in which event this Lease shall continue in full force and effect and
Landlord shall complete the same within a reasonable time. If Landlord does not
so elect to make such repairs or if such repairs cannot be made under applicable
laws and regulations, this Lease may be terminated at the option of either party
within ninety (90) days of the occurrence of such damage or destruction.

     16.2 INSURANCE DEDUCTIBLE. If Landlord elects to repair any damage caused
by an insured casualty as provided in Section 16.1, Tenant shall, within fifteen
(15) days after receipt of written notice from Landlord, pay the amount of any
deductible (or its share thereof) under any insurance policy covering such
damage or destruction, in accordance with Section 9.4 above.

     16.3 UNINSURED DAMAGE. In the event of any damage or destruction of the
Premises or the Building by an uninsured casualty, Landlord shall have the right
to elect either to repair such damage or to terminate this Lease. Such election
shall be exercised by written notice to Tenant within forty-five (45) days of
such damage or destruction.

     16.4 TOTAL DESTRUCTION. A total destruction (including any destruction
required by any authorized public authority) of either the Premises or the
Building shall terminate this Lease.

     16.5 PARTIAL DESTRUCTION OF BUILDING. If fifty percent (50%) or more of the
rentable area of the Building is damaged or destroyed by fire or other cause,
notwithstanding that the Premises may be unaffected, Landlord shall have the
right, to be exercised by notice in writing delivered to Tenant within ninety
(90) days after said occurrence, to elect to terminate this Lease.

     16.6 TENANT'S OBLIGATIONS. Landlord shall not be required to repair any
injury or damage by fire or other cause, or to make any restoration or
replacement of any Alterations, trade fixtures, equipment or personal property
placed or installed in the Premises by or on behalf of Tenant. Unless this Lease
is terminated pursuant to this Article, Tenant shall promptly repair, restore or
replace the same in the event of damage. Nothing contained in this Article shall
be construed as a limitation on Tenant's liability for any damage or destruction
if such liability otherwise exists.

     16.7 RENT ABATEMENT. If Landlord repairs the Premises or the Building after
damage or destruction as described in this Article 16, Minimum Monthly Rent
payable by Tenant hereunder from the date of damage until the repairs are
completed shall be equitably reduced, based upon the extent to which such
repairs interfere with the business carried on by Tenant in the Premises, but
only to the extent Landlord receives proceeds from rental income insurance paid
for by Tenant. Landlord agrees to take reasonable steps to make a claim for and
collect any rental income insurance proceeds that might be available.

     16.8 WAIVER OF INCONSISTENT STATUTES. The parties' rights and obligations
in the event of damage or destruction shall be governed by the provisions of
this Lease; accordingly, Tenant waives the provisions of California Civil Code
Sections 1932(2) and 1933(4), and any other statute, code or judicial decisions
that grants a tenant a right to terminate a lease in the event of damage or
destruction of a leased premises.

17.0        CONDEMNATION

     17.1 CONDEMNATION OF PREMISES. If any portion of the Premises is taken or
condemned for a public or quasi-public use ("Condemnation"), and a portion
remains that is susceptible of occupation, then this Lease shall terminate as to
the portion so taken as of the date title vests in the condemnor, but shall
remain in full force and effect as to the remaining Premises. Landlord shall,
within a reasonable period of time, restore the remaining Premises as nearly as
practicable to the condition existing prior to the condemnation; provided,
however, that if Landlord receives insufficient funds from the condemnor for
such purpose, Landlord may elect to terminate this Lease. If this Lease
continues in effect, the Minimum Monthly Rent shall be equitably adjusted, based
upon the value of the Premises remaining after the Condemnation compared to the
value of the Premises prior to Condemnation. Provided, however, in the event of
any such partial condemnation, Landlord shall have the option to terminate this
Lease entirely as of the date title vests in the condemnor. If all the Premises
are condemned, or such portion so that there does not remain a portion that is
susceptible of occupation, or if such a substantial portion of the Building is
condemned that it is no longer economically appropriate to lease the Premises on
the terms and conditions of this Lease, as

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<PAGE>   19

reasonably determined by Landlord, then at the election of Landlord this Lease
shall terminate as of the date title vests in the condemnor.

     17.2 CONDEMNATION OF PARKING AREA. If all or any portion of the parking
area in the Building is condemned such that the ratio of the total square
footage of parking and other Common Facilities compared to the total rentable
building square footage of the Building is reduced to a ratio below two to one,
then at the election of Landlord this Lease shall terminate as of the date title
vests in the condemnor.

     17.3 CONDEMNATION AWARD. All compensation awarded upon any such partial or
total Condemnation shall be paid to Landlord and Tenant shall have no claim
thereto, and Tenant hereby irrevocably assigns and transfers to Landlord any
right to compensation or damages by reason of any such Condemnation. Provided,
however, that Tenant shall have the right to claim and recover from the
condemning authority, but not from Landlord, such compensation as may be
separately awarded or recoverable by Tenant in Tenant's own right on account of
any damage to Tenant's business by reason of the Condemnation and on account of
any cost that Tenant may incur in removing Tenant's merchandise, furniture,
fixtures, leasehold improvements and equipment. If this Lease is terminated, in
whole or in part, in accordance with this Article as a result of a Condemnation,
Tenant shall have no claim for the value of any unexpired term of this Lease.

18.0        ASSIGNMENT AND SUBLETTING

     18.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not voluntarily or
involuntarily assign, sublease, mortgage, encumber, or otherwise transfer all or
any portion of the Premises or its interest in this Lease (collectively,
"Transfer") without Landlord's prior written consent, which consent Landlord
shall not unreasonably withhold. Landlord may withhold its consent until Tenant
has complied with the provisions of Sections 18.2 and 18.3. Any attempted
Transfer without Landlord's written consent shall be void and shall constitute a
noncurable Event of Default under this Lease. If Tenant is a corporation, any
cumulative Transfer of more than twenty percent (20%) of the voting stock of
such corporation shall constitute a Transfer requiring Landlord's consent
hereunder; provided, however, that this sentence shall not apply to any
corporation whose stock is publicly traded. If Tenant is a partnership, limited
liability company, trust or other entity, any cumulative Transfer of more than
twenty percent (20%) of the partnership, membership, beneficial or other
ownership interests therein shall constitute a Transfer requiring Landlord's
consent hereunder. Tenant shall not have the right to consummate a Transfer or
to request Landlord's consent to any Transfer if any Event of Default has
occurred and is continuing or if Tenant or any affiliate of Tenant is in default
under any lease of any other real property owned or managed (in whole or in
part) by Landlord or any affiliate of Landlord.

     18.2 LANDLORD'S ELECTION. Tenant's request for consent to any Transfer
shall be accompanied by a written statement setting forth the details of the
proposed Transfer, including the name, business and financial condition of the
prospective Transferee, financial details of the proposed Transfer (e.g., the
term and the rent and security deposit payable), and any other related
information that Landlord may reasonably require. Landlord shall have the right:
(a) to withhold consent to the Transfer, if reasonable, (b) to grant consent,
(c) to terminate this Lease as to the portion of the Premises affected by any
proposed Transfer, in which event Landlord may enter into a lease directly with
the proposed Transferee, or (d) to consent on the condition that Landlord be
paid, as Additional Rent hereunder, fifty percent (50%) of all subrent or other
consideration to be paid to Tenant under the terms of the Transfer in excess of
the total rent due hereunder (including, if such Transfer is an assignment or if
such Transfer is to occur directly or indirectly in connection with the sale of
any assets of Tenant, fifty percent (50%) of the amount of the consideration
attributable to the Transfer of the Lease, as reasonably determined by
Landlord). The grounds on which Landlord may reasonably withhold its consent to
any requested Transfer include, without limitation, that: (i) the proposed
Transferee's contemplated use of the Premises following the proposed Transfer is
not reasonably similar to the use of the Premises permitted hereunder, (ii) in
Landlord's reasonable business judgment, the proposed Transferee lacks
sufficient business reputation or experience to operate a successful business of
the type and quality permitted under this Lease, (iii) in Landlord's reasonable
business judgment, the proposed Transferee lacks sufficient net worth, working
capital, anticipated cash flow and other

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<PAGE>   20

indications of financial strength to meet all of its obligations under this
Lease, (iv) the proposed Transfer would breach any covenant of Landlord
respecting a radius restriction, location, use or exclusivity in any other
lease, financing agreement, or other agreement relating to the Building, and (v)
in Landlord's reasonable business judgment, the possibility of a release of
Hazardous Materials is materially increased as a result of the Transfer or if
Landlord does not receive sufficient assurances that the proposed Transferee has
the experience and financial ability to remedy a violation of Hazardous
Materials and to fulfill its obligations under Articles 13 and 14. In connection
with any such Transfer, Landlord shall have the right to require Tenant, at
Tenant's sole cost, to cause environmental testing meeting the requirements of
an Exit Assessment described in Section 14.8 to be performed. Landlord need only
respond to any request by Tenant hereunder within a reasonable time of not less
than ten (10) business days after receipt of all information and other
submission required in connection with such request.

     18.3 COSTS; TRANSFER FEE. Tenant shall pay all costs and expenses in
connection with any permitted Transfer, including any real estate brokerage
commissions due with respect to the Transfer. Tenant shall pay all attorneys'
fees and costs incurred by Landlord and a fee of $500 to reimburse Landlord for
costs and expenses incurred in connection with any request by Tenant for
Landlord's consent to a Transfer. Such fee shall be delivered to Landlord
concurrently with Tenant's request for consent.

     18.4 ASSUMPTION; NO RELEASE OF TENANT. Any permitted transferee shall
assume in writing all obligations of Tenant under this Lease, utilizing a form
of assumption agreement provided or approved by Landlord, and an executed copy
of such assumption agreement shall be delivered to Landlord within fifteen (15)
days after the effective date of the Transfer. The taking of possession of all
or any part of the Premises by any such permitted assignee or subtenant shall
constitute an agreement by such person or entity to assume without limitation or
qualification all of the obligations of Tenant under this Lease, notwithstanding
any failure by such person to execute the assumption agreement required in the
immediately preceding sentence. No permitted Transfer shall release or change
Tenant's primary liability to pay the rent and to perform all other obligations
of Tenant under this Lease. Landlord's acceptance of rent from any other person
is not a waiver of any provision of this Article or a consent to Transfer.
Consent to one Transfer shall not constitute a consent to any subsequent
Transfer. If any transferee defaults under this Lease, Landlord may proceed
directly against Tenant without pursuing remedies against the transferee.
Landlord may consent to subsequent Transfers or modifications of this Lease by
Tenant's transferee, without notifying Tenant or obtaining its consent, and such
action shall not relieve Tenant of its liability under this Lease.

     18.5 NO MERGER. No merger shall result from any Transfer pursuant to this
Article, any surrender by Tenant of its interest under this Lease, or any
termination hereof in any other manner. In any such event, Landlord may either
terminate any or all subleases or succeed to the interest of Tenant thereunder.

     18.6 REASONABLE RESTRICTION. Tenant acknowledges that the restrictions on
Transfer contained herein are reasonable restrictions for purposes of Section
22.2 of this Lease and California Civil Code Section 1951.4.

19.0        SUBORDINATION; ATTORNMENT; ESTOPPEL CERTIFICATE

     19.1 SUBORDINATION. This Lease is junior and subordinate to all ground
leases, mortgages, deeds of trust, and other security instruments now or
hereafter affecting the real property of which the Premises are a part, and to
all advances made on the security thereof, and to all renewals, modifications,
consolidations, replacements and extensions thereof. If any mortgagee,
beneficiary under deed of trust or ground lessor shall elect to have this Lease
prior to the lien of its mortgage, deed of trust or ground lease, and gives
written notice thereof to Tenant, this Lease shall be deemed prior thereto.
Tenant agrees to execute any documents required to effectuate such subordination
or to make this Lease prior to the lien of any such mortgage, deed of trust or
ground lease, as the case may be, and if Tenant fails to do so within fifteen
(15) days after written demand, Tenant does hereby make, constitute and
irrevocably appoint Landlord as Tenant's attorney-in-fact and in Tenant's name,
place and stead, to do so.

     19.2 ATTORNMENT. If Landlord sells, transfers, or conveys its interest in
the Premises or this Lease, or if the same is foreclosed judicially or
nonjudicially, or is otherwise acquired, by a mortgagee, beneficiary under deed
of trust or ground lessor, upon the request and at the sole election of
Landlord's lawful successor,

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<PAGE>   21

Tenant shall attorn to said successor, provided said successor accepts the
Premises subject to this Lease. Tenant shall, upon request of Landlord or any
such mortgagee, beneficiary under deed of trust or ground lessor, execute an
attornment agreement confirming the same, in form and substance acceptable to
Landlord. Such agreement shall provide, among other things, that said successor
shall not be bound by (a) any prepayment of more than one (1) month's rent
(except any Security Deposit) or (b) any material amendment of this Lease made
after the later of the initial effective date of this Lease, or the date that
such successor's lien or interest first arose, unless said successor shall have
consented to such amendment.

     19.3 ESTOPPEL CERTIFICATES. Within fifteen (15) days after written request
from Landlord, Tenant at Tenant's sole cost shall execute, acknowledge and
deliver to Landlord a written statement certifying: (a) that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature of
such modifications and certifying that this Lease is in full force and effect as
so modified), (b) the amount of any rent paid in advance, and (c) that, to
Tenant's knowledge, there are no uncured defaults on the part of Landlord, or
specifying the nature of such defaults if any are claimed. Any such statement
may be conclusively relied upon by any prospective purchaser of or lender on the
Premises. If Tenant fails to deliver such statement within said 15-day period,
Tenant shall be liable for the immediate payment of all foreseeable and
unforeseeable damages, penalties and attorneys' fees and costs incurred by
Landlord as a result of such failure. Tenant's failure to deliver such statement
within said 15-day period shall constitute a conclusive acknowledgment by
Tenant: (i) that this Lease is in full force and effect without modification
except as may be represented by Landlord, (ii) that not more than one (1)
month's rent has been paid in advance, and (iii) that there are no uncured
defaults in Landlord's performance.

20.  SURRENDER OF PREMISES

     20.1 CONDITION OF PREMISES. Upon the expiration or earlier termination of
this Lease, Tenant shall surrender the Premises to Landlord, broom clean and in
the same condition and state of repair as at the commencement of the Lease Term,
except for ordinary wear and tear that Tenant is not otherwise obligated to
remedy under the provisions of this Lease. Tenant shall deliver all keys to the
Premises and the Building to Landlord. Upon Tenant's vacation of the Premises,
Tenant shall remove all portable furniture, trade fixtures, machinery,
equipment, signs and other items of personal property (unless prohibited from
doing the same under Section 20.2), and shall remove any Alterations (whether or
not made with Landlord's consent) that Landlord may require Tenant to remove.
Tenant shall repair all damage to the Premises caused by such removal and shall
restore the Premises to its prior condition, all at Tenant's expense. Such
repairs shall be performed in a manner satisfactory to Landlord and shall
include, but are not limited to, the following: capping all plumbing, capping
all electrical wiring, repairing all holes in walls, restoring damaged floor
and/or ceiling tiles, and thorough cleaning of the Premises. If Tenant fails to
remove any items that Tenant has an obligation to remove under this Section when
required by Landlord or otherwise, such items shall, at Landlord's option,
become the property of Landlord and Landlord shall have the right to remove and
retain or dispose of the same in any manner, without any obligation to account
to Tenant for the proceeds thereof. Tenant waives all claims against Landlord
for any damages to Tenant resulting from Landlord's retention or disposition of
such Alterations or personal property. Tenant shall be liable to Landlord for
Landlord's costs of removing, storing and disposing of such items.

     20.2 REMOVAL OF CERTAIN ALTERATIONS, FIXTURES AND EQUIPMENT PROHIBITED. All
Alterations, fixtures (whether or not trade fixtures), machinery, equipment,
signs and other items of personal property that Landlord has not required Tenant
to remove under Section 20.1 shall become Landlord's property and shall be
surrendered to Landlord with the Premises, regardless of who paid for the same.
In particular and without limiting the foregoing, Tenant shall not remove any of
the following materials or equipment without Landlord's prior written consent,
regardless of who paid for the same and regardless of whether the same are
permanently attached to the Premises: power wiring and power panels; piping for
industrial gasses or liquids; laboratory benches, sinks, cabinets and casework;
fume hoods or specialized air-handling and evacuation systems; drains or other
equipment for the handling of waste water or hazardous materials; computer,
telephone and telecommunications wiring, panels and equipment; lighting and
lighting fixtures; wall coverings; drapes, blinds and other window coverings;
carpets and other floor coverings; heaters, air

                                       21
<PAGE>   22

conditioners and other heating or air conditioning equipment; fencing; security
gates and systems; and other Building operating equipment and decorations.

     20.3 SURRENDER PLAN. At least sixty (60) days prior to the expiration of
the Term (or such earlier time that Tenant intends to remove any furnishings,
fixtures or equipment from the Premises), Tenant shall provide to Landlord a
detailed list and narrative description of its plan of surrender ("Surrender
Plan") that implements the terms of Sections 20.1 and 20.2, including a detailed
listing and description of the items in the Premises that Tenant intends to
remove. Landlord shall have the right to make reasonable objections to or
modifications of such Surrender Plan, and Tenant shall satisfy Landlord"s
objections at least thirty (30) days prior to the expiration of the Term (or any
earlier date that Tenant intends to begin removing items). Tenant"s surrender of
the Premises and removal and repair thereof shall follow in all respects the
Surrender Plan, as the same may have been modified to satisfy Landlord, and on
all of the other terms and conditions of this Lease. Landlord shall have the
right to have a representative observe all aspects of Tenant"s vacation of the
Premises to ensure compliance with this Lease and the Surrender Plan.

     20.4 HOLDING OVER. Tenant shall vacate the Premises upon the expiration or
earlier termination of this Lease, and Tenant shall indemnify Landlord against
all liabilities, damages and expenses incurred by Landlord as a result of any
delay by Tenant in vacating the Premises. If Tenant remains in possession of the
Premises or any part thereof after the expiration of the Lease Term with
Landlord's written permission, Tenant's occupancy shall be a tenancy from
month-to-month only, and not a renewal or extension hereof. All provisions of
this Lease (other than those relating to the term) shall apply to such
month-to-month tenancy, except that the Minimum Monthly Rent shall be increased
to 200% of the Minimum Monthly Rent in effect during the last month of the Lease
Term. No acceptance of rent, negotiation of rent checks or other act or omission
of Landlord or its agents shall extend the Expiration Date of this Lease other
than a writing executed by Landlord giving Tenant permission to remain in
occupancy beyond the Expiration Date under the terms of the immediately
preceding sentence.

21.  DEFAULT BY TENANT

     The occurrence of any of the following shall constitute an "Event of
Default" under this Lease by Tenant:

            (a) Failure to pay when due the rent or any other monetary sums
required hereunder, if such failure continues for five (5) days after written
notice by Landlord to Tenant. Landlord's notice described herein is intended to
satisfy, and is not in addition to, any and all legal notices required prior to
commencement of an unlawful detainer action, including without limitation the
notice requirements of California Code of Civil Procedure Sections 1161 et seq.

            (b) Failure to perform any other agreement or obligation of Tenant
hereunder, if such failure continues for thirty (30) days after written notice
by Landlord to Tenant, except as to those Events of Default that are noncurable,
in which case no such grace period shall apply. Landlord's notice described
herein is intended to satisfy, and is not in addition to, any and all legal
notices required prior to commencement of an unlawful detainer action, including
without limitation the notice requirements of California Code of Civil Procedure
Sections 1161 et seq.

            (c) Abandonment or vacation of the Premises by Tenant, or failure to
occupy the Premises for a period of ten (10) consecutive days.

            (d) If any of the following occurs: (i) a petition is filed for an
order of relief under the federal Bankruptcy Code or for an order or decree of
insolvency or reorganization or rearrangement under any state or federal law,
and such petition is not dismissed within thirty (30) days after the filing
thereof; (ii) Tenant makes a general assignment for the benefit of creditors;
(iii) a receiver or trustee is appointed to take possession of any substantial
part of Tenant's assets, unless such appointment is vacated within thirty (30)
days after the date thereof; (iv) Tenant consents to or suffers an attachment,
execution or other judicial seizure of any substantial part of its assets or its
interest under this Lease, unless such process is released or satisfied within
thirty (30) days after the occurrence thereof; or (v) Tenant's net worth,
determined in accordance with generally accepted accounting principles
consistently applied, decreases, at any time during the Lease Term, below Four
Million Dollars ($4,000,000) in shareholder's equity according to generally

                                       22
<PAGE>   23

accepted accounting principles. If a court of competent jurisdiction determines
that any of the foregoing events is not a default under this Lease, and a
trustee is appointed to take possession (or if Tenant remains a debtor in
possession), and such trustee or Tenant transfers Tenant's interest hereunder,
then Landlord shall receive, as Additional Rent, the difference between the rent
(or other consideration) paid in connection with such transfer and the rent
payable by Tenant hereunder. Any assignee pursuant to the provisions of any
bankruptcy law shall be deemed without further act to have assumed all of the
obligations of the Tenant hereunder arising on or after the date of such
assignment. Any such assignee shall, upon demand, execute and deliver to
Landlord an instrument confirming such assumption.

            (e) The occurrence of any other event that is deemed to be an Event
of Default under any other provision of this Lease.

22.  REMEDIES
     Upon the occurrence of any Event of Default by Tenant, Landlord shall have
the following remedies, each of which shall be cumulative and in addition to any
other remedies now or hereafter available at law or in equity:

     22.1 TERMINATION OF LEASE. Landlord can terminate this Lease and Tenant's
right to possession of the Premises by giving written notice of termination, and
then re-enter the Premises and take possession thereof. No act by Landlord other
than giving written notice to Tenant of such termination shall terminate this
Lease. Upon termination, Landlord has the right to recover all damages incurred
by Landlord as a result of Tenant's default, including:

            (a) The worth at the time of award of any unpaid rent that had been
earned at the time of such termination; plus

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

            (c) The worth at the time of award of the amount by which the unpaid
rent for the balance of the Lease Term after the time of award exceeds the
amount of such rental loss that Tenant proves could have been reasonably
avoided; plus

            (d) Any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's default, including, but not limited to
(i) expenses for cleaning, repairing or restoring the Premises, (ii) expenses
for altering, remodeling or otherwise improving the Premises for the purpose of
reletting, (iii) brokers' fees and commissions, advertising costs and other
expenses of reletting the Premises, (iv) costs of carrying the Premises, such as
taxes, insurance premiums, utilities and security precautions, (v) expenses in
retaking possession of the Premises, (vi) attorneys' fees and costs, (vii) any
unearned brokerage commissions paid in connection with this Lease, and (viii)
payment of any previously waived or abated Minimum Monthly Rent and/or
Additional Rent; plus

            (e) At Landlord's election, such other amounts in addition to or in
lieu of the foregoing as may be permitted from time to time under applicable
law. As used in paragraphs (a) and (b) above, the "worth at the time of award"
shall be computed by allowing interest at the maximum permissible legal rate. As
used in paragraph (c) above, the "worth at the time of award" shall be computed
by discounting such amount at the discount rate of the Federal Reserve Bank of
San Francisco at the time of award plus one percent (1%).

     22.2 CONTINUATION OF LEASE. Landlord has the remedy described in California
Civil Code Section 1951.4 (Landlord may continue the Lease in effect after
Tenant's breach and abandonment and recover rent as it becomes due, if Tenant
has the right to sublet or assign, subject only to reasonable limitations), as
follows:

            (a) Landlord can continue this Lease in full force and effect
without terminating Tenant's right of possession, and Landlord shall have the
right to collect rent and other monetary charges when due and to enforce all
other obligations of Tenant hereunder. Landlord shall have the right to enter
the Premises to do acts of maintenance and preservation of the Premises, to make
alterations and repairs in order to relet the Premises, and/or to undertake
other efforts to relet the Premises. Landlord may also remove personal property
from the Premises and store the same in a public warehouse at Tenant's expense
and risk. No act

                                       23
<PAGE>   24

by Landlord permitted under this paragraph shall terminate this Lease unless a
written notice of termination is given by Landlord to Tenant or unless the
termination is decreed by a court of competent jurisdiction.

            (b) In furtherance of the remedy set forth in this Section, Landlord
may relet the Premises or any part thereof for Tenant's account, for such term
(which may extend beyond the Lease Term), at such rent, and on such other terms
and conditions as Landlord may deem advisable in its sole discretion. Tenant
shall be liable immediately to Landlord for all costs Landlord incurs in
reletting the Premises. Any rents received by Landlord from such reletting shall
be applied to the payment of: (i) any indebtedness other than rent due hereunder
from Tenant to Landlord, (ii) the costs of such reletting, including brokerage
and attorneys' fees and costs, and the cost of any alterations and repairs to
the Premises, and (iii) the payment of rent due and unpaid hereunder, including
any previously waived or abated rent. Any remainder shall be held by Landlord
and applied in payment of future amounts as the same become due and payable
hereunder. In no event shall Tenant be entitled to any excess rent received by
Landlord after an Event of Default by Tenant and the exercise of Landlord's
remedies hereunder. If the rent from such reletting during any month is less
than the rent payable hereunder, Tenant shall pay such deficiency to Landlord
upon demand.

            (c) Landlord shall not, by any re-entry or other act, be deemed to
have accepted any surrender by Tenant of the Premises or Tenant's interest
therein, or be deemed to have terminated this Lease or Tenant's right to
possession of the Premises or the liability of Tenant to pay rent accruing
thereafter or Tenant's liability for damages under any of the provisions hereof,
unless Landlord shall have given Tenant notice in writing that it has so elected
to terminate this Lease.

            (d) Tenant acknowledges and agrees that the restrictions on the
Transfer of the Lease set forth in Article 18 of this Lease constitute
reasonable restrictions on such transfer for purposes of this Section and
California Civil Code Section 1951.4.

     22.3 PERFORMANCE BY LANDLORD. If Tenant fails to pay any sum of money or
perform any other act to be performed by Tenant hereunder, and such failure
continues for fifteen (15) days after notice by Landlord, Landlord shall have
the right (but not the obligation) to make such payment or perform such other
act without waiving or releasing Tenant from its obligations. All sums so paid
by Landlord and all necessary incidental costs, together with interest thereon
at the rate specified in Section 22.4, shall be payable to Landlord on demand.
Landlord shall have the same rights and remedies in the event of nonpayment by
Tenant as in the case of default by Tenant in the payment of the rent.

     22.4 LATE CHARGE; INTEREST ON OVERDUE PAYMENTS. The parties acknowledge
that late payment by Tenant of Minimum Monthly Rent or any Additional Rent will
cause Landlord to incur costs not contemplated by this Lease, the exact amount
of which will be extremely difficult and impractical to determine, including,
but not limited to, processing and accounting charges, administrative expenses,
and additional interest expenses or late charges that Landlord may be required
to pay as a result of late payment on Landlord's obligations. Therefore, if any
installment of Minimum Monthly Rent or Additional Rent is not received by
Landlord on the due date, and without regard to whether Landlord gives Tenant
notice of such failure or exercises any of its remedies upon an Event of
Default, Tenant shall pay a late charge equal to five percent (5%) of the
overdue amount, as Additional Rent hereunder. The parties hereby agree that such
late charge represents a fair and reasonable estimate of the damages Landlord
will incur by reason of late payment by Tenant. In addition, any amount due from
Tenant that is not paid when due shall bear interest at a rate equal to two
percent (2%) over the then current Bank of America prime or reference rate or
ten percent (10%) per annum, whichever is greater, but not in excess of the
maximum permissible legal rate, from the date such payment is due until the date
paid by Tenant. Landlord's acceptance of any interest or late charge shall not
constitute a waiver of Tenant's default or prevent Landlord from exercising any
other rights or remedies available to Landlord.

     22.5 LANDLORD'S RIGHT TO REQUIRE ADVANCE PAYMENT OF RENT; CASHIER'S CHECKS.
If Tenant is late in paying any component of rent more than three (3) times
during the Lease Term, Landlord shall have the right, upon notice to Tenant, to
require that all rent be paid three (3) months in advance. Additionally, if any
of Tenant's checks are returned for nonsufficient funds, or if Landlord at any
time serves upon Tenant a Three Day Notice to Pay Rent or Quit (pursuant to
California Civil Code Sections 1161 et seq. or any

                                       24
<PAGE>   25

successor or similar unlawful detainer statutes), Landlord may, at its option,
require that all future rent (including any sums demanded in any subsequent
three (3) day notice) be paid exclusively by money order or cashier's check.

23.  DEFAULT BY LANDLORD

     23.1 NOTICE TO LANDLORD. Landlord shall not be in default under this Lease
unless Landlord fails to perform an obligation required of Landlord within a
reasonable time, but in no event later than thirty (30) days after written
notice by Tenant to Landlord and to each Mortgagee as provided in Section 23.2,
specifying the nature of the alleged default; provided, however, that if the
nature of the obligation is such that more than thirty (30) business days are
required for performance, then Landlord shall not be in default if Landlord
commences performance within such 30-day period and thereafter diligently
prosecutes the same to completion.

     23.2 NOTICE TO MORTGAGEES. Tenant agrees to give each mortgagee or trust
deed holder on the Premises or the Building ("Mortgagee"), by registered mail, a
copy of any notice of default served upon Landlord, provided that Tenant has
been previously notified in writing of the address of such Mortgagee. Tenant
further agrees that if Landlord fails to cure such default within the time
provided for in this Lease, then the Mortgagees shall have an additional thirty
(30) days within which to cure such default, or if such default cannot
reasonably be cured within that time, then such additional time as may be
necessary if, within said 30-day period, any Mortgagee has commenced and is
diligently pursuing the remedies necessary to cure the default (including but
not limited to commencement of foreclosure proceedings if necessary to affect
such cure), in which event this Lease shall not be terminated while such
remedies are being so diligently pursued.

     23.3 LIMITATIONS ON REMEDIES AGAINST LANDLORD. In the event Tenant has any
claim or cause of action against Landlord: (a) Tenant's sole and exclusive
remedy shall be against Landlord's interest in the Building, and neither
Landlord nor any partner of Landlord nor any other property of Landlord shall be
liable for any deficiency, (b) no partner of Landlord shall be sued or named as
a party in any suit or action (except as may be necessary to secure jurisdiction
over Landlord), (c) no service of process shall be made against any partner of
Landlord (except as may be necessary to secure jurisdiction over the
partnership), and no such partner shall be required to answer or otherwise plead
to any service of process, (d) no judgment shall be taken against any partner of
Landlord and any judgment taken against any partner of Landlord may be vacated
and set aside at any time, and (e) no writ of execution will ever be levied
against the assets of any partner of Landlord. The covenants and agreements set
forth in this Section shall be enforceable by Landlord and/or by any partner of
Landlord. If Landlord fails to give any consent that a court later holds
Landlord was required to give under the terms of this Lease, Tenant shall be
entitled solely to specific performance and such other remedies as may be
specifically reserved to Tenant under this Lease, but in no event shall Landlord
be responsible for monetary damages (including incidental and consequential
damages) for such failure to give consent.

24.  GENERAL PROVISIONS

     24.1 ACTION OR DEFENSE BY TENANT. Any claim, demand, right or defense of
any kind by Tenant that is based upon or arises in any connection with the Lease
or negotiations prior to its execution shall be barred unless Tenant commences
an action thereon or initiates a legal proceeding or defense by reason thereof
within six (6) months after the date of the occurrence of the event, act or
omission to which the claim, demand, right or defense relates. Tenant
acknowledges and understands that, after having had an opportunity to consult
with legal counsel, the purpose of this paragraph is to shorten the time period
within which Tenant would otherwise have to raise such claims, demands or rights
of defense.

     24.2 ARBITRATION AND MEDIATION; WAIVER OF JURY TRIAL. Except as provided in
this Section, if any dispute ensues between Landlord and Tenant arising out of
or concerning this Lease, and if said dispute cannot be settled through direct
discussions between the parties, the parties shall first to attempt to settle
the dispute through mediation before a mutually acceptable mediator. The cost of
mediation shall be divided equally between the parties. Thereafter, any
remaining, unresolved disputes or claims shall be resolved by binding
arbitration in accordance with the rules of the American Arbitration
Association, and judgment upon

                                       25
<PAGE>   26

the award rendered by the arbitrator may be entered in any court of competent
jurisdiction. The prevailing party in any such arbitration shall be entitled to
recover reasonable costs and attorneys' fees and costs as determined by the
arbitrator; provided, however, that the foregoing provisions regarding mediation
and arbitration shall not apply to (a) any issue or claim that might properly be
adjudicated in an unlawful detainer proceeding, or (b) to any issue or claim
that Landlord elects not to have resolved through arbitration and with respect
to which Landlord commences an action in law or equity to determine the same.
Without limiting the foregoing, Landlord and Tenant hereby waive trial by jury
in any action, proceeding or counterclaim (including any claim of injury or
damage and any emergency and other statutory remedy in respect thereof) brought
by either against the other on any matter arising out of or in any way connected
with this Lease, the relationship of Landlord and Tenant, or Tenant's use or
occupancy of the Premises.

     24.3 ATTORNEYS' FEES. If either party brings any legal action or
proceeding, declaratory or otherwise, arising out of this Lease, including any
suit by Landlord to recover rent or possession of the Premises or to otherwise
enforce this Lease, the losing party shall pay the prevailing party's costs and
attorneys' fees and costs incurred in such proceeding. If Landlord issues
notice(s) to pay rent, notice(s) to perform covenant, notice(s) of abandonment,
or comparable documents as a result of Tenant's default under this Lease, and if
Tenant cures such default, Tenant shall pay to Landlord the reasonable costs
incurred by Landlord, including Landlord's attorneys' fees and costs, of
preparation and delivery of same.

     24.4 AUTHORITY OF TENANT. Tenant represents and warrants that it has full
power and authority to execute and fully perform its obligations under this
Lease pursuant to its governing instruments, without the need for any further
action, and that the person(s) executing this Agreement on behalf of Tenant are
the duly designated agents of Tenant and are authorized to do so. Prior to
execution of this Lease, Tenant shall supply Landlord with such evidence as
Landlord may request regarding the authority of Tenant to enter into this Lease.
Any actual or constructive taking of possession of the Premises by Tenant shall
constitute a ratification of this Lease by Tenant.

     24.5 BINDING EFFECT. Subject to the provisions of Article 18 restricting
transfers by Tenant and subject to Section 24.27 regarding transfer of
Landlord's interest, all of the provisions of this Lease shall bind and inure to
the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns.

     24.6 BROKERS. Tenant warrants that it has had no dealings with any real
estate broker or agent in connection with the negotiation of this transaction
other than the broker(s) described in the Basic Lease Provisions (if any), and
it knows of no other real estate broker or agent who are entitled to a
commission in connection with this transaction. Tenant agrees to indemnify,
defend and hold Landlord harmless from and against any obligation or liability
to pay any commission or compensation to any other party arising from the act or
agreement of Tenant.

     24.7 CONSTRUCTION. The headings and captions used in this Lease are for
convenience only and are not a part of the terms and provisions of this Lease.
In any provision relating to the conduct, acts or omissions of Tenant, the term
"Tenant" shall include Tenant, its subtenants and assigns and their respective
agents, employees, contractors, and invitees, and any others using the Premises
with Tenant's express or implied permission. Any use in this Lease, or in any
addendum, amendment or other document related hereto, of the terms "lessor" or
"lessee" to refer to a party to this Lease shall be deemed to be references to
Landlord and Tenant, respectively.

     24.8 COUNTERPARTS. This Lease may be executed in multiple copies, each of
which shall be deemed an original, but all of which shall constitute one Lease
binding on all parties after all parties have signed such a counterpart.

     24.9 COVENANTS AND CONDITIONS. Each provision to be performed by Tenant
shall be deemed to be both a covenant and a condition.

     24.10 ENTIRE AGREEMENT. This Lease, together with all exhibits and addenda,
if any, attached hereto, constitutes the entire agreement between the parties
with respect to the subject matter hereof. There are no oral or written
agreements or representations between the parties hereto affecting this Lease,
and this Lease supersedes, cancels, and merges any and all previous verbal or
written negotiations, arrangements,

                                       26
<PAGE>   27

representations, brochures, displays, models, photographs, renderings, floor
plans, elevations, projections, estimates, agreements and understandings if any,
made by or between Landlord and Tenant and their agents, with respect to the
subject matter, and none thereof shall be used to interpret, construe,
supplement or contradict this Lease. This Lease, and all amendments thereto, is
and shall be considered to be the only agreement between the parties hereto and
their representatives and agents. There are no other representations or
warranties between the parties, and all reliance with respect to representations
is solely based upon the representations and agreements contained in this Lease.

     24.11 EXHIBITS. All exhibits, addenda and riders attached or referred to
herein are hereby incorporated herein by reference.

     24.12 FINANCIAL STATEMENTS. Within ten (10) days after written request from
Landlord, Tenant shall deliver to Landlord such financial statements as are
reasonably requested by Landlord to verify the net worth of Tenant, or any
assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall deliver
to any proposed or actual lender or purchaser of the Premises designated by
Landlord any financial statements required by such party to facilitate the sale,
financing or refinancing of the Premises, including the past three (3) years'
financial statements. Tenant represents and warrants to Landlord that each such
financial statement is a true and accurate statement as of the date of such
statement. Landlord shall take reasonable precautions to protect the
confidentiality of such financial statements. Tenant hereby irrevocably
authorizes Landlord to conduct credit checks and other investigations into
Tenant's financial affairs.

     24.13 FORCE MAJEURE. If Landlord is delayed in performing any of its
obligations hereunder due to strikes; labor problems; inability to procure
utilities; materials; equipment or transportation; governmental regulations;
weather conditions; riots, insurrection, or war; or other events beyond
Landlord's control; then the time for performance of such obligation shall be
extended to the extent reasonably necessary as a result of such event.

     24.14 GOVERNING LAW. This Lease shall be governed, construed and enforced
in accordance with the laws of the State of California.

     24.15 JOINT AND SEVERAL LIABILITY. If more than one person or entity
executes this Lease as Tenant, each of them is jointly and severally liable for
all of the obligations of Tenant hereunder.

     24.16 MODIFICATION. The provisions of this Lease may not be modified or
amended, except by a written instrument signed by all parties.

     24.17 MODIFICATION FOR LENDER. If, in connection with obtaining financing
or refinancing for the Premises or the Building, Landlord's lender requests
reasonable modifications to this Lease, Tenant will not unreasonably withhold or
delay its consent thereto, provided that such modifications do not increase the
obligations of Tenant hereunder or materially and adversely affect Tenant's
rights hereunder.

     24.18 NONDISCRIMINATION. Tenant for itself and its officers, directors,
shareholders, partners, members, principals, employees, agents, representatives,
and other related entities and individuals, agrees to comply fully with any and
all laws and other requirements prohibiting discrimination against any person or
group of persons on account of race, color, religion, creed, sex, marital
status, sexual orientation, national origin, ancestry, age, physical handicap or
medical condition, in the use occupancy or patronage of the Premises and/or of
Tenant's business. Tenant shall indemnify, defend and hold Landlord and
Landlord's officers, directors, shareholders, partners, members, principals,
employees and agents, and their respective successors and assigns, harmless from
and against all damage and liability incurred by Landlord in the event of any
violation of the foregoing covenant or because of any event of or practice of
discrimination against any such persons or group of persons by Tenant or its
officers, directors, shareholders, partners, members, principals, employees,
agents, representatives, and other related entities and individuals in
accordance with the indemnification provisions of Article 13.

     24.19 NOTICE. Any and all notices to either party shall be personally
delivered or sent by regular mail, postage prepaid, addressed to the party to be
notified at the address specified in Section 1.1, or at such other address as
such party may from time to time designate in writing. Notice shall be deemed
delivered on the date of personal delivery or three (3) business days after
deposit in the U.S. Mail, certified, return receipt requested.

                                       27
<PAGE>   28

     24.20 PARTIAL INVALIDITY. If any provision of this Lease is determined by a
court of competent jurisdiction to be invalid or unenforceable, the remainder of
this Lease shall not be affected thereby. Each provision shall be valid and
enforceable to the fullest extent permitted by law.

     24.21 QUIET ENJOYMENT. Landlord agrees that Tenant, upon paying the rent
and performing the terms, covenants and conditions of this Lease, may quietly
have, hold and enjoy the Premises from and after Landlord's delivery of the
Premises to Tenant and until the end of the Lease Term; subject, however, to the
lien and provisions of any mortgage or deed of trust to which this Lease is or
becomes subordinate.

     24.22 RECORDING. Tenant shall not record this Lease or any memorandum
hereof without Landlord's prior written consent.

     24.23 RELATIONSHIP OF THE PARTIES. Nothing contained in this Lease shall be
deemed or construed as creating a partnership, joint venture, principal-agent,
or employer-employee relationship between Landlord and any other person or
entity (including, without limitation, Tenant) or as causing Landlord to be
responsible in any way for the debts or obligations of such other person or
entity.

     24.24 RELOCATION OF TENANT. In the event Landlord requires the Premises, or
a portion thereof, for use in conjunction with other premises or for other
reasons related to the planning program for the Building, Landlord, upon
delivering written notice to Tenant (the "Relocation Notice"), shall have the
right to relocate all or a portion of Tenant's occupancy to other space in the
Building, at Landlord's sole cost and expense, and the terms and conditions of
the original Lease shall remain in full force and effect, except that the
Premises will be in a new location. However, if the new space does not meet with
Tenant's reasonable approval, Tenant shall have the right to terminate this
Lease upon delivering notice to Landlord within fifteen (15) days after Tenant's
receipt of the Relocation Notice. If Tenant elects to terminate the Lease
pursuant to this Section, the termination shall be effective on the effective
date of the proposed relocation of Tenant as indicated in the Relocation Notice.

     24.25 RIGHTS OF REDEMPTION WAIVED. Tenant hereby expressly waives any and
all rights of redemption under any present or future laws in the event Tenant is
evicted or dispossessed for any cause, or in the event Landlord obtains
possession of the Premises by reason of Tenant's violation of any of the
covenants and conditions of this Lease or otherwise.

     24.26 TIME OF ESSENCE. Time is of the essence of each and every provision
of this Lease.

     24.27 TRANSFER OF LANDLORD'S INTEREST. In the event of a sale, assignment,
exchange or other disposition of Landlord's interest in the Premises, other than
a transfer for security purposes only, Landlord shall be relieved of all
obligations and liabilities accruing hereunder after the effective date of said
sale, assignment, exchange or other disposition, provided that any Security
Deposit or other funds then held by Landlord in which Tenant has an interest are
delivered to Landlord's successor. The obligations to be performed by Landlord
hereunder shall be binding on Landlord's successors and assigns only during
their respective periods of ownership.

     24.28 WAIVER. No provision of this Lease or the breach thereof shall be
deemed waived, except by written consent of the party against whom the waiver is
claimed. A waiver of any such breach shall not be deemed a waiver of any
preceding or succeeding breach of the same or any other provision. No delay or
omission by Landlord in exercising any of its remedies shall impair or be
construed as a waiver thereof, unless such waiver is expressly set forth in a
written instrument signed by Landlord. The subsequent acceptance of rent
hereunder by Landlord shall not be deemed to be a waiver of any preceding breach
by Tenant, other than the failure of Tenant to pay the particular rental so
accepted, regardless of Landlord's knowledge of such preceding breach at the
time of acceptance of such rent.

                                       28
<PAGE>   29

                THE SUBMISSION OF THIS LEASE FOR EXAMINATION AND/OR SIGNATURE BY
                TENANT IS NOT A COMMITMENT BY LANDLORD OR ITS AGENTS TO RESERVE
                THE PREMISES OR TO LEASE THE PREMISES TO TENANT. THIS LEASE
                SHALL BECOME EFFECTIVE AND LEGALLY BINDING ONLY UPON FULL
                EXECUTION AND DELIVERY BY BOTH LANDLORD AND TENANT. UNTIL
                LANDLORD DELIVERS A FULLY EXECUTED COUNTERPART HEREOF TO TENANT,
                LANDLORD HAS THE RIGHT TO OFFER AND TO LEASE THE PREMISES TO ANY
                OTHER PERSON TO THE EXCLUSION OF TENANT.

EXECUTED, by Landlord and Tenant as of the date first written above.

TENANT:                                     LANDLORD:

AVANIR PHARMACEUTICALS, INC.,               BC SORRENTO LLC,
a Delaware corporation                      California limited liability company

By:    /s/   GREGORY P. HANSON                     By:   /s/  WILLIAM A. BECKMAN
   ------------------------------                     --------------------------
             Gregory P. Hanson                     William A. Beckman

Title:   Chief Financial Officer       .    Title:  Managing Director     .
      ----------------------------------          -------------------------

                                       29
<PAGE>   30

                                   EXHIBIT "A"
                           SITE/FLOOR PLAN OF PREMISES

<PAGE>   31

                                   EXHIBIT "B"
                              RULES AND REGULATIONS

The following Rules and Regulations shall apply to the Building. Tenant agrees
to comply with the same and to require its agents, employees, contractors,
customers and invitees to comply with the same. Landlord shall have the right
from time to time to amend or supplement these Rules and Regulations, and Tenant
agrees to comply, and to require its agents, employees, contractors, customers
and invitees to comply, with such amended or supplemented Rules and Regulations,
provided that (a) notice of such amended or supplemental Rules and Regulations
is given to Tenant, and (b) such amended or supplemental Rules and Regulations
apply uniformly to all tenants of the Building. If Tenant or its subtenants,
employees, agents, or invitees violate any of these Rules and Regulations,
resulting in any damage to the Building or increased costs of maintenance of the
Building, or causing Landlord to incur expenses to enforce the Rules and
Regulations, Tenant shall pay all such costs to Landlord as Additional Rent. In
the event of any conflict between the Lease and these or any amended or
supplemental Rules and Regulations, the provisions of the Lease shall control.

1.   Tenant shall be responsible at its sole cost for the removal of all of
     Tenant's refuse or rubbish. All garbage and refuse shall be disposed
     outside of the Premises, shall be placed in the kind of container specified
     by Landlord, and shall be prepared for collection in the manner and at the
     times and places specified by Landlord. If Landlord provides or designates
     a service for picking up refuse and garbage, Tenant shall use the same at
     Tenant's sole cost. Tenant shall not burn any trash or garbage of any kind
     in or about the Premises. If Landlord supplies janitorial services to the
     Premises, Tenant shall not, without Landlord's prior written consent,
     employ any person or persons other than Landlord's janitorial service to
     clean the Premises.

2.   No aerial, satellite dish, transceiver, or other electronic communication
     equipment shall be erected on the roof or exterior walls of the Premises,
     or in any other part of the Building, without Landlord's prior written
     consent. Any aerial, satellite dish, transceiver, or other electronic
     communication equipment so installed without Landlord's prior written
     consent shall be subject to removal by Landlord without notice at any time
     and without liability to Landlord.

3.   No loudspeakers, televisions, phonographs, radios, or other devices shall
     be used in a manner so as to be heard or seen outside of the Premises
     without Landlord's prior written consent. Tenant shall conduct its business
     in a quiet and orderly manner so as not to create unnecessary or
     unreasonable noise. Tenant shall not cause or permit any obnoxious or foul
     odors that disturb the public or other occupants of the Building. If Tenant
     operates any machinery or mechanical equipment that causes noise or
     vibration that is transmitted to the structure of the Building, or to other
     parts of the Building, to such a degree as to be objectionable to Landlord
     or to any other occupant of the Building, Tenant shall install and
     maintain, at Tenant's expense, such vibration eliminators or other devices
     sufficient to eliminate the objectionable noise or vibration.

4.   Tenant shall keep the outside areas immediately adjoining the Premises
     clean and free from dirt, rubbish, pallets and other debris to the
     satisfaction of Landlord. If Tenant fails to cause such outside areas to be
     maintained as required within twelve (12) hours after verbal notice that
     the same do not so comply, Tenant shall pay a fee equal to the greater of
     Fifty Dollars ($50.00) or the costs incurred by Landlord to clean up such
     outside areas.

5.   Tenant shall not store any merchandise, inventory, equipment, supplies,
     finished or semi-finished products, raw materials, or other articles of any
     nature outside the Premises or the Building without Landlord's prior
     written consent.

                                       B-1
<PAGE>   32

6.   Tenant and Tenant's subtenants, employees, agents, or invitees shall park
     only the number of cars allowed under the Lease and only in those portions
     of the parking area designated for that purpose by Landlord. Upon request
     by Landlord, Tenant shall provide the license plate numbers of the cars of
     Tenant and Tenant's employees in order to facilitate enforcement of this
     regulation. Tenant and Tenant's employees shall not store vehicles or
     equipment in the parking areas, or park in such a manner as to block any of
     the accessways serving the Building and its occupants.

7.   The Premises shall not be used for lodging, sleeping, cooking (other than
     microwave or toaster oven), or for any immoral or illegal purposes, or for
     any purpose that will damage the Premises or the reputation thereof.
     Landlord reserves the right to expel from the Building any person who is
     intoxicated or under the influence of liquor or drugs or who shall act in
     violation of any of these Rules and Regulations. Tenant shall not conduct
     or permit any sale by auction on the Premises without the prior written
     consent of the Landlord. No video, pinball, or similar electronic game
     machines of any description shall be installed, maintained or operated upon
     the Premises without the prior written consent of Landlord.

8.   Neither Tenant nor Tenant's employees or agents shall disturb, solicit, or
     canvas any occupant of the Building, and Tenant shall take reasonable steps
     to discourage others from doing the same.

9.   Except as otherwise permitted in the Lease, Tenant shall not keep in, or
     allow to be brought into, the Premises or Building any pet, bird or other
     animal, other than (i) "seeing-eye" dogs or other animals under the control
     of and specifically assisting any disabled person, or (ii) animals used in
     the life science research activities of Tenant, but only to the extent
     necessary for such activities.

10.  The plumbing facilities shall not be used for any other purpose than that
     for which they are constructed, and no foreign substance of any kind shall
     be disposed of therein. The expense of any breakage, stoppage, or damage
     resulting from a violation of this provision shall be borne by Tenant.
     Tenant shall not waste or use any excessive or unusual amount of water.

11.  Tenant shall use, at Tenant's cost, such pest extermination contractor as
     Landlord may direct and at such intervals as Landlord may require.

12.  Tenant will protect the carpeting from undue wear by providing carpet
     protectors under chairs with casters at desks, and by providing protective
     covering in carpeted areas where spillage or excessive wear may occur.

13.  Tenant shall be responsible for repair of any damage caused by the moving
     of freight, furniture or other objects into, within, or out of the Premises
     or the Building. No heavy objects (such as safes, furniture, equipment,
     freight, etc.) shall be placed upon any floor without Landlord's prior
     written approval as to the adequacy of the allowable floor loading at the
     point where the objects are intended to be moved or stored. Landlord may
     specify the time of moving to minimize any inconvenience to other occupants
     of the Building. All deliveries to and from the second floor area of the
     Premises shall be made using the freight elevator during the time periods
     specified by Landlord, subject to such reasonable scheduling as Landlord in
     its discretion shall deem appropriate.

14.  Without Landlord's prior written consent, no drapes or sunscreens of any
     nature shall be installed in the Premises and the sash doors, sashes,
     windows, glass doors, lights and skylights that reflect or admit light into
     the Building shall not be covered or obstructed. Landlord shall have the
     right to specify the type of window coverings that may be installed, at
     Tenant's expense. Tenant shall not mark, drive nails, screw or drill into,
     paint, or in any way deface any surface or part of the Building.

                                      B-2
<PAGE>   33

     Notwithstanding the foregoing, Tenant may hang pictures, blackboards, or
     similar objects, provided Tenant repairs and repaints any nail or screw
     holes, and otherwise returns the premises to the condition required under
     the Lease and the expiration or earlier termination of the Lease Term. The
     expense of repairing any breakage, stoppage, or damage resulting from a
     violation of this rule shall be borne by Tenant.

15.  No electrical wiring, electrical apparatus, or additional electrical
     outlets shall be installed in the Premises without Landlord's prior written
     approval. Any such installation not so approved by Landlord may be removed
     by Landlord at Tenant's expense. Tenant may not alter any existing
     electrical outlets or overburden them beyond their designed capacity.
     Landlord reserves the right to enter the Premises, with reasonable notice
     to Tenant, for the purpose of installing additional electrical wiring and
     other utilities for the benefit of Tenant or adjoining tenants. Landlord
     will direct electricians as to where and how telephone and affixed wires
     are to be installed in the Premises. The location of telephones, call
     boxes, and other equipment affixed to the Premises shall be subject to the
     prior written approval of Landlord.

16.  If Tenant's use of the Premises involves the sale and/or preparation of
     food, Tenant shall at all times maintain a health department rating of "A"
     (or such other highest health department or similar rating as is
     available). Any failure by Tenant to maintain such "A" rating twice in any
     twelve (12) month period shall, at the election of Landlord, constitute a
     noncurable Event of Default under the Lease.

17.  Tenant shall comply with all safety, fire protection and evacuation
     procedures and regulations established by Landlord or any governmental
     agency.

18.  Tenant assumes any and all responsibility for protecting its Premises from
     theft, robbery and pilferage, which includes keeping doors locked and other
     means of entry to the Premises closed.

19.  If Tenant occupies any air-conditioned space, Tenant shall keep entry doors
     opening onto corridors, lobby or courtyard closed at all times. All truck
     and loading doors shall be closed at all times when not in use.

20.  Tenant shall not paint any floor of the Premises without Landlord's prior
     written consent. Prior to surrendering the Premises upon expiration or
     termination of the Lease, Tenant shall remove any paint or sealer therefrom
     (whether or not previously permitted by Landlord) and restore the floor to
     its original condition as of the Commencement Date, reasonable wear and
     tear excepted. Tenant shall not affix any floor covering to the floor of
     the Premises in any manner except as approved by Landlord.

                      .             /s/  GPH             .
                      -----------------------------------
                                Tenant's Initials

                                      B-3
<PAGE>   34

                                   EXHIBIT "C"

                                      TENANT IMPROVEMENTS

            This Exhibit sets forth terms and provisions related to the
construction of the initial Tenant Improvements in the Premises. In general,
Landlord shall be responsible for constructing such Tenant Improvements, and
paying for the same up to the amount of the Tenant Improvement Allowance. Tenant
is to be responsible for the cost of the Tenant Improvements that exceed the
Tenant Improvement Allowance.

            1. DEFINITIONS. The following terms shall have the following
meanings in this Exhibit. Unless otherwise defined herein, capitalized terms
used in this Exhibit shall have the same meanings ascribed to them in the Lease.

                (1) "Tenant Improvement Allowance" is the amount that Landlord
will pay for the construction of the Tenant Improvements and for related design,
permitting, supervision and other "soft" costs. The amount of the Tenant
Improvements is Seventy-five Dollars ($75) per square foot of Usable Area of the
Premises. Tenant acknowledges and agrees that a freight elevator that is to be
covered by the Tenant Improvement Allowance has already been constructed and
installed in the Premises and the Building, and the cost thereof shall be
deducted from the Tenant Improvement Allowance. If any such cost previously
incurred benefits portions of the Building other than the Premises (for example,
design or permitting costs), only an equitable amount thereof shall be deducted
from the Tenant Improvement Allowance.

                (2) "Usable Area" shall be as defined in Exhibit "D" to this
Lease.

                (3) "Budget" shall mean the budget of construction, design,
approval and related costs for the construction of the Tenant Improvements.

                (4) "Construction Documents" are the plans, specifications,
agreements, construction schedule and other descriptions of the Tenant
Improvements, as approved pursuant to Section 2 below. The Construction
Documents shall provide for corridors, lobbies, bathrooms, mechanical and
electrical systems, and fire exits which are designed for Tenant"s use during
the Term of this Lease, but that are also designed to accommodate multi-tenant
configurations in the Building (including, without limitation separate metering
for utilities), elevators, and mechanical, plumbing and electrical equipment.

                (5) "Tenant Deposit" is the amount by which the estimated cost
to complete the Tenant Improvements exceeds the Tenant Improvement Allowance.
Tenant shall deposit the Tenant Deposit with Landlord in cash prior to the
commencement of construction. If and to the extent that the estimated cost to
complete the Tenant Improvements changes, or if the Tenant Improvement Allowance
is adjusted for changes in Usable Area, the amount of the Tenant Deposit shall
be appropriately adjusted.

                (6) "Tenant Delay" shall include any delay in the Substantial
Completion of the Tenant Improvements attributable to, without limitation, any
of the following: (i) the wrongful or negligent acts or failures to act, of
Tenant or its agents or employees; (ii) any Change Order; (iii) Tenant's failure
to timely submit any items required hereunder or any mutually-agreed schedule,
including, without limitation, information, authorizations or approvals, or
deposit of additional Tenant Deposit moneys; (iv) the time needed by Landlord to
review, approve and construct Change Orders; and (v) Tenant's failure to comply
with any other provision of this Lease.

                (7) "Substantial Completion" of the Tenant Improvements means
the completion of the improvements suitable for Tenant"s use thereof and
issuance by the City of San Diego of a certificate of

                            Exhibit "C" - Page 1 of 3
<PAGE>   35

occupancy, final building inspection report or similar approval, subject only to
minor clean-up or punch list items. The punch list items shall be completed
within 30 days after the substantial completion of the improvements.

            2. PRODUCTION AND APPROVAL OF CONSTRUCTION DOCUMENTS, BUDGET AND
OTHER ITEMS. Promptly after the full execution and delivery of this Lease,
Landlord shall prepare and provide to Tenant for Tenant"s reasonable approval
the Construction Documents, the Budget, the approximate Usable Area of the
Premises and the consequent exact amount of the Tenant Improvement Allowance and
Tenant's Deposit. Upon approval of the such items, Landlord and Tenant shall
execute a letter or other memorandum of such approval.

            3. USABLE AREA. Promptly following the date Tenant approves the
Construction Documents, Landlord's architect shall calculate the Usable Area of
the Premises for purposes of establishing the amount of the Tenant Improvement
Allowance.

            4. CONSTRUCTION. Upon approval of the Construction Documents,
Landlord shall diligently pursue the completion of the Tenant Improvements.
Landlord shall, from time to time, make progress payments to the contractors and
subcontractors with respect to the Tenant Improvements utilizing both the Tenant
Improvement Allowance and the Tenant Deposit. Landlord shall disburse the Tenant
Improvement Allowance and the Tenant Deposit in proportion to the respective
amounts thereof then remaining to be disbursed. Such progress payments shall be
made only after satisfaction of the following:

                (1) Each progress payment shall be in accordance with the
Construction Documents and within the Budget;

                (2) Each progress payment shall be subject to a ten percent
(10%) holdback;

                (3) Landlord or Landlord's architect or agent shall have
confirmed that the construction for which the progress payment is requested has
been fully completed; and

                (4) Landlord shall have received such proper lien releases,
building permits, approvals, documentation and other matters reasonably required
by Landlord for such progress payment.

Landlord shall also withhold the last ten percent (10%) of the Tenant
Improvement Allowance and the Tenant Deposit until the lien-free expiration of
the time for the filing of any mechanics' liens claimed or which might be filed
on account of any work ordered by Tenant as relates to the completion of the
Tenant Improvements. In the event the cost of construction of the Tenant
Improvements exceeds the available amount of the Tenant Improvement Allowance,
Tenant shall be obligated to pay such excess cost.

            5. CHANGE ORDERS. If Tenant requests or approves in writing any
changes to the Construction Documents (each, a "Change Order"), Tenant shall
simultaneously submit to Landlord a sufficiently detailed description of the
requested changes or additions, and, if reasonably requested by Landlord, a set
of working drawings for such requested changes or additions. Landlord shall not
unreasonably withhold its consent to any such Change Order, provided that (i)
such Change Order meets Landlord"s original criteria for approving the work
originally set forth in the Construction Documents, (ii) in the Landlord"s good
faith judgment, the requested changes or additions will not have an adverse
effect on the value of the Premises for re-letting, and (iii) the Change Order
does not materially affect the Building's structure or exterior appearance and
does not result in the use of materials in the construction of the Tenant
Improvements of a materially lesser quality than the materials approved by
Landlord in connection with the Construction Documents. Landlord shall respond
to any request for approval of any Change Order within three (3)

                            Exhibit "C" - Page 2 of 3
<PAGE>   36

business days, with the failure to respond to be deemed disapproval of such
Change Order. If such Change Orders, as approved by Landlord, increase the cost
of completing the Tenant Improvements, Tenant shall pay all such increased costs
as part of its responsibility to pay for all costs of the Tenant Improvements
that exceed the amount of the Tenant Improvement Allowance. Tenant shall be
given credit for any change orders which, on a net basis, reduce the cost of
completing the Tenant Improvements.

            6. RETURN OF TENANT DEPOSIT. Upon completion of the Tenant
Improvements and acceptance of the same by Tenant, and upon the receipt by
Landlord of final unconditional lien releases from all contractors,
subcontractors and materialmen, any amounts remaining of the Tenant Deposit
shall be returned to Tenant by Landlord. The Tenant Deposit shall not earn
interest during the time it is on deposit with Landlord. If there is any
shortfall in the amount Tenant owes with respect to the Tenant Improvements,
after taking into account any remaining balance of Tenant Deposit, the final
cost of the Tenant Improvements, then Tenant shall pay the full amount of such
shortfall to Landlord upon demand.

                            Exhibit "C" - Page 3 of 3
<PAGE>   37

                                   EXHIBIT "D"

             METHOD OF CALCULATION OF RENTABLE AREA AND USABLE AREA

<PAGE>   38

                                   EXHIBIT "E"

                        APPROVED FORM OF LETTER OF CREDIT

We hereby establish in your favor our irrevocable standby letter of credit
number _________-which is available with [Approved Bank] by payment against
presentation of the original of this letter of credit and your drafts at sight
drawn on [Approved Bank], accompanied by the documents detailed below:

A letter signed by a purported authorized representative of the Beneficiary
certifying that Beneficiary is entitled to draw on this Letter of Credit
pursuant to that Standard Industrial Net Lease between BC Sorrento LLC, a
California limited liability company ("Beneficiary"), and Avanir
Pharmaceuticals, Inc., a Delaware corporation ("Avanir") for the space located
at 11388 Sorrento Valley Road, San Diego, California 92121, as the same may be
amended form time to time. This letter of credit is irrevocable.

Special conditions:

This letter of credit shall automatically renew without amendment for an
additional one year period from the current or for any future expiration date,
unless we shall notify you in writing by certified mail, return receipt
requested or overnight courier at least 60 days prior to the then current
expiration date that this letter of credit will not be renewed. Following such
notification and prior to the expiration of this letter of credit, you may draw
upon this letter of credit by presentation of the sight draft(s) mentioned above
and Beneficiary signed statement certifying that Avanir has failed to provide
substitute letter of credit in the same principal amount, or such reduced
principal amount as may be permitted by Section 1 of the Lease, and on the same
terms as this letter of credit from an issuer reasonably satisfactory to you.

This letter of credit is transferable. Transfer of this letter of credit is
subject to our consent and our receipt of Beneficiary's instructions in the form
attached as Exhibit A, accompanied by the original letter of credit and
amendment(s) if any. All cost or expenses of such transfer shall be for the
account of the Beneficiary.

Partial draws are allowed under this letter of credit.

In no event will this letter of credit be extended beyond a full and final
expiration date of December 31, 2008.<PAGE>   1

The symbol "***" is used throughout this exhibit to indicate that a portion of
the exhibit has been omitted and filed separately with the commission.

                                                                    Exhibit 10.2

                                               CONFIDENTIAL TREATMENT REQUESTED

                                LICENSE AGREEMENT

        This License Agreement (this "Agreement"), dated as of August 01, 2000
(the "Effective Date") is entered into at San Diego, California by and between
AVANIR PHARMACEUTICALS, a California corporation, having an office at 9393 Towne
Centre Drive, Suite 200, San Diego, California, 92121 ("Licensee"), and IRISYS
RESEARCH & DEVELOPMENT, LLC, a California limited liability company, having
offices at 6190 Cornerstone Court East, Suite 106, San Diego, California 92121
("IriSys"). IriSys and Licensee are also referred to individually as "party" and
collectively as "parties."

                                    RECITALS

        WHEREAS, IriSys is the exclusive licensee of certain patents and a
patent application as set forth under an Exclusive Patent License Agreement
between IriSys and the Center For Neurologic Study ("CNS"), dated as of April 2,
1997, and

        WHEREAS, IriSys has developed certain additional technology and know-how
related to the CNS patents, patent application(s) and the medical use of
dextromethorphan or a combination of dextromethorphan with quinidine or other
enzyme inhibitors, and

        WHEREAS, the Exclusive Patent License Agreement between IriSys and CNS
has been amended prior to the Effective Date (the "Amendment"), and

        WHEREAS, Licensee wishes to acquire the exclusive rights to such
patents, patent application, additional technology and know-how held by IriSys
through an exclusive, worldwide sublicense of such patents and patent
application(s) and a license of such additional technology and know-how from
IriSys, and

        WHEREAS, IriSys is willing to grant Licensee an exclusive, worldwide
sublicense of such patents and patent application and a license of such
additional technology and know-how on the terms and conditions set forth in this
Agreement; and

        NOW THEREFORE, in consideration of the mutual covenants contained below,
the parties agree as follows:

                            ARTICLE I - DEFINITIONS

        1.1. "AFFILIATE(S)" of any specified Person means any other Person
which, directly or indirectly, is in control of, is controlled by or is under
common control with such specified Person. For purposes of this definition,
"control of a Person" means the power, direct or indirect, to direct or cause
the direction of the management and policies of such Person whether by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.

                                       1
<PAGE>   2
                                               CONFIDENTIAL TREATMENT REQUESTED

        1.2. "LICENSEE IMPROVEMENTS" means all discoveries and/or inventions
(whether patented or not) made by Licensee during the term of this Agreement
that constitute a modification of Process and/or Product and that would, if
practiced, constitute an infringement of one or more of the Patents.

        1.3. "CONFIDENTIAL INFORMATION" means the terms and conditions of this
Agreement, and all Know-How and other proprietary information which is neither
made freely available nor published nor otherwise made available to the public
through sources entitled to disclose the same, relating to the manufacture, use
and sale of Products or the preparation and sale of a compound that contains
Products or the practice of the Process.

        1.4. "FORCE MAJEURE" as used in this Agreement, means war or
insurrection, fire, flood, strike, labor trouble, work stoppage, embargo,
accident, riot, act of governmental authority, act of God, or contingency beyond
the reasonable control of the parties which prevent performance of obligations
under this Agreement.

        1.5. "GROSS ROYALTY INCOME" means, for the purpose of computing
Licensee's sublicensing royalties under Section 3.2(c) of this Agreement, all
royalty income actually received by Licensee from sublicensees of the Licensed
IP Rights.

        1.6. "LICENSED IP RIGHTS" means Patents, Know-How and IriSys
Improvements sublicensed and licensed under this Agreement.

        1.7. "IRISYS IMPROVEMENTS" means any modification or Process, Product or
both that is made by or on behalf of IriSys during the term of this Agreement,
provided such modification, if unlicensed, would infringe one or more claims of
the Patents. IriSys Improvements does not mean or include developments in
respect of components, materials, or processes useful in practicing the
inventions of Patents, but which do not themselves infringe the licensed claims
of Patents.

        1.8. "KNOW-HOW" means, as of the Effective Date, all business and
technical information of IriSys relating to the Products or the Process or both
that exists as of the Effective Date and that IriSys is free to disclose.

        1.9. "NET SALES" means the sales revenues, receipts and monies directly
or indirectly received by Licensee from sales of Products in the Territory to
Third Parties based on the Net Selling Price.

        1.10. "NET SELLING PRICE" means, for purposes of computing royalties
under Sections 3.2(a) and (b) of this Agreement, Licensee's invoice price for
Products, f.o.b. factory, on an arm's-length trade basis, after deduction of
regular and negotiated trade, Medicaid, governmental, cash, and quantity
discounts, rebates or allowances, transportation costs and costs associated with
returns but before deduction of any other items, including, but not limited to,
agents' commissions.

                                       2
<PAGE>   3
                                               CONFIDENTIAL TREATMENT REQUESTED

        1.11. "PATENTS" all patents issued as of the Effective Date, all patent
applications pending as of the Effective Date and all patents issuing in the
future on the patent application pending as of the Effective Date, as well as
patents issuing from later filed continuations, substitutions or divisionals
thereof, and any reissuances thereof or any other applications or patents to be
issued, that IriSys either owns, or as a licensee, has the right to sublicense
and that cover the Process, Products or both. Such patent rights are limited to
patent applications and patents in the Territory. The patents and patent
application sublicensed under this agreement include the following patents and
patent application of CNS:

               (a)     ***

               (b)     ***

               (c)     ***

               (d)     ***

               (e)     ***

               (f)     ***

               (g)     ***

        1.12. "PERSON" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.

        1.13. "PROCESS" means the methods, specifications, materials, assays,
quality tests and other materials or information useful in preparation of the
Products.

        1.14. "PRODUCTS" means any pharmaceutical dosage, regardless of form,
strength or indication, comprising dextromethorphan and an oxidase inhibitor and
which, but for the licenses granted pursuant to this Agreement, would infringe
the Licensed IP Rights.

        1.15. "TERRITORY" means worldwide, including all countries, territories
and possessions.

        1.16. "THIRD PARTY" means a Person who is not IriSys, Licensee or an
Affiliate of IriSys or Licensee.

        1.17. USAGE OF CERTAIN TERMS. Words and phrases used in this Agreement,
which are not otherwise defined, will be interpreted in accordance with the
common usage for such term in the United States of America. Technical terms
unless otherwise defined will be interpreted consistent with their common usage
in the pharmaceutical or medical fields. Words in the singular include the
plural and vice versa, unless expressly or implicitly limited. Any references in
this Agreement to years, quarters, months, weeks or days refer to calendar
years, quarters, months, weeks or days, unless otherwise specified.

                                       3
<PAGE>   4
                                               CONFIDENTIAL TREATMENT REQUESTED

                              ARTICLE II - GRANTS

        2.1. GRANT. IriSys grants Licensee an exclusive, royalty-bearing
sublicense under the Patents and license under the Know-How and IriSys
Improvements to offer, make, have made, use, lease, export, import, sell and
resell Products, use the Process or both in the Territory. Licensee will have
the right to sublicense or assign the sublicenses and licenses granted under
this Section 2.1 (a) in its sole discretion and without IriSys' approval with
respect to any non-U.S. country of the Territory and (b) with IriSys approval,
in IriSys' sole discretion, with respect to the United States.

        2.2. RELEASE. Without any admission by either party, IriSys hereby
releases Licensee and all purchasers and users of Products acquired, directly or
indirectly, from Licensee from all claims, demands, and rights of action that
IriSys may have on account of any infringement or alleged infringement of any
claim of the Licensed IP Rights prior to the Effective Date.

        2.3. EFFORTS. During the term of this Agreement, Licensee will use
commercially reasonable efforts to expeditiously develop and commercialize the
Products. Attached to this Agreement as Schedule 2.3 is a development timetable
to develop and commercialize the Products including the submission of
appropriate NDAs which are tied to certain milestone payments. Licensee will use
all commercially reasonable efforts to adhere to the development timetable and
will provide IriSys with a written progress report describing its efforts to
adhere to the development timetable and the status of such efforts on a
quarterly basis.

        2.4. COPYRIGHT OR TRADEMARK. No license under any copyright or trademark
of IriSys is granted under this Agreement.

                          ARTICLE III - CONSIDERATION

        3.1. MILESTONE PAYMENTS. Licensee will pay to IriSys the following
milestone payments upon the accepted filing and approval of the NDA for each
application set forth below. Licensee, at its option, may make the first payment
due on completion of the first to occur of the following milestones in common
stock of Licensee, amounting to the number of shares calculated by dividing the
cash milestone amount by the average of the closing price of Licensee stock on
the ten trading days immediately preceding the occurrence of the milestone
event. All shares transferred to IriSys for payment of any milestone will be
free of all transfer fees and other costs.

                                       4
<PAGE>   5
                                               CONFIDENTIAL TREATMENT REQUESTED

<TABLE>
<CAPTION>
                    MILESTONE                        PAYMENT DUE
                    ---------                        -----------
<S>                                                  <C>
EMOTIONAL LABILITY
Accepted filing of NDA                                   $***
Approval of NDA                                          $***

NEUROPATHIC PAIN
Accepted filing of NDA                                   $***
Approval of NDA                                          $***

IF LICENSEE CHOOSES TO DEVELOP THE PRODUCT
FOR THE FOLLOWING INDICATIONS

CHRONIC COUGH
Accepted filing of NDA                                   $***
Approval of NDA                                          $***

DERMATITIS
Accepted filing of NDA                                   $***
Approval of NDA                                          $***

WEANING FROM NARCOTICS
Accepted filing of NDA                                   $***
Approval of NDA                                          $***
</TABLE>

        3.2. ROYALTIES. Subject to the limitations of Sections 3.2(a), 3.2(b)
and Section 16.1, throughout the term of this Agreement, Licensee will pay
IriSys a running royalty with respect to Net Sales Products sold in any country
where Licensee sells Products itself, through its Affiliates, or through
distributors. All royalties will be payable to IriSys on a quarterly basis
within 45 days after March 31, June 30, September 30 and December 31 during the
term of this Agreement. The royalties payable by Licensee to IriSys for any
particular quarter will be determined in accordance with the following
provisions.

               (a)    PATENT ROYALTIES.

                      (i)    EMOTIONAL LABILITY INDICATION.

                      With respect to any Products sold to Third Parties in each
country of the Territory that would, but for the license granted under this
Agreement infringe a valid, issued and unexpired claim of a Patent covering the
emotional lability indication, the Licensee will pay the Patent Royalties set
forth below in Section 3.2(b) from the date the first Product is sold in such
country until the date of expiration or judicially declared invalidity of the
last Patent claim covering such indication in such country.

                                       5
<PAGE>   6
                                               CONFIDENTIAL TREATMENT REQUESTED

                      (ii)   CHRONIC PAIN INDICATION.

                      With respect to any Products sold to Third Parties in each
country of the Territory that would, but for the license granted under this
Agreement infringe a valid, issued and unexpired claim of a Patent covering the
chronic pain indication, the Licensee will pay the Patent Royalties set forth
below in Section 3.2(b) from the date the first Product is sold in such country
until the date of expiration or judicially declared invalidity of the last
Patent claim covering such indication in such country

                      (iii)  CHRONIC COUGH INDICATION.

                      The parties acknowledge and agree that as of the date of
this Agreement, Licensee does not have a development plan for the chronic cough
indication. If the Licensee chooses to develop a product based on the Licensed
IP Rights, then with respect to any Products sold to Third Parties in each
country of the Territory that would, but for the license granted under this
Agreement infringe a valid, issued and unexpired claim of a Patent covering the
chronic cough indication, the Licensee will pay the Patent Royalties set forth
below in Section 3.2(b) from the date the first Product is sold in such country
until the date of expiration or judicially declared invalidity of the last
Patent claim covering such indication in such country.

                      (iv)   DERMATITIS INDICATION.

                      The parties acknowledge and agree that as of the date of
this Agreement, Licensee does not have a development plan for the dermatitis
indication. If the Licensee chooses to develop a product based on the Licensed
IP Rights, then with respect to any Products sold to Third Parties in each
country of the Territory that would, but for the license granted under this
Agreement infringe a valid, issued and unexpired claim of a Patent covering the
chronic cough indication, the Licensee will pay the Patent Royalties set forth
below in Section 3.2(b) from the date the first Product is sold in such country
until the date of expiration or judicially declared invalidity of the last
Patent claim covering such indication in such country.

                      (v)  PRODUCTS FOR WEANING PATIENTS FROM NARCOTICS AND
                           ANTI-DEPRESSANTS.

                      The parties acknowledge and agree that as of the date of
this Agreement, Licensee does not have a development plan for the narcotics and
antidepressant weaning indication. If the Licensee chooses to develop a product
based on the Licensed IP Rights, then with respect to any Products sold to Third
Parties in each country of the Territory that would, but for the license granted
under this Agreement infringe a valid, issued and unexpired claim of a Patent
covering the chronic cough indication, the Licensee will pay the Patent
Royalties set forth below in Section 3.2(b) from the date the first Product is
sold in such country until the date of expiration or judicially declared
invalidity of the last Patent claim covering such indication in such country.

                                       6
<PAGE>   7
                                               CONFIDENTIAL TREATMENT REQUESTED

                      (vi)   GENERIC COMPETITION.

                      Notwithstanding the other provisions of Section 3.2,
wherever and whenever there is a governmentally approved generic product or
products with the same active ingredient(s) which competes with the Product, but
which does not infringe any Patent licensed under this Agreement, Licensee will
not be obligated during any such time, in any such country, to pay the Patent
Royalties with respect to Net Sales of the Product or Products suffering such
generic competition if the market share of the non-infringing generic
competition exceeds ***% as measured by an appropriate third-party market
assessment service, for example IMS data. Market share will be determined on
dollar sales (i.e. the combined retail, wholesale, hospital, government, and HMO
distribution channels) as reported in third-party market assessments. Further,
market share will be determined on a rolling quarterly basis and each quarter
will be calculated separately after the month closes and third-party data become
available. Royalty payments will be suspended for each subsequent month that the
generic market share, determined from the previous rolling quarter, exceeds
***%. Royalty payments will be reinstated, but not retroactive, for each
subsequent month that the generic market share, determined by the previous
rolling quarter, falls to ***% or below.

                      For clarification, the determination of generic
competition and generic market share shall be determined on an individual
Product basis if possible and a combined Product basis in all other
circumstances. Since the parties can not predict at this time if the
formulations and dosage strengths for each Product for each indication will be
different, generic competition from one Product and indication that adversely
affects any other Product for a separate indication will be considered generic
competition to both Products. In such cases, the two (or more) Products and
indications will be combined for the purposes of calculating market share. If
the combined Products and indications market share falls below ***% then the
obligation of the Licensee to pay royalties shall be suspended for all affected
Products until the combined market share exceeds ***% as outlined in the
preceding paragraph.

               (b) ROYALTIES RATES. The Patent Royalty rates will be as set
forth below:

<TABLE>
<CAPTION>
            ANNUAL NET SALES                  PATENT ROYALTY RATE
            ----------------                  -------------------
<S>                                           <C>
Up to $150,000,000                                    ***%
$150,000,001 - $300,000,000                           ***%
$300,000,001 and above                                ***%
</TABLE>

               (c) LICENSEE'S SUBLICENSING ROYALTIES. In consideration for the
right to sublicense the Licensed IP Rights licensed and sublicensed to Licensee
under Section 2.1, Licensee will pay to IriSys a sum equal to ***% of its Gross
Royalty Income after such royalties have been actually received therefor from
each sublicensee by Licensee. Royalties due under this Section will be payable
upon a quarterly basis as set forth in this Section 3.2.

                                       7
<PAGE>   8
                                               CONFIDENTIAL TREATMENT REQUESTED

        3.3. MINIMUM SALES THRESHOLD.

               (a) SALES THRESHOLD. In each calendar year of the Agreement
beginning in the second year after the first marketing of a Product for a
particular indication, Licensee will be required to reach a yearly minimum sales
level for each indication for which a Product is marketed in the United States
as set forth below:

<TABLE>
<CAPTION>
                                 MINIMUM SALES
                                 DURING PATENT
         INDICATION                 PERIOD
         ----------              -------------
<S>                              <C>
Emotional Lability                    $***
Neuropathic Pain                      $***

If Licensee Chooses To
Develop and Market

Chronic Cough                         $***
Dermatitis                            $***
Weaning From Narcotics                $***
</TABLE>

        Licensee will be required to reach ***% of the yearly minimum sales
level beginning in the second year after first marketing of a Product for a
particular indication. Licensee will be required to reach ***% of the yearly
minimum sales level beginning in the third year after first marketing of a
Product for a particular indication and for each year thereafter until
termination of the agreement. The minimum sales levels for each indication for
which a product is marketed are described in the table above.

        Any excess sales for an indication or indications will be applied to any
deficit sales for any other indication or indications in any same year.

               (b) EFFECT OF FAILURE TO MEET THRESHOLD SALES. If Licensee fails
to achieve the sales threshold set forth in Section 3.3(a) in any single year,
IriSys will not be entitled to terminate the licenses granted under this
Agreement pursuant to Article XVI. IriSys' exclusive remedy for Licensee's
failure to achieve the sales threshold set forth in Section 3.3(a) in any single
year will be that the licenses granted under this Agreement will become
non-exclusive 90 days after the date of a notice by IriSys to Licensee invoking
such remedy under this Section. Actual sales will be measured against the
Threshold Sales levels only after the close of a complete calendar year and
sales data from the last month of the year is determined. The default period
will only commence after the close of the calendar year and sales are reported
to IriSys in the normal course of business following the last month of the
calendar year and after IriSys notifies Avanir that a default exists. Avanir
will have the option of curing the failure to meet Threshold Sales by paying the
additional monies necessary that would equal the minimum royalty amount due for
any and all Products and indications at any time prior to expiration of the 90
day cure period. Minimum royalty payments would be calculated as the applicable
royalty rate set forth in Section 3.2(b) times the sales threshold set forth in
Section 3.3(a).

                                       8
<PAGE>   9
                                               CONFIDENTIAL TREATMENT REQUESTED

        3.4. PAYMENT TERMS. To the extent possible under applicable law,
royalties and other payments due under this Agreement will be paid in United
States Dollars ($US). Subject to Section 12.2, as to sales occurring in a
currency other than $US, the amount due will first be calculated in the currency
in which sale occurred and then converted to $US at the closing selling rate for
$US, as quoted in the Wall Street Journal for the last business day of the
fiscal period for which royalty payments are due. Licensee will pay all amounts
owed to IriSys by wire transfer unless otherwise agreed upon in writing between
the parties.

        3.5. INTEREST. Licensee will pay IriSys interest at the rate of 10% per
annum on any payment which is 30 days or more past due. This provision will
survive the termination of this Agreement.

        3.6. ACCRUAL OF ROYALTIES. For the purpose of determining the dates when
earned royalties accrue pursuant to this Agreement, Products will be considered
to be sold upon the earliest to occur of (a) delivery by Licensee of a billing
statement to a Third Party; (b) delivery of the Product by Licensee or (c)
Licensee's receipt of payment for the Product. No royalties will be due to
IriSys for any Products (i) that are sold or delivered by Licensee as
replacements for defective Products, (ii) that are returned by purchasers for
credit, (iii) as to which full credit is granted customers due to defect in the
Products or (iv) that are lost or damaged in transit for which Licensee is not
reimbursed. If Licensee has paid IriSys royalties on the sale of any Product
during a calendar quarter and such Product is replaced, returned or given
credit, lost or damaged as provided in clauses (i)-(iv) in above, Licensee will
be entitled to a credit for such royalties paid against future royalties due for
the quarter in which such Product is replaced, returned or given credit, lost or
damaged.

                        ARTICLE IV - RECORDS AND REPORTS

        4.1. RECORDS. Licensee will keep accurate and sufficient records in
accordance with generally accepted accounting principles to determine amounts
owed to IriSys under this Agreement. Licensee will deliver a written royalty
report detailing the basis for Licensee's royalty computations, along with the
royalty payment then due, no later than 45 days following the end of each
calendar quarter. If no royalty is due for such quarter, the royalty report will
so state.

        4.2. RETENTION AND INSPECTION. Licensee will maintain records necessary
for the computation of royalties payable by Licensee under this Agreement for
five years following each quarter in which a royalty report is due, including
the period for the last royalty report due upon termination of this Agreement.
Upon reasonable notice to Licensee, such records will be available for
inspection by an independent accounting firm selected by IriSys, and reasonably
acceptable to Licensee, during Licensee's regular business hours. Such records
will only be used by the independent accounting firm to determine the accuracy
of the royalties paid and reports submitted under this Agreement. IriSys will
bear the expenses of the audit; provided that Licensee will reimburse IriSys for
such expenses in the event the audit determines that Licensee has underpaid
royalties to IriSys by 4% or more. Licensee will cooperate in good faith with
any audit pursuant to this provision.

                                       9
<PAGE>   10
                                               CONFIDENTIAL TREATMENT REQUESTED

                          ARTICLE V - CONFIDENTIALITY

        5.1. NON-DISCLOSURE AND USE. During the term of this Agreement and for a
period of five years after termination of this Agreement, each party will
maintain Confidential Information in confidence using the same degree of care as
such party takes to safeguard its own proprietary information of the same
general nature, but in no event less than a reasonable degree of care. Each
party will use any Confidential Information obtained directly or indirectly from
the other party in the course of communications and contacts related to this
Agreement solely for purposes licensed under this Agreement.

        5.2. PERMITTED DISCLOSURE. Each party may disclose Confidential
Information as reasonably necessary in order to comply with (a) the federal
securities laws and the rules and regulations of any applicable stock exchange
governing body and (b) the requirements of government regulatory agencies in
order to market or continue to market Products. Each party may, upon prior
written consent of the other party, which will not be unreasonably withheld,
disclose Confidential Information pertaining to the Products or Processes, or
both, to Third Parties in the regular course of business, including any
sublicensee, provided such other Persons agree in writing to abide by
obligations of confidentiality no less stringent than those contained in this
Agreement.

        5.3. EXCEPTIONS. The obligations of confidentiality will not apply to
any information which:

               (a) was known prior to the receipt of such information, as
evidenced by written records or other reliable evidence, and such information
was not directly or indirectly derived from the other party or its Affiliates.

               (b) is or becomes known to the general public through no fault of
Licensee;

               (c) is received without restriction on its disclosure or in good
faith from a Third Party purporting to have the right to transmit the same;

               (d) is independently developed by employees who have had no
access to Confidential Information; and/or

               (e) is required to be disclosed to government authorities or
courts as a result of operation of law, regulation, or court order, provided
however, immediate written notice of any such request by governmental
authorities or courts must be provided to the disclosing party, all reasonable
steps must be taken by Licensee to restrict further disclosure of the affected
information by such authorities or court and information so disclosed will not
be otherwise removed from these confidentiality obligations.

                                       10
<PAGE>   11
                                               CONFIDENTIAL TREATMENT REQUESTED

                      ARTICLE VI - IRISYS REPRESENTATIONS,
                        WARRANTIES AND INDEMNIFICATIONS

        6.1. AUTHORITY. IriSys represents and warrants that it owns or has the
necessary authority to grant the licenses specified in Article II, including
without limitation, the sublicense to the Patents. IriSys has obtained any and
all third party consents or governmental approvals required to grant the
licenses and sublicenses under this Agreement.

        6.2. EXCLUSIVE PATENT LICENSE AGREEMENT. IriSys represents and warrants
that the Exclusive Patent License Agreement between IriSys and CNS, as amended,
is in full force and effect, and IriSys represents and warrants that there has
been no breach, event of default or waiver of a material right by either party
under such agreement, as amended, except as set forth in the Amendment.

        6.3. DISCLAIMER. IRISYS MAKES NO REPRESENTATION OR WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, NOR IS THERE ANY OTHER
EXPRESSED OR IMPLIED WARRANTIES EXCEPT THOSE EXPRESSLY STATED IN THIS ARTICLE.
LICENSEE'S REMEDIES WITH RESPECT TO IRISYS' REPRESENTATIONS AND WARRANTIES ARE
LIMITED TO THOSE EXPRESSLY STATED IN THIS AGREEMENT. LICENSEE IS SOLELY
RESPONSIBLE FOR ITS ACTIVITIES CARRIED OUT UNDER THE LICENSES GRANTED PURSUANT
TO THIS AGREEMENT.

                     ARTICLE VII - LICENSEE REPRESENTATIONS,
                        WARRANTIES AND INDEMNIFICATIONS

        7.1. AUTHORITY. Licensee warrants to IriSys that Licensee has the
authority to enter into this Agreement.

        7.2. ROYALTY REPORTS. The royalty reports and payments provided by
Licensee to IriSys under Section 4.1 will be provided in a timely manner and
will be accurate in all material respects.

        7.3. DAMAGES LIMITS. Licensee represents, warrants and covenants that
Licensee will not claim against IriSys or any IriSys employee, agent, director
or Affiliate any of the claims for damages referenced in Section 6.4 and will
obligate any Licensee Affiliate, sublicensee, agent, employee, contractor or
insurer not to bring such damage claims against IriSys.

                 ARTICLE VIII - PATENT STATUS AND IMPROVEMENTS

        8.1. PROSECUTION AND MAINTENANCE. Licensee will prosecute and maintain
any Patents covered by this Agreement, and will do so on IriSys' or CNS' behalf
and bear all necessary costs therefor. If Licensee elects not to continue to
fund prosecution of any patent application or to maintain any Patent required to
be prosecuted or maintained by IriSys, Licensee will promptly notify IriSys in
writing and IriSys may continue patent prosecution or maintain any such Patent
at IriSys' cost. IriSys agrees to cooperate and obtain the cooperation of CNS in
any manner reasonably necessary to facilitate the maintenance and prosecution of
any Patent by Licensee under this Section 8.1.

                                       11
<PAGE>   12
                                               CONFIDENTIAL TREATMENT REQUESTED

        8.2. IRISYS IMPROVEMENTS. IriSys will continue to own any IriSys
Improvements, provided that such IriSys Improvements will be included within the
scope of the license granted under Section 2.1. If any IriSys Improvement is
determined to be patentable, the parties will consult with each other as to
whether and where to apply for Patents on such IriSys Improvements, but any such
costs and expenses will be paid by Licensee. If Licensee determines not to pay
for the costs of a patent application on any IriSys Improvement, IriSys will
have the right, but not the obligation, to apply for Patents on any such IriSys
Improvement.

        8.3. LICENSEE IMPROVEMENTS. Licensee will own and have sole rights with
respect to any Licensee Improvements. Licensee will have the sole right to apply
for Patents on Licensee Improvements at Licensee's cost and expense.

                           ARTICLE IX - INFRINGEMENT

        9.1. NOTICE. Each party will notify the other party in writing of any
conflicting uses of or any applications or registrations for, the technology
covered by the grants made in Article II, or of any acts of infringement or acts
of unfair competition involving the Licensed IP Rights, promptly after such
party has knowledge thereof or such matters are brought to such party's
attention. Any notice of infringement or unfair competition will provide full
details, including the name of the infringer and all information the notifying
party possesses to substantiate the alleged infringement or unfair competition.
The parties will meet to discuss the appropriate course of action, and may
collaborate in pursuing such course of action.

        9.2. INFRINGEMENTS BY THIRD PARTIES. If the parties do not otherwise
agree on a course of action, Licensee will have the right to pursue and control
the prosecution, prevention or termination of any infringement of the Patents or
exercise of the other Licensed IP Rights during the term of this Agreement.
Licensee may request IriSys in writing to take reasonable steps to assist
Licensee to license such Third Party under the infringed claim(s) of the Patents
or exercise of the other Licensed IP Rights. If such infringer refuses a license
or a license is not appropriate, Licensee may file an appropriate action for
infringement of the infringed claim(s) in its own name, or in IriSys' name if
necessary. If Licensee determines that it is necessary or desirable for IriSys
to join any such suit or action, IriSys will do so at Licensee's expense. In any
event, if an action for infringement of any claim(s) in the Patents or exercise
of the other Licensed IP Rights is filed, Licensee will have the right to
control such litigation and any sums recovered by Licensee will be owned by
Licensee and treated as Net Sales in the year actually received. If Licensee
chooses not to pursue the prosecution or termination of any infringement,
Licensee will promptly notify IriSys to that effect in writing and IriSys will
have the option to pursue the same at its own expense and all sums recovered by
IriSys will be owned by IriSys.

        9.3. LIMITATIONS ON IRISYS' SECTION 9.2 COSTS. It is agreed that IriSys'
total financial responsibility for pursuing any infringement action described in
Section 9.2 will be limited to a total composite sum not exceeding ***% of the
total payments actually paid to IriSys by Licensee under this Agreement. The
above limitation on IriSys' financial responsibility will not apply to (a) any
payments owed by Licensee under this Agreement and subject to offset by Licensee
pursuant to Section 9.4 and (b) any other amounts owed by IriSys to Licensee
described in Section 9.4.

                                       12
<PAGE>   13
                                               CONFIDENTIAL TREATMENT REQUESTED

        9.4. THIRD PARTY INFRINGEMENT CLAIMS AGAINST PATENTS AND EXERCISE OF
OTHER LICENSED IP RIGHTS.

               (a) In the event that any Third Party initiates any legal or
administrative proceeding challenging the validity, scope or enforceability of
all Patent(s) claiming the Products sold on the date of such a challenge in any
particular country of the Territory, then the Licensee's royalty obligation in
such country will be amended during such challenge period such that *** percent
(***%) of Net Sales in such country will continue to be paid by Licensee to
IriSys in accordance with the terms of this Agreement and the remaining
applicable Patent Royalty in such country will be paid ("Escrow Payment") into a
separate account under the control and custody of an independent escrow agent
mutually acceptable to Licensee and IriSys. If the validity and enforceability
of (i) any individual Patent claiming the Products sold in such particular
country is upheld by a court or other legal or administrative tribunal from
which no appeal is or can be taken, then Licensee and IriSys will instruct the
escrow agent to pay the Escrow Payment plus all interest accruing to such Escrow
Payment to IriSys, or (ii) all Patents claiming the Products sold in such
particular country are not upheld by a court or other legal or administrative
tribunal from which no appeal is or can be taken, then Licensee and IriSys will
instruct the escrow agent to pay the Escrow Payment plus all interest accruing
to such Escrow Payment to Licensee less the costs incurred in instructing the
escrow agent concerned. In the event that the validity and enforceability of all
the Patent(s) claiming the Products sold in a particular country are not upheld
by such court or other legal or administrative tribunal, then Licensee will
retain the license granted herein in such country but the future royalty for
such country to be paid by Licensee to IriSys will be limited to the Non-Patent
Royalty for the remaining term of this Agreement.

               (b) If, during the term of this Agreement, Licensee deems it
necessary to seek, exercise or execute a license from any Third Party in order
to avoid infringement during the exercise of the license herein granted, ***
percent (***%) of any royalties or other fees paid to such Third Party under
such license ("Third Party Fee") may be deducted from royalties otherwise due to
IriSys under this Agreement; provided that in no event will the Patent Royalty
paid to IriSys by Licensee be reduced below *** percent (***%) of what would
otherwise have been paid by Licensee in the absence of such a Third Party
license, and provided further that Licensee will be entitled to carry forward
for the remainder of this Agreement any excess deduction to be fully credited
against future Licensee royalty payments to IriSys until the full deduction of
the Third Party Fee has been effected. Prior to the commencement of Licensee
crediting the Third Party Fee against royalty payments made by Licensee to
IriSys, Licensee will notify IriSys of its intention to seek or exercise or
execute a license with a Third Party. In the event that IriSys believes that
such a Third Party license is not required to avoid infringement of Third Party
patents, then IriSys will so notify Licensee in writing, and the parties will
promptly submit such issue thereafter to a mutually acceptable Third Party who
has suitable expertise on the topic in question ("Unaffiliated Expert"), such
Unaffiliated Expert to be chosen by Licensee and IriSys within ten business days
after IriSys' notification. Licensee and IriSys will request resolution within
thirty days after the date of such submission to such Unaffiliated Expert, and
Licensee will be entitled to deduct the Third Party Fee during the period of
time that the Unaffiliated Expert is making a resolution of the matter. The
resolution of the Unaffiliated Expert will be binding on both Licensee and
IriSys. In the event that the Unaffiliated Expert resolves that such a Third
Party license is necessary to avoid infringement of Third Party patents,

                                       13
<PAGE>   14
                                               CONFIDENTIAL TREATMENT REQUESTED

then the costs of engaging such Unaffiliated Expert will be borne by IriSys. In
the event that the Unaffiliated Expert resolves that such a Third Party license
is not necessary to avoid infringement of Third Party patents, then the costs of
engaging such Unaffiliated Expert will be borne by Licensee, any Third Party Fee
pertaining to the Third Party license in question and credited against royalty
payments made by Licensee to IriSys will be refunded in full to IriSys and no
further deductions of the Third Party Fee will be made by Licensee in respect of
such Third Party license.

               (c) In the event of the institution of any suit by a Third Party
against IriSys, Licensee or its Affiliates, its or their permitted sublicensees
or distributors for patent infringement involving the manufacture, use, sale,
distribution or marketing of Products anywhere in the Territory, the party sued
will promptly notify the other party in writing. Licensee will have the right,
but not the obligation, to defend such suit at its own expense. IriSys and
Licensee will provide reasonable assistance to one another and reasonably
cooperate in any such litigation at the other's request without expense to the
requesting party.

               (d) The parties will keep one another informed of the status of
and of their respective activities regarding any litigation or settlement
thereof concerning Products, provided however that no settlement or consent
judgment or other voluntary final disposition of any suit defended or action
brought by a party may be entered into without the consent of the other party if
such settlement would require the other party to be subject to an injunction or
to make a monetary payment or would otherwise adversely affect the other party's
rights under this Agreement or the validity, scope or enforceability of the
Patents.

                          ARTICLE X - RISK ALLOCATIONS

        10.1. MUTUAL LIMIT OF LIABILITY. NEITHER PARTY WILL BE LIABLE TO THE
OTHER PARTY IN CONTRACT, IN TORT (INCLUDING NEGLIGENCE), UNDER ANY WARRANTY, OR
OTHERWISE, FOR ANY SPECIAL, INCIDENTAL, INDIRECT, OR CONSEQUENTIAL DAMAGE
ARISING OUT OF THE PERFORMANCE OF THIS AGREEMENT AND/OR THE PRACTICE OF IRISYS'
KNOW-HOW AND/OR THE PATENTS, INCLUDING, BUT NOT LIMITED TO, LOSS OF USE,
EXPENSES INVOLVING COSTS OF CAPITAL, LOSS OF PROFITS OR REVENUES OR THE LOSS OF
USE THEREOF.

        10.2. MUTUAL INDEMNITY. Each party will defend, indemnify and save
harmless the other party from any and all claims, loss, damage or expense by
reason of any (a) accident, injuries, damages or injury to any person or
property, including property of IriSys or Licensee, that may occur in connection
with or related to the performance of this Agreement, and which is caused in
whole or in part by the negligent act or omission of such indemnifying party or
any product defect design or (b) violations of any federal, state or local laws,
regulations, rules and ordinances which result or arise from the evaluation,
testing, analysis, transportation, storage, disposal or any other handling or
use by each such party or any subcontractor of each such party. This Section
10.2 will not include injuries or damage caused solely and directly by the
negligent act or omission of the indemnified party. If injury or damage is
caused by the joint negligence of IriSys and Licensee, each party will share the
loss arising from such injuries or damage in proportion with its percentage
amount of negligence.

                                       14
<PAGE>   15
                                               CONFIDENTIAL TREATMENT REQUESTED

                            ARTICLE XI - SUBLICENSES

        11.1. SUBLICENSES. Any sublicense and/or assignment of the IriSys
Know-How license under Article II will include a confidentiality provision no
less favorable to IriSys than that of Article V.

        11.2. SURVIVAL OF SUBLICENSES. In the event of termination of this
Agreement, no subsisting sublicense granted therefore by Licensee pursuant to
this Agreement will thereupon terminate, unless such effect is desired by the
sublicensee, but will instead become a direct license as between IriSys and the
party sublicensed. Licensee will include this survival provision in substantial
form and legal effect, in any sublicense agreement between itself and any
sublicensee.

                        ARTICLE XII - TAXES AND PAYMENTS

        12.1. U.S. TAXES. Licensee will pay and bear the expense of local, state
and/or federal government license, sales and use, property and ad valorem taxes
which may be imposed or assessed on it with respect to payments made by Licensee
to IriSys under this Agreement. To the extent any such taxes are imposed by
non-U.S. governments and can be taken as a credit against IriSys' U.S. federal
income taxes, Licensee will receive a credit in such amount against its
liability pursuant to this Agreement.

        12.2. FOREIGN TAXES AND PAYMENTS. Payments under this Agreement are to
be made directly from Licensee to IriSys and will not be subject to imposition
of a foreign withholding tax. If at any time conditions or legal restrictions
exist which conditions or restrictions prevent the prompt remittance of the
royalties due under this Agreement, or if conversion into U.S. dollars pursuant
to the foregoing cannot be effectuated, the parties will cooperate fully with
each other and make reasonable efforts to permit conversion and remittance; if
such efforts will be unsuccessful, Licensee or its Affiliates or sublicensees
will then, as long as such conditions or restrictions will exist in such
country, pay the royalties in the currency of such country to such person,
company or bank in said country, as will be nominated by IriSys.

                        ARTICLE XIII - KNOW-HOW TRANSFER

        13.1. TRANSFER. IriSys will make available to Licensee Know-How in its
possession regarding the Process, Products or IriSys Improvements and instruct
Licensee's representatives in procedures appropriate to the Process to the best
of its ability upon the request of Licensee.

             ARTICLE XIV - GOVERNMENT REGISTRATIONS AND COMPLIANCE

        14.1. COMPLIANCE WITH LAWS. Licensee will comply with and be bound by
the terms of duly issued regulations and laws of the U.S. restricting or
otherwise affecting the use by Licensee of the Licensed IP Rights and
Confidential Information originating in the U.S., whether those regulations and
laws are presently in effect or may become effective at any time during the term
of this Agreement.

                                       15
<PAGE>   16
                                               CONFIDENTIAL TREATMENT REQUESTED

        14.2. FOREIGN LICENSE REGISTRATIONS. Licensee will, from time to time,
when necessary or desirable under local laws execute such documents in generally
approved form, and do such lawful acts as may be required to confirm, perfect,
and register at Licensee's expense the licenses granted in this Agreement. Upon
termination or cancellation for any reason by either party of the licenses
granted in this Agreement, Licensee hereby empowers IriSys, or whomever IriSys
may appoint, to take all necessary steps to cancel any recordation of licenses
granted in this Agreement and Licensee will, at IriSys' request, do all such
lawful acts as may be required to cancel any such recordation.

                              ARTICLE XV - NOTICES

        15.1. NOTICES. Any notices, reports and communications under this
Agreement will be in writing and sent via personal delivery or facsimile and
confirmed in a document delivered by first-class mail or certified mail
addressed as follows:

               If to IriSys:    IriSys Research and Development, LLC
                                6190 Cornerstone Court East, Suite 106
                                San Diego, California 92121
                                Attn:  Chief Operating Officer
                                Facsimile:  (858) 623-1525

               If to Licensee:  Avanir Pharmaceuticals
                                9393 Towne Centre Drive, Suite 200
                                San Diego, California 92121
                                Attn:  Vice President, Commercial Development
                                Facsimile:  (858) 455-8059

        Address for receipt of notice may be changed by either party by giving
the other party at least 30 days prior written notice of such change.

        15.2. EFFECT. The notices specified in Section 15.1 will be effective
upon the first to occur of (a) receipt of the notice via personal delivery or a
complete facsimile transmission of such notice and (b) five days after the date
when a notice, duly addressed to the home office of the addressed party, is
deposited in the United States mails by the other party. Until written notice of
a change of address has been given, the addresses given in Section 15.1 will be
considered the home office of the parties.

                           ARTICLE XVI - TERMINATION

        16.1. TERM. The term of this Agreement will commence on the Effective
Date and will expire on the first anniversary of the date of expiration of U.S.
Patent Number 5,863,927. Upon the expiration of this Agreement, thereafter
Licensee will have a fully paid up, royalty-free perpetual license to the
Patents, Know-How and IriSys Improvements.

                                       16
<PAGE>   17
                                               CONFIDENTIAL TREATMENT REQUESTED

        16.2. TERMINATION. Upon the occurrence of any of the following events of
default, after giving notice to the defaulting party and following the
completion of the cure period set forth below, the non-defaulting party may
terminate this Agreement, in whole or in part, without prejudice to any legal
remedies available to such party:

               (a) the failure by either party to substantially perform or
comply with any material provision of this Agreement (other than Licensee's
failure to meet minimum sales thresholds which is addressed in Section 3.3),
other than as a result of the other party's failure to substantially perform or
comply with the material provisions hereof; or

               (b) the filing of a petition or application under any bankruptcy
act by either party, or the filing of such a petition or application by any
Third Party on behalf of either party where such petition or application is not
dismissed, bonded or otherwise favorably resolved within 60 days.

Upon receipt of a notice of default, the defaulting party will have a period of
60 days in which to cure such default. If the default is not cured within such
period, the non-defaulting party may terminate this Agreement in whole or in
part immediately upon written notice to the other party. Waiver by the
non-breaching party of its right to terminate this Agreement in whole or in part
due to any particular breach of any provisions thereof will not be construed as
a continuing waiver. Following termination of this Agreement in whole under
Section 16.2, Licensee will not have the right to continue to use Know-How or
the IriSys Improvements and all rights to the Licensed IP Rights will revert to
IriSys.

        16.3. OPTIONAL TERMINATION BY LICENSEE. Licensee may terminate this
Agreement at any time, in whole or in part or with respect to all or any single
country in the Territory, by (a) giving IriSys at least 60 days prior written
notice to such effect and (b) making payment to IriSys of any milestone payments
or royalty payments set forth in Section 3.1 or Section 3.2, that have been
incurred or earned in the portion of the Territory subject to such termination
as of the date of such termination. Licensee need not specify any reason for
such termination. In the event of a termination by Licensee pursuant to this
Section 16.3(a), all rights to the terminated portion of the Licensed IP Rights
will revert to IriSys. Licensee will take such actions as may be necessary to
transfer or assign product registrations, if any, to IriSys, and Licensee will
grant a license to IriSys to use Licensee's information, know-how, and data on
Products in those portions of the Territory subject to such termination subject
to the conditions in Section 16.3(a).

               (a) In the event of termination of the License by the Licensee,
IriSys will pay a royalty to the Licensee for all out-of-pocket third-party
expenses directly related to Phase II and Phase III efficacy studies, or other
studies required by the Food and Drug Administration, and used to obtain a
Product registration. Such royalty payments shall continue until all of
Licensee's out-of-pocket third party expenses directly related to Phase II and
Phase III efficacy studies, or other studies required by the Food and Drug
Administration, and used to obtain a Product registration are recovered by
Licensee. Licensee's expenses not eligible for recovery are those which are not
directly related to the above defined out-of-pocket third-party expenses
directly related to Phase II and Phase III studies used to obtain a Product
registration, including but not limited to Licensee's overhead costs and
personnel expenses.

                                       17
<PAGE>   18
                                               CONFIDENTIAL TREATMENT REQUESTED

                    (i)      ***.

                    (ii)     ***.

                    (iii)    ***.

        16.4 SPECIAL TERMINATION. IriSys or Licensee, whoever is the aggrieved
party, may also terminate this Agreement in whole or part as to any Patent,
Know-How, Irisys Improvement, country or indication by written notice to the
other upon the occurrence of any one of the following events: (a) the term of
payments are nullified or modified by any law, governmental decree, order or
regulation; (b) any of the provisions of this Agreement are declared
unenforceable by any governmental authority; or (c) a court determination that
one or more of the material licensed claims of the Patents are invalid.

        16.5   CONSEQUENCES OF TERMINATION.

               (b) REVERSION OF LICENSED IP RIGHTS. Upon termination of this
Agreement in whole or in part as to any country in the Territory, all rights to
the terminated portion of the Licensed IP Rights herein will immediately revert
back to IriSys, except as described in Section 16.5(b), and Licensee will
provide IriSys with all proprietary data pertaining to the subject termination
within 60 days of the termination date, except as described in Section 16.3(a).

               (c) SALE OF PRODUCTS. Licensee will have a reasonable time, not
to exceed 90 days after the date of termination, in which to (i) complete work
in progress on the Products and to sell such Products, (ii) complete the
manufacture and sale of Products for which non-cancelable commitments have been
made, and (iii) dispose of any existing inventory of Products in the normal
course of business.

               (d) ACCRUED OBLIGATIONS. No termination of this Agreement will
affect obligations accrued prior to the date of termination, such as payment of
royalties due on Products made or sold prior to such date. The rights and
obligations of Articles V-VII and Section 9.4 will survive termination of this
Agreement.

               (e) IRISYS BANKRUPTCY. Notwithstanding the bankruptcy of IriSys,
or any other provision of this Agreement, or the impairment of performance by
IriSys of its obligations under this Agreement as a result of bankruptcy of
IriSys, Licensee will be entitled to retain the licenses granted in the
Agreement, subject to IriSys' rights to terminate this Agreement for reasons
other than bankruptcy or insolvency as expressly provided in this Agreement.

                           ARTICLE XVII - ARBITRATION

        17.1. ARBITRATION, VENUE AND JURISDICTION. Any controversy arising out
of, or relating to, this Agreement or any modification or extension thereof,
including any claim for damages or rescission, or both, will be finally settled
exclusively by binding arbitration in San Diego, California (or if applicable
law requires some other forum, then such other forum) in accordance with the
Commercial Arbitration Rules then in effect of the American Arbitration
Association. The parties consent to the jurisdiction of the courts of the State
of California, and of the United States District Court for the Southern District
of California for all purposes in

                                       18
<PAGE>   19
                                               CONFIDENTIAL TREATMENT REQUESTED

connection with arbitration. The parties consent that any process or notice of
motion or other application to either of such courts, and any paper in
connection with arbitration, may be served by certified mail, return receipt
requested or by personal service in accordance with the provisions of Article 15
or in such other manner as may be permissible under the rules of the applicable
court or arbitration tribunal, provided a reasonable time for appearance is
allowed.

        17.2. ARBITRATORS. Selection of the arbitrators will be in accordance
with the rules specified in Section 17.1; provided, however, that in all cases
an odd number of arbitrators will be chosen which shall exceed one. The language
of arbitration and of any decision or award will be English. The award rendered
by the arbitrators will be based upon a majority decision.

        17.3. STATUTE OF LIMITATIONS. The parties further agree that arbitration
proceedings must be requested within four years after the claimed breach
occurred, and that the failure to request arbitration proceedings within such
period will constitute an absolute bar to the institution of any proceedings and
a waiver of all claims.

        17.4. BINDING EFFECT. The parties still further agree that judgment upon
the award rendered by the Arbitrator(s) will be binding on the parties and may
be entered in either of the Courts specified in Section 17.1.

                          ARTICLE XVIII -MISCELLANEOUS

        18.1. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties relating to the subject matter of this Agreement and
supersedes all prior discussions between the parties. There are no terms,
obligations, covenants, express or implied warranties, representations,
statements or conditions other than those set forth in this Agreement. No
variation or modification of this Agreement or waiver of any of its terms or
provisions will be valid unless in writing and signed by both parties.

        18.2. SEVERABILITY. Should any part of this Agreement for any reason be
declared invalid or unenforceable, subject to the parties right to terminate the
Agreement pursuant to Section 16.4, such decision will not affect the validity
or enforceability of any remaining portion, which remaining portion will remain
in force and effect as if the Agreement had been executed with the invalid or
unenforceable portion thereof eliminated. The parties hereby declare their
intention that they would have executed the remaining portion of this Agreement
without including therein any such part or portion which may, for any reason, be
hereafter declared invalid or unenforceable.

        18.3. COMPLIANCE. Each party will comply with any applicable laws and
regulations, including, but not limited to, applicable local, regional or
national safety and environmental legislation.

        18.4. CHOICE OF LAW. This Agreement is to be construed by and
interpreted in accordance with the laws of California, without regard to any
conflict of law principles. All questions concerning the construction or effect
of Patent applications and Patents will be decided

                                       19
<PAGE>   20
                                               CONFIDENTIAL TREATMENT REQUESTED

in accordance with the laws of the country in which the particular Patent
application or Patent concerned has been filed or granted, as the case may be.

        18.5. INDEPENDENT CONTRACTORS. In the performance of this Agreement,
IriSys and Licensee are independent contractors. Neither party nor any of its
employees or agents will be considered an employee or agent of the other party,
nor will any partnership, co-venture or joint-employer relationship be created
or implied by virtue of this Agreement or of its performance. The parties intend
that this Agreement will not create a partnership for tax purposes.

        18.6. ASSIGNMENT. This Agreement may not be assigned by Licensee without
the express written consent of IriSys, which consent will not be unreasonably
withheld, except that Licensee may assign this Agreement in whole or in part to
an Affiliate of Licensee without the consent of IriSys.

        18.7. WAIVERS. Waiver of any one or more defaults or breaches under this
Agreement will not constitute a continuing waiver of the same or any other
default or breach subsequently occurring. IriSys' waiver of its right to
terminate this Agreement for any reason will not be construed as a continuing
waiver. The failure of either party to insist in any one or more instances upon
performance of any provisions of this Agreement will not be construed as a
waiver or relinquishment of any such provision, and the obligation of the other
party with respect to such future performance will continue in full force and
effect.

        18.8. PUBLICITY AND PRESS RELEASES. Notwithstanding any confidentiality
obligation of Licensee pursuant to this Agreement, IriSys acknowledges that
Licensee is a publicly held company and, as such, is required to disclose
material facts, including the execution of this Agreement and its subject
matter. The text of any press releases will be mutually agreed upon by the
parties prior to release to the public.

        18.9. NON-ASSERTION. IriSys agrees that it will not assert any patent
rights that are now owned or later acquired against Licensee or any of
Licensee's customers in any manner that is inconsistent with the rights granted
under Article II.

        18.10. FORCE MAJEURE. If a Force Majeure circumstance occurs, the party
so affected will be excused from the performance of the particular obligation
affected during the period of the Force Majeure circumstance to the extent so
hindered or prevented.

        18.11. GENERAL ASSURANCES. Each of the parties will to execute,
acknowledge and deliver all such further instruments, and to do all such other
acts as may be reasonably necessary or appropriate in order to carry out their
duties and obligations under this Agreement.

                                       20
<PAGE>   21
                                               CONFIDENTIAL TREATMENT REQUESTED

        IN WITNESS WHEREOF the parties have caused this Agreement to be executed
by their duly authorized representatives as of the date first above written.

IRISYS RESEARCH & DEVELOPMENT, LLC     AVANIR PHARMACEUTICALS

By:     /s/ GINA M. STACK              By:    /s/ J. DAVID HANSEN
   --------------------------------       --------------------------------

Name:   Gina M. Stack                  Name: J. David Hansen
     ------------------------------          -----------------------------

Title:  Chief Operating Officer        Title:  Vice President Commercial
       ----------------------------            Development
                                             ------------------------------

Date:   August 01, 2000                Date:  August 01, 2000
      -----------------------------          ------------------------------

                                       21
<PAGE>   22
                                               CONFIDENTIAL TREATMENT REQUESTED

                                  SCHEDULE 2.3

                           DEVELOPMENT PLAN ATTACHED

                                       22
<PAGE>   23
                                               CONFIDENTIAL TREATMENT REQUESTED

                                  SCHEDULE 2.3

                                       ***

                                       23

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